A word from the Chairman

“Good governance and control provide support for the creative process at Odd Molly.” Christer Andersson, Chairman of the Board of Odd Molly

The corporate governance report is the Board’s report where we describe for shareholders how we govern Odd Molly and how we actively work with internal control of financial reporting. Odd Molly has grown substantially in recent years. Significant growth requires greater control, stricter governance and expanded areas of responsibility. It also places higher demands on our Management and Board. These are the challenges we at Odd Molly face going forward.

Corporate governance involves more than structure and clarity. It is also about openness toward our shareholders. We want to show off our structures and give all of our shareholders an opportunity to see how we plan to drive Odd Molly forward.

We on the Board of Directors regard an active approach to governance and internal control at Odd Molly as a competitive advantage. We operate in competitive markets, where every business-critical element must be continuously reassessed to give free rein to our true passion, creativity. Good governance and control provide an essential support for the creative process at Odd Molly.

Christer Andersson

Corporate governance

Odd Molly International AB is a publicly listed Swedish company and its corporate governance is therefore based on Swedish rules and legislation, primarily the Swedish Companies Act, NASDAQ OMX’s rules for issuers, the Swedish Code of Corporate Governance, the Articles of Association and other pertinent rules.

Swedish Code of Corporate Governance

Odd Molly has been listed on NASDAQ OMX Stockholm since June 21, 2010. Since 2010 Odd Molly has fully applied the Swedish Code of Corporate Governance. The Board of Directors is responsible for continuously monitoring compliance with the code by the Board and management as well as the company otherwise.

Annual General Meeting

Shareholders exercise their decision-making authority at the Annual General Meeting (AGM), the company’s highest decision-making body. Shareholders who are recorded in the share register and have notified the company have the right to attend the AGM and to vote their shares. Shareholders who are unable to be present in person may be represented by proxy.

Among the matters required to be dealt with at the AGM are the adoption of the consolidated balance sheet and income statement, the appropriation of the company’s profit or loss, the compensation principles for senior executives and the discharge of the Directors and CEO from liability. Based on a proposal from the Nomination Committee, the AGM elects the Directors until the conclusion of the next AGM.

Annual General Meeting 2011

Odd Molly’s Annual General Meeting for the financial year 2011 will be held at 2 PM (CET) on April 26 at Södra Teatern in Stockholm. Information on the time and location, how to notify the company to attend and how shareholders can have an issue brought before the meeting is available on the company's website, www.oddmolly.com, and on page 66 in this annual report.

Nomination Committee

The 2009 AGM resolved that the company will have a Nomination Committee. The mission of the Nomination Committee is to evaluate the sitting Board of Directors and present a proposal on the Directors, the Chairman and Board fees to the next AGM where a Board election is scheduled to be held. In applicable cases, the Nomination Committee also presents a proposal on the auditors and their fees as well as the Chairman of the AGM. The proposals are presented to the Annual General Meeting.

The Nomination Committee for the AGM on April 26, 2012 is comprised of Tom Wikström (Chairman), Christer Andersson and Rutger Arnhult. Prior to the AGM, the Nomination Committee held three meetings at which minutes were kept. No remuneration was paid for participation on the Nomination Committee.

Board of Directors

Odd Molly’s Board of Directors consists of six members elected by the Annual General Meeting and no deputies. The Board of Directors is comprised of Christer Andersson (Chairman), Mia Arnhult, Karin Jimfelt-Ghatan, Patrik Tillman, Nils Vinberg and Karin Wallin-Norman. None of the Directors, except Karin Jimfelt-Ghatan, are employed or have an employment-like relationship with the Group or any subsidiary. The majority of the Directors elected at the AGM are independent in relation to the company and the management. For a more detailed presentation of Odd Molly’s Board of Directors, see page 64.

Board compensation

During the financial year 2011 the Chairman of the Board received fees of SEK 150,000 (150,000) and other members who are not employed by the company received fees of SEK 100,000 (100,000) each. In total, SEK 550,000 (550,000) was paid in Board fees, in accordance with the Board remuneration resolved by the AGM.

