1. Principle

ABB is committed to the highest international standards of corporate governance, and supports the general principles as set forth in the Swiss Code of Best Practice, as well as those of the capital markets where ABB Ltd has its shares listed: the SWX Swiss Exchange and exchanges in Stockholm and New York (where its shares are traded in the form of American depositary shares).

In addition to the provisions of the Swiss Code of Obligations, ABB’s principles and rules on corporate governance are laid down in its articles of incorporation, its standards for corporate governance, the charters of the board committees, the board membership guidelines, several directives (e.g. on insider information) and the code on business ethics. It is the duty of ABB’s Board of Directors to review and amend or propose amendments to those documents from time to time to reflect the most recent developments and practices, as well as to ensure compliance with applicable laws and regulations.

This section of the Annual Report is based on the Directive on Information relating to Corporate Governance published by the SWX Swiss Exchange. Where an item listed in the directive is not addressed in this report, it is either inapplicable to, or immaterial for, ABB.

In accordance with the requirements of the New York Stock Exchange (“NYSE”), a comparison of how the corporate governance practices followed by ABB differ from those required under the NYSE listing standards can be found on ABB’s Web site under: www.abb.com/about

2. Group structure and shareholders

2.1 Group structure
ABB Ltd, Zurich, Switzerland is the ultimate parent company of the ABB Group, which is comprised of 378 subsidiaries (operating and holding companies) worldwide. ABB Ltd has its shares listed on the SWX Swiss Exchange (virt-x) and the exchanges in Stockholm and New York. During 2005 ABB Ltd delisted its shares from the exchanges in London and Frankfurt. The only other company in the ABB Group with listed shares is ABB Limited, Bangalore, India, which is listed on the Mumbai Stock Exchange, National Stock Exchange of India, Ahmedabad Stock Exchange, Delhi Stock Exchange and Kolkata Stock Exchange. Stock exchange table.

The following table sets forth, as of December 31, 2005, the name, country of incorporation, ownership interest and share capital of ABB Ltd, Zurich, Switzerland and its significant subsidiaries:

Company name/ LocationCountry
ABB interest
%
Share capital
in 1,000
Currency
ABB S.A., Buenos AiresARGENTINA100.00
10,510
ARS
ABB Australia Pty Limited, SydneyAUSTRALIA100.00
122,436
AUD
ABB AG, ViennaAUSTRIA100.00
15,000
EUR
ABB Ltda., OsascoBRAZIL100.00
495,810
BRL
ABB Bulgaria EOOD, SofiaBULGARIA100.00
10
BGL
ABB Inc., St. Laurent, QuebecCANADA100.00
301,957
CAD
ABB (China) Ltd., BeijingCHINA100.00
120,000
USD
Asea Brown Boveri Ltda., BogotáCOLOMBIA99.99
485,477
COP
ABB Ltd., ZagrebCROATIA100.00
2,730
HRK
ABB s.r.o., PragueCZECH REPUBLIC100.00
100,100
CZK
ABB A/S, SkovlundeDENMARK100.00
241,000
DKK
Asea Brown Boveri S.A., QuitoECUADOR96.87
315
USD
Asea Brown Boveri S.A.E., CairoEGYPT100.00
82,490
EGP
ABB AS, TallinnESTONIA100.00
25,985
EEK
ABB Oy, HelsinkiFINLAND100.00
10,003
EUR
ABB S.A., Rueil-MalmaisonFRANCE100.00
38,921
EUR
ABB AG, MannheimGERMANY100.00
167,500
EUR
ABB Automation GmbH, MannheimGERMANY100.00
1,050
DEM
ABB Automation Products GmbH, AlzenauGERMANY100.00
20,750
DEM
ABB Beteiligungs- und Verwaltungsges. mbH, MannheimGERMANY100.00
120,000
DEM
ABB Gebäudetechnik AG, MannheimGERMANY100.00
12,315
EUR
Asea Brown Boveri S.A., Metamorphossis AtticaGREECE100.00
1,182
EUR
ABB (Hong Kong) Ltd., Hong KongHONG KONG100.00
20,000
HKD
ABB Engineering Trading and Service Ltd., BudapestHUNGARY100.00
444,090
HUF
ABB Limited, BangaloreINDIA52.11
423,817
INR
ABB Ltd, DublinIRELAND100.00
2,898
EUR
ABB Technologies Ltd., Tirat CarmelISRAEL99.99
420
ILS
ABB S.p.A., MilanITALY100.00
107,000
EUR
ABB SACE S.p.A., Sesto S. Giovanni (MI)ITALY100.00
60,000
EUR
ABB Trasmissione & Distribuzione S.p.A., MilanITALY100.00
3,300
EUR
ABB Technology SA, AbidjanIVORY COAST99.00
178,540
XOF
ABB K.K., TokyoJAPAN100.00
1,000,000
JPY
ABB Ltd., SeoulKOREA, REPUBLIC OF100.00
18,670,000
KRW
ABB Holdings Sdn. Bhd., Subang JayaMALAYSIA100.00
4,490
MYR
Asea Brown Boveri S.A. de C.V., TlalnepantlaMEXICO100.00
419,096
MXN
ABB BV, RotterdamNETHERLANDS100.00
9,076
EUR
ABB Holdings BV, AmsterdamNETHERLANDS100.00
119
EUR
Luwoco Lummus World-wide Contracting (Netherlands) B.V.NETHERLANDS100.00
19
EUR
ABB Limited, AucklandNEW ZEALAND100.00
34,000
NZD
ABB Holding AS, BillingstadNORWAY100.00
800,000
NOK
Asea Brown Boveri S.A., LimaPERU99.99
17,152
PEN
Asea Brown Boveri Inc., Paranaque, Metro ManilaPHILIPPINES100.00
123,180
PHP
ABB Sp. z o.o., WarsawPOLAND96.04
208,843
PLN
ABB S.G.P.S, S.A., AmadoraPORTUGAL100.00
4,117
EUR
Asea Brown Boveri Ltd., MoscowRUSSIA100.00
332
USD
ABB Contracting Company Ltd., RiyadhSAUDI ARABIA65.00
10,000
SAR
ABB Holdings Pte. Ltd., SingaporeSINGAPORE100.00
25,597
SGD
ABB Holdings (Pty) Ltd., SunninghillSOUTH AFRICA80.00
4,050
ZAR
Asea Brown Boveri S.A., MadridSPAIN100.00
33,318
EUR
ABB AB, VästeråsSWEDEN100.00
400,000
SEK
ABB Norden Holding AB, StockholmSWEDEN100.00
459,000
SEK
ABB Asea Brown Boveri Ltd, ZurichSWITZERLAND100.00
2,768,000
CHF
ABB Ltd, ZurichSWITZERLANDParent
5,192,353
CHF
ABB Schweiz AG, BadenSWITZERLAND100.00
55,000
CHF
ABB LIMITED, BangkokTHAILAND100.00
1,034,000
THB
ABB Holding A.S., IstanbulTURKEY99.95
12,844
USD
ABB Ltd., KievUKRAINE100.00
5,860
USD
ABB Industries (L.L.C), DubaiUNITED ARAB EMIRATES49.00
5,000
AED
ABB Holdings Ltd., WarringtonUNITED KINGDOM100.00
203,014
GBP
ABB Ltd., WarringtonUNITED KINGDOM100.00
219,000
GBP
ABB Holdings Inc., Norwalk, CTUNITED STATES100.00
2
USD
ABB Inc., Norwalk, CTUNITED STATES100.00
901
USD
ABB Lummus Global Inc., Bloomfield, NJUNITED STATES100.00
12,400
USD
Asea Brown Boveri S.A., CaracasVENEZUELA100.00
4,899,373
VEB
ABB (Private) Ltd., HarareZIMBABWE100.00
50
ZWD

