CORPORATE GOVERNANCE REPORT

As of the 1st of July 2005 applies the Swedish Code of Corpora- AB Kinnevik and Emesco AB, contacted, te Governance, “the Code”. Deviations from the Code are permitted during the third quarter 2006, the major but must be explained. The Corporate Governance Report is prepa- shareholders, Peter van Berlekom as repre- sentative for Alecta, Annika Andersson as red in accordance with the provisions of the Code. The Corporate representative for the 4th Swedish Natio- Governance Report is not a part of the formal annual report and has nal Pension Fund and Mats Guldbrand not been reviewed by the company’s auditor. as representative for AMF Pension; all of whom came to constitute the members of the Nomination Committee. The Nomina- APPLICATION OF THE SWEDISH CODE OF Meeting’s consideration of these issues. The tion Committee represents more than 50 CORPORATE GOVERNANCE tasks of the Nomination Committee include percent of the voting capital in Tele2. The Openness and fl exibility are two of Tele2’s amongst other things: Board member has been most important values, which permeate the › evaluating the Board’s composition and appointed Chairman of the Nomination entire company and are refl ected in the way work; Committee, which deviates from what the the company has adopted the Code. › submitting proposals to the AGM with re- Code prescribes. The other members of the gard to election of Directors of the Board Nomination Committee have declared their SHAREHOLDER INFORMATION and Chairman of the Board; decision regarding election of the Chairman At the end of 2006, Tele2 AB had 43,397 › preparing proposal regarding election of of the Nomination Committee as being in shareholders according to the share register auditors in cooperation with the Audit the best interest of all shareholders, and a maintained by VPC. Tele2 fulfi ls the requi- Committee, when relevant; natural consequence of the fact that Cristi- rements of the Code as well as other acts › preparing proposals regarding fees to the na Stenbeck represents the company’s major and regulations applying to the company Directors of the Board and to the auditors shareholders. Shareholders can submit pro- with regard to providing information to as well as preparing proposal of the Chair- posals for a new Board to the Nomination shareholders. This is primarily achieved by man for the AGM; Committee ahead of the AGM 2007. means of fi nancial reports such as interim › preparing proposal for the administration reports, full year report and annual report and order of appointment of the Nomina- Nomination of Board of Directors and by press releases. The company also tion Committee. The work of the Nomination Committee is carries out investor and analyst meetings. aimed at ensuring that Tele2 has the best Tele2 regularly updates and improves its The principles for appointing members Board possible for securing the company’s corporate web site and fi nancial reports to the company’s Nomination Commit- long-term development. The Nomination in order to increase understanding of tee were determined at the AGM 2006. In Committee’s complete Board proposal the company’s strategies and results. For accordance with these principles, the con- is to be presented in the notice to the further shareholder information including vener Cristina Stenbeck as representative AGM 2007. As a basis for the Nomination information on share capital, voting rights, of Tele2’s largest shareholder Investment Committee’s proposals, the Chairman of trade and market value, see the section “Shares and ownership structure”. GOVERNANCE STRUCTURE

General Meeting The General Meeting is, according to the Swedish Companies Act, the company’s SHAREHOLDERS highest decision-making body. The Annual General Meeting, the AGM, elects the Board and the company’s auditors, and moreover, amongst other things decides on GENERAL MEETING AUDITORS changes in the Articles of Association. At NOMINATION COMMITTEE the AGM shareholders are given the oppor- tunity to speak, put forward proposals and pose questions to the Board and CEO. At Audit committee the AGM the President and CEO submits BOARD OF DIRECTORS reports on the company’s development. Remuneration committee

THE NOMINATION PROCESS The Nomination Committee PRESIDENT AND CEO The Nomination Committee is a body of the AGM that prepares the Meeting’s recommendation on appointments with SENIOR MANAGEMENT the aim of creating a good basis for the

26 Tele2 2006 THE BOARD’S COMPOSITION AND SHAREHOLDINGS IN TELE2 AB AS PER DECEMBER 31, 2006

Name Function Born Nationality Elected Audit Committee Remuneration Committee Independent Shareholding