Board work

The duty of the Board of Directors is to manage the company’s affairs on behalf of the shareholders. The Board’s work is governed by the Companies Act, the Articles of Association and the current rules of procedure, including the instruction on the delegation between the Board and the CEO.

In 2011 the Board held 14 (13) meetings at which minutes were kept. During these meetings the Board discussed the financial results, balance sheet total, interim reports and annual report, as well as market and risk analysis, the direction of the business and organizational issues.

Number of meetings attended

*Joined the Board at Odd Molly’s AGM on April 22, 2009.

Audit Committee

The Board of Directors has appointed an Audit Committee from among its members whose duty to prepare the Board’s work to assure the quality of the financial reporting. The Audit Committee consists of Directors Karin Wallin-Norman (Chairman), Mia Arnhult and Nils Vinberg. During the year the Audit Committee held three meetings at which minutes were kept, which the company’s CFO and auditor also attended.

Compensation Committee

The Board of Directors has appointed a Compensation Committee from among its members whose duty, within the framework of the compensation guidelines for senior executives established by the AGM, is to prepare compensation issues pertaining to the CEO and other senior executives. The Compensation Committee consists of Directors Christer Andersson (Chairman) and Nils Vinberg. During the year the Compensation Committee held two meetings at which minutes were kept.

Auditors

The auditors are elected by the shareholders at the AGM. The auditors review the company’s annual report, consolidated financial statements and accounting records, as well as the day-to-day administration of the Board and the CEO. Ernst & Young was elected by the 2007 AGM as the company’s auditor for a period of four years and was reelected at the 2011 AGM. The chief auditor is Anders Lindby. The external audit is conducted according to generally accepted accounting principles in Sweden. The auditors have submitted verbal and written reports to the Audit Committee and the Board of Directors on their audit and review of the internal control.

Auditors’ remuneration

The remuneration for the company's auditor, Ernst & Young AB, is payable upon approval. For the financial year 2011 total remuneration amounted to SEK 307,000, of which SEK 253,000 related to the audit fees.

Chief Executive Officer (CEO) and Group management

The CEO manages the Group and its operations within the framework resolved by the Board. The CEO is responsible for keeping the Board of Directors informed of the company's development, reporting on significant deviations from established business plans and events that significantly impact the company's operations, and preparing the necessary background information for the Board of Directors, e.g., regarding the company’s international expansion, investments and other strategically important issues.

Group Management, which is led by the CEO, consists of the managers of key operating areas within Odd Molly. Group Management holds monthly meetings at which minutes are kept and where operational issues are discussed. Moreover, Group Management annually formulates a business plan that is adopted by the Board. Daily contact between members of Group Management is critical to effective governance and management.

On December 31, 2011 Group Management consisted of Anna Attemark (VD), Henk Bossuyt, Johanna Bäckstrand, Per Holknekt, Jennie Högstedt Björk, Karin Jimfelt-Ghatan, Kristin Roos and Håkan Rönnberg. For a more detailed presentation of Group Management, see page 65.

The Chairman conducts an annual performance review of the CEO in accordance with the CEO’s instructions.

Remuneration to the CEO and senior executives

The base salary for the outgoing CEO 2011 amounted to SEK 1,120,000 (1,020,000). The outgoing CEO was entitled to a monthly pension provision corresponding to 16 percent of her base salary. Pension expenses amounted to SEK 192,600 (160,000) in 2011. The company and the CEO had agreed to a term of notice of 12 months if she is terminated by the company and 6 months is she resigned.

On December 14, 2011 Anna Attemark took over as CEO and during the year received a base salary corresponding to SEK 106,500. The new CEO is entitled to a monthly pension provision corresponding to 30 percent of her base salary. The terms of the compensation package for the CEO are resolved by the Board. The company and the CEO have a mutual term of notice of 12 months.