ABB’s operational group structure is described in the "Financial review" part of this Annual Report.

2.2 Significant shareholders
On March 8, 2005, Investor AB, Sweden announced that it reduced its holdings to 187,374,142 ABB shares, representing 9.1 percent of the company’s share capital as of that date. Based on quarterly reports, Investor AB further reduced its investment so that at the end of June 2005 it held 166,330,142 ABB Ltd shares representing 8.0 percent of the company’s share capital and kept this holding unchanged until December 31, 2005.

To the best of ABB’s knowledge, no other shareholder holds 5 percent or more of ABB’s shares.

2.3 Cross-shareholdings
There are no cross-shareholdings in excess of 5 percent of the share capital or the voting rights between ABB and another company.

3. Capital structure

3.1 Ordinary share capital
As of December 31, 2005, ABB’s ordinary share capital (including treasury shares) amounts to CHF 5,192,353,742.50 divided into 2,076,941,497 fully paid registered shares with a par value of CHF 2.50 per share.

3.2 Changes to the share capital
On November 20, 2003, ABB’s extraordinary shareholders’ meeting resolved to increase ABB’s share capital by CHF 2,100,016,505 by issuing 840,006,602 new shares. Shareholders who did not want to exercise their rights to subscribe for new shares could sell them. A total of 99.4 percent of the rights were exercised. The shares related to unexercised rights were sold in the market and the proceeds were received by ABB. ABB’s new share capital of CHF 5,100,040,085, divided into 2,040,016,034 shares, was registered in the commercial register on December 9, 2003.

Subsequently, ABB issued 30,298,913 shares out of its authorized capital for purposes of fulfilling ABB’s obligations under a plan of reorganization of its U.S. subsidiary Combustion Engineering. In accordance with its then-current articles of incorporation, the pre-emptive rights of the shareholders were excluded and allocated to an ABB subsidiary, which has subscribed for these shares and holds them until they will be contributed to the Asbestos PI Trust, once the plan of reorganization of Combustion Engineering has become effective (for the accounting treatment of these “Asbestos shares” please refer to Notes 17 and 22 of the “Financial review” part of this annual report). The resulting share capital of CHF 5,175,787,367.50 divided into 2,070,314,947 shares was registered in the commercial register on December 15, 2003.

In November 2005, ABB issued 6,626,550 shares to certain of its employees who elected to receive them in connection with the company’s Employee Share Acquisition Plan (for further details see section 7.7). The resulting share capital CHF 5,192,353,742.50 divided into 2,076,941,497 shares was registered in the commercial register on December 13, 2005.

3.3 Contingent share capital
ABB’s share capital may be increased in an amount not to exceed CHF 550,000,000 through the issuance of up to 220,000,000 fully paid shares with a par value of CHF 2.50 per share (a) up to the amount of CHF 525,000,000 (equivalent to 210,000,000 shares) through the exercise of conversion rights and/or warrants granted in connection with the issuance on national or international capital markets of newly or already issued bonds or other financial market instruments, and (b) up to the amount of CHF 25,000,000 (equivalent to 10,000,000 shares) through the exercise of warrant rights granted to its shareholders. ABB’s Board of Directors may grant warrant rights not taken up by shareholders for other purposes in the interest of ABB.

The pre-emptive rights of the shareholders are excluded in connection with the issuance of convertible or warrant-bearing bonds or other financial market instruments or the grant of warrant rights. The then-current owners of conversion rights and/or warrants will be entitled to subscribe for the new shares. The conditions of the conversion rights and/or warrants will be determined by ABB’s Board of Directors.