Mia Brunell Director 1965 Swedish 2006 – Member No – Vigo Carlund Chairman 1946 Swedish 1995 – Member No 24,191 Donna Cordner1 Director 1956 American 2006 – Chairman Yes – John Hepburn Director 1949 Canadian 2005 Member Member Yes 95,015 Daniel Johannesson Director 1943 Swedish 2006 – – Yes 3,000 Jan Loeber Director 1943 American 2004 Member – Yes 22,500 John Shakeshaft Director 1954 British 2003 Chairman – Yes – Cristina Stenbeck Director 1977 American 2003 – – No – the Board, Vigo Carlund, has presented Board. At the constituent Board meeting The Board’s responsibility and the results of the evaluation of the Board following the AGM, the Board decided work procedures and its Directors’ performance in 2006. on the composition of the Remuneration In addition to the division of responsibility The Nomination Committee has worked on Committee and the Audit Committee, and that generally applies according to the Swe- defining demand profiles for the individuals moreover, decided on the allotment of re- dish Companies Act, the annually determi- they consider needs to be recruited to the muneration fee for committee work. These ned work procedures and written instructions Board. The Nomination Committee’s work committees are the Board’s preparatory regulate the Board’s work and the division has been carried out through a number of bodies and do not reduce the Board’s over- of work between the Board on the one hand meetings and discussions. all and joint responsibility for the handling and the CEO and established committees on No specific compensation has been made of the company and the decisions made. All the other. The Board is responsible for Tele2’s by Tele2 to any members in the Nomina- Board members have access to the same overall, long-term strategies and goals and it tion Committee for their work. information, enabling them to be jointly determines budgets and business plans, re- and severally liable. views and approves financial reports, adopts Election of the company’s auditors The Chairman of the Board and the important guidelines, approves investment At the AGM 2004, Deloitte AB, Sweden, Board members are compensated for and personnel proposals, makes decisions in was appointed as the company’s audit firm their board work in accordance with the questions of acquisitions and disposals and until the AGM 2008. In the notice to the resolution passed at the AGM 2006, which monitors the CEO’s work. The Board ensures AGM 2008, the Nomination Committee means that the Board is compensated with the quality of the internal control functions, will present its proposal for election of the a total of SEK 3,750,000 for the period until the financial reports and communicates auditors. The Nomination Committee will the AGM 2007 of which SEK 800,000 are with the company’s auditors mainly through at that time be assisted by the Audit Com- allotted to the Chairman of the Board, SEK regular reports from the Audit Committee mittee in their work. 400,000 to each other Board member, and a and the company’s CFO. Further information total of SEK 150,000 for work in the Board’s about the way the Board ensures the quality Election of the Nomination Committee committees, besides travelling expenses of the internal controls, see under section The Nomination Committee will present a according to submitted invoices. There are “Internal Control Report”. proposal to the AGM 2007 of order for ap- no outstanding share- or share-price-related Tele2 applies a structured and consis- pointing a Nomination Committee ahead incentive programs for the Board. tent process when preparing the financial of the AGM 2008. reports, which are regularly inspected by The composition of the Board senior group management and the Audit THE BOARD AS PER DECEMBER 31, 2006 The Board consists of eight members.1 Committee to improve the quality of the According to Tele2’s Articles of Associa- None of the Directors of the Board is part reports and making sure that the reports tion, the Board shall consist of at least five of senior management in the company are adapted to new accounting standards. and maximum nine members. At the AGM nor is a union representative. Three of the According to Board instructions the Audit 2006, Tele2’s Board was appointed, con- eight (presently seven) Board members, i.e. Committee meets with the CFO and the sisting of eight members without deputies. , Vigo Carlund and Cristina company’s auditors a few days before the Five board members were re-elected and Stenbeck, are considered dependent of publication of each report to approve of the Mia Brunell, Donna Cordner1 and Daniel the company and its senior management. release of the report. Johannesson were elected as new Board These three members are also considered members. The AGM appointed Vigo dependent in relation to the company’s The Board’s work in 2006 Carlund as the Chairman of the Board and major shareholders. The remaining five In the financial year 2006 the Board decided to establish a Remuneration Com- (presently four) Board members are convened five times on different locations mittee and an Audit Committee with the considered independent both in relation to in Europe, whereof one session was a two- composition of both to be decided by the the company and its senior management as days strategy review meeting. In addition, well as in relation to the company’s major seven per capsulam meetings and four 1 Donna Cordner was appointed new Executive Vice Presi- shareholders. 37,5% (presently 28,6%) of telephone conference meetings were held. dent Corporate Finance & Treasury in Tele2 on January 31, 2007, and resigned from the Board with immediate effect. the Board’s members are women. All Board members were present at the Since then the Board consists of seven members. Tele2 2006 27 CORPORATE GOVERNANCE REPORT