Senior executives refer to seven persons, who together with the CEO formed the Group Management in 2011. The base salaries paid to senior executives, excluding the CEO, amounted to SEK 4,447,900 (4,559,300) in 2011. Odd Molly pays annual premiums to a defined-contribution pension plan corresponding to 8-16 percent of each executive’s total salary. Pension expenses amounted to SEK 776,300 (741,100) in 2011. Senior executives have a term of notice of 3-6 months.

Remuneration to the CEO and other senior executives was paid exclusively by the Parent Company. No variable compensation has been paid.

Incentive program

Odd Molly has one outstanding incentive program based on warrants in Odd Molly International AB. According to the program, which was established by the Extraordinary General Meeting on November 25, 2011 based on a proposal from Odd Molly’s Board of Directors, 300,000 warrants were issued to Odd Molly International AB for transfer to the new CEO and Vice President.

Internal control

The Board of Directors is responsible for corporate governance and internal control. The overarching purpose is to protect the company’s assets and, consequently, the shareholders’ investment. The Board is also responsible for ensuring that financial reporting is prepared in accordance with current laws. By reviewing all critical accounting issues and the financial reports issued by the company, the Board is able to assure the quality of Odd Molly’s financial reporting. This requires the Board to treat issues on internal control, compliance, material uncertainties in reported values, any uncorrected inaccuracies, events after the balance sheet date, changes in estimates and assumptions, any verified irregularities and other conditions that affect the quality of the financial reports.

Control environment

An important part of the internal control is to formulate and establish a number of fundamental policies, guidelines and frameworks for the company’s financial routines and financial reporting. The current finance policy was adopted by the Board on February 18, 2010. The financial handbook, which is updated continuously, is an important tool to assure good internal control over the company’s operations. Operations are monitored and governing documents are revised continuously and communicated to all affected employees. The Board continuously evaluates operations and results through a reporting packet that contains an income statement, balance sheet and key financial ratios as well as other material operational and financial information. The other policies and guidelines established by the Board that are important to internal control are the communication policy, IT policy and gender equality policy. Moreover, the CEO decides on financial job descriptions, which are available to the finance department on the company’s server. Odd Molly has a business area-based organizational structure where each business area manager participates in the company’s management team and is responsible for the performance of their business area. All of Odd Molly’s business areas share the same structure, financial system, chart of accounts and policies, which facilitates efficient routines and control systems.

Risk assessment

Odd Molly works continuously and actively with risk analysis, risk assessment and risk management to ensure that the risks the company is exposed to are managed efficiently within the established framework. The risk assessment includes, among other things, the company’s administrative routines for invoicing and order processing. Balance sheet and income statement items with is a risk of material error are also reviewed continuously. Odd Molly uses prepayments when its credit analysis has a negative outcome or for new, smaller customers, as well as with active control of currency risks.

Control activities

Control structures are designed to manage the risks that the Board of Directors considers material to the internal control of financial reporting. These control structures include of an organization with clearly defined lines of authority, routines and job descriptions. Control activities include reporting on decision-making processes and procedures for important decisions (e.g., new major customers, investments, inventories, contracts, etc.) as well as reviews of all financial reports that are presented.

The financial handbook covers, among other things, control activities such as reconciliations, authorizations, account reconciliations, financial systems and benchmarks. Authorization instructions are updated continuously. The right to authorize payments is also treated in this instruction. Approval is required by at least two persons jointly from the finance department or by the CEO and the CFO.

Information and communications

The company’s governing documents in the form of policies, guidelines and manuals for internal and external communications are updated continuously and communicated internally through the appropriate channels such as internal meetings and internal mail. The company’s communication policy, which contains guidelines on how information is released, applies to communications with outside parties. The purpose of the policy is to ensure that Odd Molly correctly and thoroughly meets all its information obligations according to current laws and regulations.

Monitoring and oversight

The Board continuously monitors the effectiveness of the internal control based on the preparations by the Audit Committee. The Board makes certain that the company’s auditors review the financial report for the third quarter. Lastly, the Board issues a brief report on how internal control was implemented during the year. To date the Board has not found reason to establish a separate internal audit unit, although it evaluates annually whether one is needed.