The acquisition of shares through the exercise of conversion rights and/or warrants and each subsequent transfer of the shares will be subject to the transfer restrictions of ABB’s articles of incorporation (see section 3.5).

In connection with the issuance of convertible or warrant-bearing bonds or other financial market instruments, the Board of Directors is authorized to restrict or deny the advance subscription rights of shareholders if such bonds or other financial market instruments are for the purpose of financing or refinancing the acquisition of an enterprise, parts of an enterprise, participations or new investments or an issuance on national or international capital markets. If the Board of Directors denies advance subscription rights, the convertible or warrant-bearing bonds or other financial market instruments will be issued at the relevant market conditions and the new shares will be issued pursuant to the relevant market conditions taking into account the share price and/or other comparable instruments having a market price. Conversion rights may be exercised during a maximum ten-year period, and warrants may be exercised during a maximum seven-year period, in each case from the date of the respective issuance. The advance subscription rights of the shareholders may be granted indirectly.

ABB’s share capital may be increased by an amount not to exceed CHF 183,433,625 through the issuance of up to 73,373,450 fully paid shares to employees. The pre-emptive and advance subscription rights of ABB’s shareholders are excluded. The shares or rights to subscribe for shares will be issued to employees pursuant to one or more regulations to be issued by the Board of Directors, taking into account performance, functions, levels of responsibility and profitability criteria. ABB may issue shares or subscription rights to employees at a price lower than that quoted on the stock exchange. The acquisition of shares within the context of employee share ownership and each subsequent transfer of the shares will be subject to the transfer restrictions of ABB’s articles of incorporation (see section 3.5).

3.4 Authorized share capital
ABB’s authorized share capital expired in May 2005.

3.5 Limitations on transferability of shares and Nominee registration
ABB may decline a registration with voting rights if a shareholder does not declare that it has acquired the shares in its own name and for its own account. If the shareholder refuses to make such declaration, it will be registered as a shareholder without voting rights.

A person failing to expressly declare in its registration application that it holds the shares for its own account (a “Nominee”), will be entered in the share register with voting rights, provided that such Nominee has entered into an agreement with the Board of Directors concerning its status, and further provided that the Nominee is subject to a recognized bank or financial market supervision. In special cases the Board of Directors may grant exemptions. There were no exemptions granted in 2005.

3.6 Convertible bonds and warrants
For information about outstanding convertible bonds and options on shares issued by ABB, please refer to Notes 14 and 21 of the “Financial review” part of this Annual Report.

4. Shareholders’ participation

4.1 Shareholders’ dividend rights
For shareholders who are residents of Sweden, ABB has established a dividend access facility under which such shareholders have the option to be registered with VPC AB in Sweden and to receive the dividend in Swedish kronor from ABB Participation AB. For further information on the dividend access facility please refer to the articles of incorporation.

4.2 Shareholders’ voting rights
ABB has one class of shares and each registered share carries one vote at the general meeting. Voting rights may be exercised only after a shareholder has been registered in the share register of ABB as a shareholder with the right to vote, or with VPC AB in Sweden, which maintains a sub-register of the share register of ABB.

A shareholder may be represented at the annual general meeting by another shareholder with the right to vote, its legal representative, a corporate body (Organvertreter), an independent proxy (unabhängiger Stimmrechtsvertreter), or a depositary (Depotvertreter). All shares held by one shareholder may be represented by only one representative.

For practical reasons shareholders must be registered in the share register no later than ten days before the general meeting in order to be entitled to vote. Except for the cases described under section 3.5 there are no voting rights restrictions limiting ABB’s shareholders’ rights.

4.3 General meeting
Shareholders’ resolutions at general meetings are approved with an absolute majority of the votes represented at the meeting, except for those matters described in article 704 of the Swiss Code of Obligations and for resolutions with respect to restrictions on the exercise of the right to vote and the removal of such restrictions, which all require the approval of two-thirds of the votes represented at the meeting.

Shareholders representing shares of a par value of at least CHF 1,000,000 may request items to be included in the agenda of a general meeting. Such request must be made in writing at least 40 days prior to the date of the general meeting and specify the items and the motions of such shareholder(s). ABB’s articles of incorporation do not contain provisions on the convocation of the general meeting of shareholders which differ from the applicable legal provisions.

5. Board of directors

5.1 Responsibilities and organization
The Board of Directors defines the ultimate direction of the business of ABB and issues the necessary instructions. It determines the organization of the ABB Group and appoints, removes and supervises the persons entrusted with the management and representation of ABB.

The internal organizational structure and the definition of the areas of responsibility of the Board of Directors, as well as the information and control instruments vis-à-vis the group Executive Committee, are set forth in the regulations of the Board of Directors.

Board meetings are convened by the chairman or upon request by a director or the Chief Executive Officer (CEO).

5.2 Term and members
The members of the Board of Directors are elected at the ordinary general meeting of the shareholders for a term of one year; re-election is possible.

ABB’s board membership guidelines require that the Board of Directors is comprised of a substantial majority of independent directors. Currently all board members are non-executive and independent directors (see also section 5.4), with the exception of Jürgen Dormann who was also CEO until December 31, 2004 in addition to his ongoing function as Chairman.