Board meetings, with the exception of John and assist the Board in its supervision and Mia Brunell will be as free of conflict in Hepburn, Jan Loeber and Cristina Stenbeck review of the internal and external audit the exercise of their responsibilities on the who were absent from one meeting each. process as well as to review and ensure the committee as if they were independent.2 Each meeting followed an approved agenda quality of the company’s financial reports The Remuneration Committee’s work fol- and the agenda proposal and underlying do- before they are made public. Besides the lows the written instructions and the charter cumentation for each agenda item was sent to supervision of the financial reporting and determined by the Board. The Board has not the Board well in advance of each meeting. audit, the committee has been monitoring delegated any decision-making powers to The Board makes its decisions following the company’s internal control functions. the committee. The committee’s main work an open discussion led by the Chairman. The The Board has delegated the following entails all aspects of remuneration and terms Board regularly deals with Tele2’s strategic decision-making powers to the commit- of employment for senior group management direction and financial goals, which questions tee: the right to establish procedures for as well as to present recommendations to the the Board has devoted much time and ef- accounting, internal control and auditing Board regarding remuneration guidelines, fort to during the year. Some of the major issues; the right to determine the procedure strategy and regulations for this group of decisions the Board has made during the for receiving and dealing with complaints employees. The committee has prepared year are: a number of acquisitions of Russian received by the company with regard to and submitted for approval to the Board a telecom operators; the disposal of the Czech accounting, internal audit controls or proposal for remuneration guidelines for the business; the acquisition of 75.1% of E.ON audit issues, and; the right to manage the CEO and other executives, which will be Broadband; the decision to de-register Tele2 procurement of audit services and approve presented by the Board at the AGM 2007. from SEC’s regulation; the establishment of the audit costs within the framework for the The Remuneration Committee met once a joint-venture with QSC, Plusnet, Germany; decision made by the General Meeting. In in the financial year 2006, and all ordinary the divestment of the French fixed line and the financial year 2006, the committee has members were present at the meeting. broadband business and a goodwill write- had four telephone conference meetings, down and; acquisition of 49% of Spring Mo- which have been held in relation to the GROUP MANAGEMENT bil, Sweden. The Board has also dealt with publication of the year end report and the The President and CEO, Lars-Johan questions regarding an improvement of the interim reports. All committee members Jarnheimer, was born in 1960 in Kalmar, reporting of internal controls and the roll-out have been present at the meetings, with the Sweden and has a M.Sc. in BA. and Eco- of an internal code of business ethics in the exception of John Hepburn who has been nomics from Växjö University. Lars-Johan Tele2 group. Members of senior management absent from one meeting. The CFO and the Jarnheimer has previously held positions have made presentations at Board meetings company’s auditors have been present at all at IKEA, H&M and has been the CEO of and the CEO has presented an update of re- meetings during 2006. The minutes of each ZTV before starting at as deputy levant company information at every Board respective committee meeting have been CEO in 1992. He was CEO of the company meeting. Moreover, the CEO has in monthly communicated to the Board. from 1993 until 1997 and thereafter be- letters to the Board made sure that the Board came Market Area Director for SAAB Au- has received the follow-up they need with re- The Remuneration Committee tomobiles in the Nordic, Baltic and Russian gard to important events in the company. All The Board appoints the members and the regions from 1997 until 1998. He started Board members are educated and familiar Chairman of the Remuneration Commit- his present position as President and CEO with the Stockholm Stock Exchange’s rules. tee. At the constituent Board meeting in of Tele2 AB in March 1999. Lars-Johan May 2006, following the AGM the Board Jarnheimer holds Board positions in the Evaluation of the Board appointed Donna Cordner as Chairman of following external companies: The Chairman of the Board supervises that the committee and Mia Brunell and Vigo International Cellular SA., Modern an annual evaluation of the Board’s work is Carlund as ordinary members. In Decem- Times Group MTG AB, Arvid Nordquist performed, where the Board members are ber 2006, the Board also appointed John Handels AB and INGKA Holding