Members of the Board of Directors of ABB

Jürgen Dormann
Chairman, board member since 1998 and Non-executive board member of ABB, since January 1, 2005; from September 5, 2002 until December 31, 2004 also President and CEO of ABB
Vice-Chairman: sanofi aventis (France), Adecco (Switzerland, as of November 22, 2005)
Board member: Adecco (Switzerland, as of January 1 to November 21, 2005) IBM (U.S., as of February 22, 2005), BG Group (U.K., as of June 1, 2005)

Roger Agnelli
President and CEO of Companhia Vale do Rio Doce (Brazil)
Non-executive board member of ABB, since 2002
Board member: Duke Energy (U.S.), Suzano Petroquimica (Brazil, as of
April 20, 2005)

Louis R. Hughes
Chairman of Manager Technology (U.S.), CEO of GBS Laboratories (U.S.)
Non-executive board member of ABB, since 2003
Board member: AkzoNobel (The Netherlands from April 2006), BT Group (U.K. through March 2006), Electrolux (Sweden, as of April 20, 2005), MTU (Germany as of January 2006) and Sulzer (Switzerland)
Executive Adviser: Windpoint (U.S.)
Louis R. Hughes took a temporary leave of absence from the board until
July, 2005 to serve the United States government as chief of staff of the Afghanistan Reconstruction Group

Hans Ulrich Märki
Chairman of IBM Europe, Middle East and Africa (France)
Non-executive board member of ABB, since 2002
Board member: Mettler Toledo International and Menuhin Festival Gstaad AG (both Switzerland)

Michel de Rosen
Chairman, President and CEO of ViroPharma (U.S.)
Non-executive board member of ABB, since 2002
Board member: Ursinus College and Pennsylvania Biotech (both U.S.)
Member of the advisory board of Paul Capital Partners Royalty Fund and the Global Business Coalition on HIV/AIDS (both U.S.)

Michael Treschow
Chairman of Ericsson, Electrolux and the Confederation of Swedish Enterprise (all Sweden)
Non-executive board member of ABB, since 2003

Bernd W. Voss
Member of the Supervisory Board of Dresdner Bank (Germany)
Non-executive board member of ABB, since 2002
Board member: Allianz Leben, Continental, Quelle, Hapag-Lloyd, Wacker Chemie, Osram (all Germany)

Jacob Wallenberg
Chairman: Investor AB (Sweden)
Non-executive board member of ABB, since 1999
Vice-Chairman: SEB Skandinaviska Enskilda Banken, Atlas Copco AB and SAS AB (all Sweden)
Board member: The Knut and Alice Wallenberg Foundation, W Capital Management AB and The Nobel Foundation (all Sweden)

As of December 31, 2005, none of ABB’s board members holds any official functions or political posts. Further information on ABB’s board members, including details about their nationality, education and professional experience, as well as other activities and functions, is available on ABB’s Web site under: www.abb.com/about

5.3 Cross-involvement
The only cross-involvement among ABB’s board members and the boards of directors of other listed companies is that Louis R. Hughes and Michael Treschow are board members of Electrolux (Sweden).

5.4 Business relationships
This section describes business relationships between ABB and its non-executive board members, or companies and organizations represented by them.

In November 2005, ABB sold its Finnish lease portfolio business to Skandinaviska Enskilda Banken AB (publ) (“SEB”). Also in November 2005, ABB entered into a new 5 billion Swedish krona commercial paper program pursuant to which SEB is an arranger and dealer. Jacob Wallenberg is the Vice-Chairman of SEB.

On July 4, 2005, ABB entered into a new unsecured syndicated $2 billion five-year revolving credit facility, which became available in July 2005. Each of SEB and Dresdner Bank AG has committed to $120 million out of the $2 billion total. Jacob Wallenberg is the Vice-Chairman of SEB and Bernd W. Voss is a member of the Supervisory Board of Dresdner Bank AG.

In June 2003, ABB entered into a ten-year agreement with IBM pursuant to which IBM took responsibility for the operation and support of information systems infrastructure in 15 countries (status as of December 31, 2005) in Europe and North America, representing approximately 90 percent of ABB’s information systems infrastructure. The agreement involved the transfer to IBM of 800 ABB employees, in addition to the 380 employees transferred under pilot programs prior to 2003. The final transfer of responsibilities took place in September 2003. The value of the agreement will approach $1.7 billion over ten years. Hans Ulrich Märki is Chairman of IBM Europe, Middle East and Africa. Jürgen Dormann has been a member of IBM’s Board of Directors since February 22, 2005.

During the year 2005, ABB and its subsidiaries were party to several contracts with Companhia Vale do Rio Doce (CVRD) and its subsidiaries, including contracts for engineering services and the supply of electrical equipment for generation and distribution of power. The largest contract was for supply of electrical equipment with value of approximately $6.4 million. There are also various purchase orders for spare parts and machinery in general, The total value of such contracts and purchase orders is approximately $21.7 million. The exchange rate used to convert Brazilian Reais into U.S. Dollars was R$2.14 to US$1.00. Roger Agnelli is president and CEO of CVRD.

These transactions do not constitute material business relationships, comparing the revenues generated from the business described above to the annual revenues of SEB, Dresdner Bank, IBM and CVRD. Mssrs. Wallenberg, Voss, Märki and Agnelli – as well as the other board members, with the exception of Jürgen Dormann as Chairman and former CEO (until December 31, 2004) – are considered to be independent directors. This determination was made in accordance with the Swiss Code of Best Practice and the independence criteria set forth in the corporate governance rules of the New York Stock Exchange.

5.5 Board committees
The Board of Directors of ABB has appointed from among its members two board committees: the Nomination and Compensation Committee and the Finance and Audit Committee. The duties and objectives of the board committees are set forth in charters issued or approved by the Board of Directors. These committees assist the board in its tasks and report regularly to the board.

5.5.1 Nomination and Compensation Committee
The Nomination and Compensation Committee determines the selection of candidates for the Board of Directors and its committees, plans for the succession of directors and ensures that newly elected directors receive the appropriate introduction and orientation, and that all directors receive adequate continuing education and training to fulfill their obligations. The Nomination and Compensation Committee proposes the remuneration of the members of the group Executive Committee. It also governs the deployment of the ABB people strategy.

The Nomination and Compensation Committee comprises three or more independent directors. Upon invitation by the committee’s chairman, the CEO or other members of the group Executive Committee may participate in the committee meetings, provided that any potential conflict of interest is avoided and confidentiality of the discussions is maintained.

Members and secretary of the Nomination and Compensation Committee:
Members:Hans Ulrich Märki (chairman)
Michel de Rosen
Jacob Wallenberg (until July 2005)
Roger Agnelli (from July 2005)
Secretary:Gary Steel

5.5.2 Finance and Audit Committee
The Finance and Audit Committee oversees the financial reporting processes and accounting practices, evaluates the independence, objectivity and effectiveness of external and internal auditors, reviews audit results and monitors compliance with the laws and regulations governing the preparation of ABB’s financial statements and assesses the processes relating to risk management and internal control systems.

The Finance and Audit Committee comprises three or more independent directors who have a thorough understanding of finance and accounting. As determined by the committee’s chairman for matters related to their respective functions, the head of internal audit, as well as the external auditors, may participate in the Finance and Audit Committee meetings. As required by the U.S. Securities and Exchange Commission (SEC) the Board of Directors has determined that Bernd W. Voss is an audit committee financial expert.

Members and secretary of the Finance and Audit Committee:
Members:Bernd W. Voss (chairman)
Jacob Wallenberg
Roger Agnelli (until July 2005)
Louis R. Hughes (from July 2005)
Secretary:Michel Demaré


5.6 Meetings and attendance
The table below shows the number of meetings held by the Board of Directors and its committees, their average duration, as well as the attendance of the individual board members:

Board of directors
Nomination and compensation commitee
Finance and audit committee
Average duration (hrs)
5.5
2
2.5
Number of meetings
7
5
8
Meetings attended:
Jürgen Dormann
7
Roger Agnelli
5
1
2
Louis R. Hughes*
3
2
Hans Ulrich Märki
6
5
Michel de Rosen
7
5
Michael Treschow
6
Bernd W. Voss
7
8
Jacob Wallenberg
7
2
6

* Louis R. Hughes could only attend the last three meetings of the Board of Directors due to his leave of absence (see section 5.2).

5.7 Ownership of ABB shares and options
The table below shows the number of ABB shares, or equivalent U.S. American depositary shares (ADS), held by each board member as of December 31, 2005:

Number of shares
Jürgen Dormann
737,276
Roger Agnelli
123,265
Louis R. Hughes
51,750
Hans Ulrich Märki
278,628
Michel de Rosen
81,354
Michael Treschow
63,477
Bernd W. Voss
121,343
Jacob Wallenberg
137,046

Jürgen Dormann also holds 1,000,000 warrants granted in connection with the 2003 launch of the Management Incentive Program (see section 7.8. for further details on the Management Incentive Program). With the exception of Jürgen Dormann none of the board members holds any options in ABB shares. No person closely linked to any of the board members holds any shares of ABB or options in ABB shares. Persons closely linked is understood to mean: 1) the spouse; 2) children below the age of 18; 3) persons living in the same household for at least 12 months; 4) legal or natural persons acting as fiduciary; and 5) legal entities controlled by a board member.

5.8 Secretary to the Board of Directors
John G. Scriven is Secretary to the Board of Directors.

6. Group executive committee

6.1 Responsibilities and organization
The Board of Directors has delegated the executive management of ABB to the CEO and the other members of the group Executive Committee. The CEO, and under his direction the other members of the group Executive Committee, are responsible for ABB’s overall business and affairs and day-to-day management. The CEO reports to the board regularly, and whenever extraordinary circumstances so require, on the course of ABB’s business and financial performance and on all organizational and personnel matters, transactions and other issues relevant to the group.

Upon proposal by the Nomination and Compensation Committee, the group Executive Committee is appointed and discharged by the board.

6.2 Members

Fred Kindle
President and CEO

Dinesh Paliwal
Automation Technologies until December 31, 2005
Global Markets and Techology as from January 1, 2006

Michel Demaré
CFO

Gary Steel
Human Resources

Ulrich Spiesshofer
Corporate Development as from November 1, 2005

Peter Smits
Power Technologies until December 31, 2005
No longer a member of the Executive Committee as from January 1, 2006

Bernhard Jucker
Power Products as from January 1, 2006

Samir Brikho
Power Systems as from January 1, 2006

Tom Sjökvist
Automation Products as from January 1, 2006

Veli-Matti Reinikkala
Process Automation as from January 1, 2006

Anders Jonsson
Robotics as from January 1, 2006

Further information about the members of the group Executive Committee, including their nationality, education and professional experience, as well as other activities and functions, is available on ABB’s Web site under: www.abb.com/about

6.3 Management contracts
There are no management contracts between ABB and companies or natural persons not belonging to the ABB Group.

6.4 Ownership of ABB shares and options
As of December 31, 2005, the members of the group Executive Committee held (which does not necessarily equal the numbers granted, if the vesting period has lapsed) the following numbers of shares and options (based on the categorizations described in sections 7.8 and 7.9) provided in the table below. The number of shares to be received under the performance incentive share plan is conditional on achieving the criteria as summarized in section 7.9. The exact number of shares to be received under the 2004 launch will only be known in March 2006. The exact number of shares to be received for the 2005 launch will only be known in March 2008.