B.V., given the opportunity to share their views Hepburn as new ordinary member of the which is the parent company of IKEA. At on working methods, board material, their committee. Following Donna Cordner’s re- the turn of the year 2006/2007, Lars-Johan own and other Board members’ work as signation from the Board 31 January 2007, Jarnheimer’s ownership in Tele2 was: well as the extent of their assignment. the Board has elected Vigo Carlund as 6,000 B-shares and moreover 47,100 stock Chairman of the Remuneration Committee options in relation to the incentive program The Audit Committee and appointed Daniel Johannesson as new 2002–2007, and moreover 100,000 warrants The Board appoints the members and the ordinary member of the committee. and 200,000 stock options in relation to the Chairman of the Audit Committee. At the According to the Code, Vigo Carlund incentive program 2006–2011. Lars-John constituent Board meeting in May 2006, and Mia Brunell are not considered inde- Jarnheimer has no significant shareholding following the AGM, the Board re-appoin- pendent in relation to the company and its or partnership in companies with which ted John Shakeshaft as Chairman of the management or in relation to the company’s Tele2 has significant business relations. Audit Committee and John Hepburn and major shareholders. The Board however Information on other senior executives can Jan Loeber as ordinary members. considers that Vigo Carlund’s Board chair- be found in Notes on personnel expenses The Audit Committee’s work follows manship as well as his long-standing and and on pages 32–33. the written instructions and charter, which extensive experience and knowledge in re- the Board has developed and determined. muneration issues qualify him to be a most Salary and other remuneration The committee’s main task is to relieve suitable committee member. Furthermore, for senior executives the Board considers that Mia Brunell’s Remuneration issues concerning senior exe- 2 Following Vigo Carlund’s election as Chairman of the experience and knowledge in remuneration cutives are prepared by the Board via the Remuneration Committee, the company, according to the issues will benefit the company and make Remuneration Committee, which submits Code provisions, no longer deviates from the Code and has to provide an explanation regarding his membership of the her a most suitable committee member. proposals of remuneration to the President Remuneration Committee. The Code provisions notwithstanding, and CEO and also defines guidelines for re- the Board believes that Vigo Carlund and muneration to senior group management 28 Tele2 2006 which the CEO applies following approval by ment is the values that are the cornersto- red to follow the principles for following the General Meeting. Incentive programs are nes of ’The Tele2 Way’. The Tele2 Way is up internal controls in accordance with the prepared by the Remuneration Committee, the collective name for our mission, our Sarbanes-Oxley Act, SOX. Nevertheless which submits proposals to the Board, which values and our work procedures. For a there is comprehensive work in progress in turn decides whether to bring the program fast-growing company, attitudes and values to document internal controls relating to the General Meeting for resolution. At the are just as important as competence and to financial reporting and introducing AGM 2007 the Board will present a proposal experience, and we are strongly committed processes to allow regular evaluation of the of remuneration guidelines for group senior to having operations which are marked by effectiveness of such controls. The majority executives for approval by the Meeting. openness. This is reflected in our efforts of the routines implemented in relation to of a strong unity and encouraging straight SOX will to a large extent continue to be Share- and share-price-related answers. All employees take part in a applied within the group. incentive programs program aimed at regularly evaluating how Tele2 has two outstanding incentive well we are measuring up to our values. Control activities programs. For information concerning the The internal control environment The risk assessment results in a number of incentive program 2002–2007 as well as the relating to financial reporting is based on a control activities. The control activities aim incentive program 2006–2011, see Notes clear division of roles and responsibilities at preventing, discovering and correcting on Personal Expenses and Tele2 corporate in the organisation, established and com- mistakes and irregularities, and include for website www.tele2.com. municated decision paths and assignment example analytical follow-up on decisions, of authority and responsibility which are a comparison between income statement AUDITORS documented and communicated in Board items, check lists and automatically controls At the AGM 2004, the registered audit firm instructions, guidelines, manuals, codes through IT systems. A division of work Deloitte AB was appointed the company’s and accounting and reporting instructions. tasks is preferred so that different indivi- auditors for a period of four years. The On group level a well defined “Finance duals conduct, respectively control, an ele- head of audit for Tele2, Jan Berntsson, Manual” is regulary updated and distri- ment. The important control activities are succeeded Tommy Mårtensson at the AGM buted to secure a correct, matched and documented and updated regularly. 