Number of shares
Shares
Conditional grants under performance incentive share plan (2004 Launch)*
Conditional grants under performance incentive share plan
(2005 Launch)**
Fred Kindle
2,500
130,480
272,728
Dinesh Paliwal***
111,904
110,475
174,960
Peter Smits
51,000
113,282
184,616
Gary Steel
1,430
89,193
146,854
Michel Demaré***
500
59,001
157,343
Ulrich Spiesshofer
0
15,870
107,955
Number of options
Launch year 2000
Launch year 2003
Fred Kindle
0
0
Dinesh Paliwal***
250,000
1,000,000
Peter Smits
250,000
1,000,000
Gary Steel
0
1,000,000
Michel Demaré***
0
0
Ulrich Spiesshofer
0
0

* Fred Kindle, Michel Demaré and Ulrich Spiesshofer joined ABB during the evalutation period and therefor received a pro rata conditional grant of shares under the 2004 launch
** Ulrich Spiesshofer joined ABB during the evalutation period and therefor received a pro rata conditional grant of shares under the 2005 launch
*** Shares held jointly with his wife.

Other than as stated in the table above as of December 31, 2005 no person closely linked to any member of the group Executive Committee held any shares of ABB or options in ABB shares.

7. Compensation

7.1 Principles of board compensation
The compensation levels of the Board of Directors in 2005 were as follows:
  • Chairman: CHF 1,500,000
  • Member: CHF 250,000
  • Committee chairman: CHF 50,000
  • Committee member: CHF 20,000

The semi-annual payments to board members in 2005 were made in June and November. Board members receive at least 50 percent (and may elect to receive a higher ratio) of their net compensation, i.e. after deduction of social security costs and withholding tax (where applicable), in ABB shares, which they are entitled to receive with a discount of 10 percent of the average share price during a 30-day reference period. During the term of board membership, the ABB shares are kept in a blocked account and may only be disposed of after the respective person has left the Board of Directors.

7.2 Details of board compensation
In 2005, the current board members received the following compensation (the calculation of the number of shares and the cash amount varies according to whether the respective person is subject to taxation at source):

Total annual
compensation
(gross), in CHF
Amount received in cash (net), in
CHF
Number of shares
received
Jürgen Dormann
1,500,000
476,418
63,479
Roger Agnelli
270,000
0
25,022
Louis R. Hughes*
168,333
58,364
7,246
Hans Ulrich Märki
300,000
0
38,129
Michel de Rosen
270,000
93,903
12,511
Michael Treschow
250,000
86,907
11,579
Bernd W. Voss
300,000
0
28,074
Jacob Wallenberg
280,000
97,401
13,029
Total
3,338,333
812,993
199,069

* Louis R. Hughes received a reduced compensation in October 2005 for the first semester as he was on a temporary leave of absence for a portion of that semester (see section 5.2).

With the exception of Jürgen Dormann while having been both Chairman of the Board of Directors and CEO, board members do not receive pension benefits and are not eligible to participate in any of ABB’s incentive programs.

No compensation was paid to former board members.

7.3 Principles of group Executive Committee compensation
Members of the group Executive Committee receive annual base compensation. They are further eligible for annual bonus compensation, determined in accordance with the principles explained in section 7.5.

In addition to receiving annual base and bonus compensation, members of the group Executive Committee may participate in the employee share acquisition plan and the performance incentive share plan. Some members of the group Executive Committee have participated in the earlier launches of ABB’s management incentive plan (MIP). Group Executive Committee members receive customary additional benefits such as a company car and health insurance compensation, which are not material in the aggregate and contributions to children’s education in some cases.

7.4 Details of group Executive Committee compensation
In applying the “cash-out principle” the table below shows the gross payments (i.e. compensation before deduction of employee social insurance and pension contributions) that were made to the members of the group Executive Committee, the bonuses paid in 2005 which are based on 2004 business performance, as well as the employer’s part of the ordinary pension contributions. All members of the group Executive Committee are insured in the ABB Pension Fund, the ABB Supplementary Insurance Plan and the Tödi Foundation (the regulations are available under www.abbvorsorge.ch), with the exception of Dinesh Paliwal, who is insured under the U.S. pension plan (see footnote below). Section 6.4 shows the numbers of conditionally granted shares under the performance incentive share plan. Members of the Group Executive Committee based in Switzerland who are between the ages of 45 and 60 also participated in the Equalization plan, a defined benefits plan capped under Swiss law, within the Tödi Foundation which was established in 2005. In addition to the figures provided in the table below, Michel Demaré, Ulrich Spiesshofer and Peter Smits, but none of the other members of the group Executive Committee as of December 31, 2005, participated in the second launch of the employee share acquisition plan (see section 7.7) with the maximum annual savings amount of CHF 9,000.

Currency
Salary paid in 2005
Bonus 2004 received
Additional compen- sation
Total annual compen- sation
Employer's pension contributi-
ons
Fred Kindle**CHF
1,300,000
400,000
0
1,700,000
412,062
Dinesh Paliwal***USD
732,333
577,125
800,000
2,109,458
511,906
Peter SmitsCHF
878,340
743,850
0
1,622,190
954,844
Gary SteelCHF
697,508
585,675
0
1,283,183
888,726
Michel Demaré**CHF
750,000
0
1,000,000
1,750,000
552,437
Ulrich*** SpiesshoferCHF
108,334
0
0
108,334
23,839
Total*****CHF
4,698,921
2,489,801
2,053,880
9,242,602
3,506,267

* As Dinesh Paliwal has a U.S. employment contract, he received his salary in U.S. dollars. His pension contributions are based on the U.S. pension plan. As previously disclosed in our Annual report on Form 20-F that was filed in May 2005 with the U.S. Securities and Exchange Commission, Dinesh Paliwal was paid the additional compensation of $800,000 in January 2005 as a bonus agreed by the previous management.
** The additional compensation was for share options due to change of employment.
*** Ulrich Spiesshofer joined ABB in November 2005 and therefor received a pro rata share of his salary for 2005.
**** For the purpose of calculating the total, the U.S. dollar amounts relating to Dinesh Paliwal have been converted into CHF at a year-end conversion rate of 1.31735.

7.5 Bonus determination
ABB has a bonus structure to align the performance expectations of its senior managers.

Group Executive Committee members, heads of group functions, business area managers and country managers receive targets and are measured at least 60 percent on ABB Group results.

Resulting bonuses are paid in March each year after full-year results are announced. In applying the scorecard principles, the CEO has a maximum bonus opportunity of 150 percent of his base salary and all other group Executive Committee members have a maximum bonus opportunity of 100 percent of their base salary.

7.6 Employee participation programs
In order to align its employees’ interests with the business goals and financial results of the company, ABB operates a number of incentive plans, linked to ABB’s shares, which are summarized below (for a more detailed description of each incentive plan, please refer to Note 21 of the “Financial review” part of this annual report).

7.7 Employee share acquisition plan (ESAP)
To incentivize employees, ABB has an employee share acquisition plan (ESAP Plan). The ESAP Plan is an employee stock option plan with a savings feature. Employees save over a 12-month savings period, by way of monthly salary deductions. The maximum monthly savings amount is the lower of 10 percent of gross monthly salary or the local currency equivalent of CHF 750. At the end of the savings period, employees choose whether to exercise their stock options using their savings plus interest to buy ABB Ltd shares (American Depositary Shares (ADS) in the case of employees in the United States – each ADS representing one registered share of ABB) at the exercise price set at the grant date, or have their savings returned with interest. The savings are accumulated in a bank account held by a third party trustee on behalf of the participants and earn interest.

The maximum number of shares that each employee can purchase has been determined based on the exercise price and the aggregate savings for the 12-month period, increased by 10 percent to allow for currency fluctuations. If, at the exercise date, the balance of savings plus interest exceeds the maximum amount of cash the employee must pay to fully exercise their stock options, the excess funds will be returned to the employee. If the balance of savings and interest is insufficient to permit the employee to fully exercise their stock options, the employee has the choice but not the obligation, to make an additional payment so that the employee may fully exercise their stock options.

If an employee ceases to be employed by ABB, the accumulated savings as of the date of cessation of employment will be returned to the employee and the employee’s right to exercise their stock options will be forfeited. Employees can withdraw from the ESAP Plan at any time during the savings period and will be entitled to a refund of their accumulated savings.

The exercise price per share and ADS of CHF 10.30 and $7.88, respectively, for the 2005 grant, were determined using the closing price of the ABB Ltd share on SWX Swiss Exchange (virt-x) and ADS on the New York Stock Exchange on November 8, 2005.

7.8 Management incentive plan (MIP)
ABB maintains a management incentive plan (MIP Plan) under which it offers stock warrants and warrant appreciation rights (WARs) to key employees for no consideration.

Warrants granted under the MIP Plan allow participants to purchase shares of ABB at predetermined prices. Participants may sell the warrants rather than exercise the right to purchase shares. Equivalent warrants are listed on the SWX Swiss Exchange, which facilitates valuation and transferability of warrants granted under this plan. If the participant elects to sell the warrant on the market rather than exercise the right to purchase shares, the warrant may then be held by a non-employee of ABB. Each WAR gives the participant the right to receive, in cash, the market price of a warrant on the date of exercise of the WAR. The WARs are non-transferable.

Participants may exercise or sell warrants and exercise WARs after the vesting period, which is three years from the date of grant. Vesting restrictions can be waived in certain circumstances such as death or disability. All warrants and WARs expire six years from the date of grant.

The details of the various unexpired grants are as follows:

Grant
Exercise price in CHF
Subscription ratio
June 2000
42.05
100:25.21
December 2001
13.49
100:25.21
December 2003
7.00
5:1
December 2004
7.50
5:1
February 2006
15.30
5:1

7.9 Performance incentive share plan
ABB has a Performance incentive share plan (Performance Plan) for members of its Executive Committee (EC Members). The Performance Plan involves annual conditional grants of ABB’s stock. The number of shares conditionally granted is dependent upon the base salary of the EC Member. The actual number of shares that each participant will receive free of charge at a future date is dependent on (1) the performance of ABB Ltd shares during a defined period (Evaluation Period) compared to those of a selected peer group of publicly-listed multinational companies and (2) the term of service of the respective EC Member in that capacity during the Evaluation Period. The actual number of shares received after the Evaluation Period cannot exceed 100 percent of the conditional grant.

The performance of ABB compared to its peers over the Evaluation Period will be measured as the sum, in percentage terms, of the average percentage price development of the ABB Ltd share price over the Evaluation Period and an average annual dividend yield percentage (ABB’s Performance).

In order for shares to vest, ABB’s Performance over the Evaluation Period must be positive and equal to or better than half of the defined peers. The actual number of shares to be delivered will be dependent on ABB’s ranking in comparison with the defined peers. The full amount of the conditional grant will vest when ABB’s Performance is better than three-quarters of the defined peers.

If during the vesting period, an EC Member gives notice of resignation or, under certain circumstances, is given notice of termination, then the right to shares is forfeited. In the event of death or disability during the vesting period, the conditional grant size for that participant is reduced pro rata based on the remaining vesting period. If, during the vesting period, a Performance Plan participant ceases to be an EC Member for reasons other than described above, the conditional grant size is reduced pro rata based on the portion of the vesting period remaining when the participant ceases to be an EC Member, unless otherwise determined by ABB’s Nomination and Compensation Committee. In respect of a Performance Plan grant for which the vesting period has not expired, the Nomination and Compensation Committee can invite a new EC Member to receive a conditional grant, adjusted to reflect the shorter service period.