2006 and apart from Tele2 is auditor for unanimous financial reporting in all the amongst others, ICA AB. He has no as- group companies. The control of correct Information and communication signments in businesses that are related to reporting takes place locally at first, then The company has clear information and Tele2’s major owners or CEO. During the on market area level and finally on group reporting channels, which form the basis of last three years, Deloitte has performed level. The financial reporting is secured the internal review and external financial services for Tele2 other than the ordinary on these levels through current analyses of reporting. Manuals and guidelines of signi- audit assignments with regard to audit re- detailed monthly financial statements and ficance to financial reporting are regularly lated advice primarily in accounting issues, also through a “hard close process” that updated and communicated to the emplo- which scope of work is further described in well in time before the year end secures the yees concerned. The group management Notes on Remuneration of auditors. quality of the annual accounts. and the Audit Committee report regularly to the Board in accordance with determi- THE BOARD’S REPORT ON INTERNAL CONTROL Risk assessment ned instructions. There are also guidelines The Report on internal controls relating The group management annually conducts which ensure that the company’s external to the financial reporting of the financial an overall risk assessment relating to communication measures up to the high year 2006, has been prepared and issued financial reporting. In addition, the internal requirements for correct information. by the Board in accordance with the Code, audit conducts a comprehensive risk assess- the guidelines produced by FAR (Swedish ment that constitutes the basis of its annual Follow-up Institute of Authorized Public Accoun- audit plan. The internal audit regularly reports to the tants) and the Confederation of Enterprise The internal audit is mainly focused on Audit Committee and makes suggestions and furthermore by applying the transitio- operational auditing but it also covers pro- of improvements. The Board regularly nal rules for 2006 issued by the Swedish cesses that affect financial reporting and evaluates the information it receives from Corporate Governance Board. The report risks of irregularities. Group management’s group management and the Audit Com- describes the organisation of internal con- risk assessment as well as the internal audit mittee. The company’s financial situation trol relating to financial reporting. Internal plan are reviewed by the Audit Committee is addressed at each Board meeting. The control concerning financial reporting is and the Board. Audit Committee reviews every interim a process which involves the Board, the In the risk assessment Tele2 has identi- and annual report prior to publication. The company’s senior management and other fied a number of processes where the risk company’s financial reporting procedures employees, and has been designed to secure for a significant irregularity is relatively are evaluated annually by group manage- the accuracy of the external financial re- higher, dependent on the complexity of the ment to ensure that they cover all important porting.3 The internal control function can process, or where the effects of possible areas which have a bearing on financial re- be divided into five areas, which are; con- mistakes run the risk of being important porting. Recommendations arising from the trol environment; risk assessment; control as the values of the transactions are high. internal and external audits are followed up activities; information and communication These processes include for example the regularly by group management and the Au- and; follow-up; further described below. routines for reporting of acquired compa- dit Committee. The company also applies nies, valuation of intangible fixed assets and a process in relation to the annual accounts Control environment deferred taxes and disputes. whereby the CEOs and financial managers The basis of the internal control environ- During the summer of 2006,Tele2 dere- of subsidiaries submit representation letters,

3 Financial reporting includes interim reports, full year report gistered from the Securities and Exchange which deal with information of importance and annual report. Commission, SEC, and is no longer requi- to the financial statements.

Tele2 2006 29