The details of the various unexpired launches are as follows:

Launch yearEvaluation Period
Reference price (in CHF)
2004March 15, 2004, to March 15, 2006
7.68
2005March 15, 2005, to March 15, 2008
7.15

7.10 Compensation to former members of the group Executive Committee
In 2005 ABB did not make any payments to former members of the group Executive Committee.

7.11 Additional fees and remuneration
Other than as disclosed herein, in 2005 none of ABB’s members of the Board of Directors, the group Executive Committee, or persons closely linked to them received any additional fees and remunerations for services rendered to ABB.

8. Loans and guarantees granted to the board of directors or group executive committee

ABB has not granted any loans or guarantees to its board members or members of the group Executive Committee in 2005.

9. Duty to make a public tender offer

ABB’s articles of incorporation do not contain any provisions raising the threshold (opting-up) or waiving (opting-out) the duty to make a public tender offer pursuant to article 32 of the Swiss Stock Exchange and Securities Trading Act.

10. Change of control provisions

ABB does not offer “golden parachutes” to its members of the Board of Directors or senior executives. Consequently none of ABB’s board members, group Executive Committee members or members of senior management are benefiting from clauses on changes of control. Employment contracts normally contain notice periods of 12 months for group Executive Committee members and three to six months for members of senior management, during which they are entitled to running salaries and bonuses.

11. Auditors

11.1 Group auditors and special auditors
Ernst & Young is the group and statutory auditor of ABB. OBT has been elected as special auditor to issue special review reports required in connection with capital increases.

11.2 Duration of the mandate and term of office of the group auditor
Ernst & Young assumed the existing auditing mandate as auditor of the ABB Group in 1994. The head auditor responsible for the mandate, Charles Barone, began serving in this function in May 2003.

11.3 Auditing and additional fees paid to group auditor
The audit fees charged by Ernst & Young for the legally prescribed audit amounted to approximately $31.7 million in 2005. Audit services are defined as the standard audit work performed each fiscal year necessary to allow the auditor to issue an opinion on the consolidated financial statements of ABB and to issue an opinion on the local statutory financial statements.

This classification may also include services that can only be provided by the group auditor such as assistance with the application of new accounting policies, pre-issuance reviews of quarterly financial results and comfort letters delivered to underwriters in connection with debt and equity offerings.

Included in 2005 audit fees are approximately $3 million related to the 2004 audit, which fees were not agreed until after the Company had published its 2004 Annual Report to shareholders.

In addition, Ernst & Young charged approximately $3.1 million for non-audit services performed during 2005. Non-audit services include primarily accounting consultations and audits in connection with divestments, audits of pension and benefit plans, accounting advisory services, tax compliance and other tax services. In accordance with the requirements of the U.S. Sarbanes-Oxley Act of 2002 and rules issued by the U.S. Securities and Exchange Commission (SEC), ABB has, on a global basis, a process for the review and pre-approval ofaudit and non-audit services to be performed by Ernst & Young.

11.4 Supervisory and control instruments vis-à-vis the group auditors
Ernst & Young periodically reads the approved minutes of meetings of our Board of Directors. Ernst & Young is present at the Finance and Audit Committee meetings where audit planning is discussed and the results of our internal audit department’s audit procedures are presented. Ernst & Young also periodically meets with the Finance and Audit Committee to discuss the results of its audit procedures.

12. Information policy

ABB, as a publicly traded company, is committed to communicating in a timely and consistent way to shareholders, potential investors, financial analysts, customers, suppliers, the media and other interested parties. ABB ensures that material information pertaining to its businesses is disseminated in a manner that complies with its obligations under the rules of the stock exchanges where its shares are listed: the SWX Swiss Exchange (traded on virt-x) and exchanges in Stockholm and New York (where its shares are traded in the form of American depositary shares).

ABB publishes an Annual Report consisting of an Operational review, a Financial review and a Sustainability review. The Operational and Financial reviews provide information on the results of ABB’s businesses. The Operational review also provides information on human resources, technology, sustainability and corporate governance. The Financial review provides the audited financial statements for the reported year, as well as a management discussion and analysis of ABB’s business results. The Sustainability review provides information on the company’s performance in environmental management, social responsibility and employee health and safety.

Apart from this Annual Report, ABB also submits an annual report on Form 20-F to the U.S. Securities and Exchange Commission (SEC). In addition, ABB publishes its results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the stock exchanges on which its shares are listed. Press releases relating to financial results and material events are also filed with the SEC on Form 6-K. An archive containing Annual Reports, Form 20-F reports, quarterly results releases and related presentations and conference call webcasts can be found on the ABB Web site (www.abb.com/investorrelations). These presentations are not regularly updated but reflect developments within the company over time. The quarterly results press releases contain unaudited financial statements in accordance with U.S. GAAP.

ABB’s official means of communication is the Swiss Official Gazette of Commerce (www.shab.ch). The invitation to the company’s annual general meeting is sent to registered shareholders by mail.

Inquiries may also be made to ABB Investor Relations:
Telephone: +41 43 317 71 11
Fax: +41 44 311 98 17

ABB's Web site is www.abb.com.

13. Further information on corporate governance

The list below contains references to additional information concerning the corporate governance of ABB, which can be accessed at: www.abb.com
  • Articles of incorporation
  • Regulations of the board of directors
  • CVs of members of the Board of Directors
  • CVs of members of the group Executive Committee
  • Corporate governance charter
  • Charter of the nomination and compensation committee
  • Charter of the finance and audit committee
  • ABB Business ethics brochure 2005
  • Comparison of ABB's corporate governance practices to the New York Stock Exchange rules