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Item 6. Directors, Senior Management and Employees6.C Board practicesCorporate governanceCorporate governance overviewOur corporate governance frameworkGovernance bodiesGeneral Meeting of ShareholdersApproves operating and financial review, Novartis Group consolidated financial statementsand financial statements of Novartis AG; decides appropriation of available earnings and dividend;approves compensation of Board and Executive Committee; elects Board members, Chairman,Compensation Committee members, Independent Proxy and external auditors;adopts and modifies Articles of IncorporationExternal auditorBoard of DirectorsAudit nce,Nomi nation andCorporateResponsibilitiesCommitteeResearch &DevelopmentCommitteeSets strategic direction of Novartis, appoints and overseeskey executives, approves major transactions and investmentsExecutive CommitteeResponsible for operational management of NovartisOur corporate governance framework consists of rulesthat support sustainable financial performance and longterm value creation for our shareholders and that arealigned with our Values and Behaviors rate-governance). Developments are continuously monitored andresult in enhanced principles, processes and disclosuresin line with our commitment to maintaining the higheststandards.RiskCommitteeProvides opinion on complianceof Novartis Group consolidatedfinancial statements andthe financial statements ofNovartis AGwith applicable standards andSwiss law, on compliance ofthe Compensation Report withapplicable law, on effectivenessof internal controls over financialreporting, and on the corporateresponsibility reporting ofNovartis Novartis AG shareholders do not receive written reportsdirectly from Board committees. External auditors are appointed by shareholders at theAnnual General Meeting of Shareholders (AGM), asopposed to being appointed by the Audit and Compliance Committee. While shareholders cannot vote on all equity compensation plans, they are entitled to hold separate, yearlybinding votes on Board and Executive Committee compensation. The Board has set up a separate Risk Committee thatis responsible for business risk oversight, as opposedto delegating this responsibility to the Audit and Compliance Committee. The full Board is responsible for overseeing the performance evaluation of the Board and ExecutiveCommittee. The full Board is responsible for setting objectives relevant to the CEO’s compensation and for evaluating hisperformance.Laws and regulationsNovartis AG is subject to and compliant with the laws andregulations of Switzerland (in particular, Swiss companyand securities laws, SIX Swiss Exchange rules and theSwiss Code of Best Practice for Corporate Governance)and the securities laws of the United States, includingNew York Stock Exchange (NYSE) rules, as applicableto foreign private issuers of securities. The NYSE listingstandards on corporate governance require Novartis AGto describe any material ways in which its corporate governance practices differ from those of domestic listedUS companies. These differences are: 172

Item 6. Directors, Senior Management and EmployeesBoard and Executive CommitteecompensationCompensation to Executive Committee members comprises fixed and variable, performance-related compensation. Fixed compensation is comprised of the base salary and may include other elements and benefits suchas contributions to pension plans. Variable compensation may comprise short-term and long-term compensation elements. If the maximum aggregate amount ofcompensation already approved by the AGM is not sufficient to cover the compensation of newly appointed orpromoted Executive Committee members, Novartis maypay out compensation, in a total amount up to 40% of thetotal maximum aggregate amount last approved for theExecutive Committee per compensation period, to newlyappointed or promoted Executive Committee members.Information on Board and Executive Committee compensation is outlined in our Compensation Report (see“—Item 6.B Compensation”). Please also refer to articles29-35 of the Articles of Incorporation rate-governance) stipulating the Board and Executive Committeecompensation provisions. According to the general compensation principles as outlined in the Articles of Incorporation, the compensation of the non-executive Boardmembers comprises fixed compensation elements only(no Company contributions to any pension plan, no performance-related elements and no financial instruments). 173

Item 6. Directors, Senior Management and EmployeesOur Group structure and shareholdersOur Group structureMajority holdings in publicly traded GroupcompaniesNovartis AG and Group companiesThe Novartis Group owns 70.7% of Novartis India Ltd.,with its registered office in Mumbai, India, and listed on theBombay Stock Exchange (ISIN INE234A01025, symbol:HCBA). The total market value of the 29.3% free float ofNovartis India Ltd. was USD 74.7 million at December 31,2018, using the quoted market share price at year-end.Applying this share price to all the shares of the company, the market capitalization of the whole companywas USD 254.8 million, and that of the shares owned byNovartis was USD 180.1 million.Novartis AG, with its registered office at Lichtstrasse35, CH-4056 Basel, Switzerland, is a corporation organized under Swiss law that has issued registered shares.As the holding company, Novartis AG owns or controls directly or indirectly all entities worldwide belonging to the Novartis Group and conducting its businessoperations. The principal Novartis subsidiaries and associated companies are listed in Note 31 to the Group’sconsolidated financial statements.DivisionsSignificant minority shareholding owned by theNovartis GroupThe Novartis business is divided on a worldwide basisinto three operating divisions: Innovative Medicines, withthe two business units Novartis Pharmaceuticals andNovartis Oncology; Sandoz (generics); and Alcon (eyecare). These businesses are supported by a number ofglobal organizations, including the Novartis Institutes forBioMedical Research (NIBR), which focuses on discovering new drugs; the Global Drug Development organization, which oversees the clinical development of newmedicines; and Novartis Operations, which includesNovartis Technical Operations (the global manufacturing organization) and Novartis Business Services (whichconsolidates support services across Novartis). On June29, 2018, Novartis announced plans to separate the Alconbusiness from the rest of Novartis by means of a spin-offsubject to an approval by the shareholders at the AGMon February 28, 2019.alsticueacOur shareholdersSignificant shareholdersAccording to the Novartis Share Register, as of December 31, 2018, the f ollowing registered shareholders (including nominees and the ADS depositary) held more than2% of the total share capital of Novartis AG, with the rightto vote all their Novartis shares based on an exemptiongranted by the Board (see “—Item 6.C Board practices—Shareholder participation rights—Voting rights, restrictions and representation”):1 Shareholders: Novartis Foundation for Employee Partici pation, with its registered office in Basel, holding 2.3%;Emasan AG, with its registered office in Basel, holding3.5%; and UBS Fund Management (Switzerland) AG,with its registered office in Basel, holding 2.2% Nominees: Chase Nominees Ltd., London, holding9.8%; Nortrust Nominees Ltd., London, holding 3.6%;and The Bank of New York Mellon, New York, holding4.1% through its nominees, The Bank of New York Mellon, Everett, holding 2.1%, The Bank of New York Mellon, New York, holding 1.3% and the and The Bank ofNew York Mellon SA/NV, Brussels, holding 0.7% ADS depositary: JPMorgan Chase Bank, N.A., NewYork, holding 13.3%haCorporatermfunctiBusinesonc olo gOnNBS)ces (rviseyssPThe Novartis Group owns 33.3% of the bearer sharesof Roche Holding AG, with its registered office in Basel,Switzerland, and listed on the SIX Swiss Exchange (ISINCH0012032113, symbol: RO). The market value of theGroup’s interest in Roche Holding AG, as of December31, 2018, was USD 12.9 billion. The total market value ofRoche Holding AG was USD 212.2 billion. Novartis doesnot exercise control over Roche Holding AG, which isindependently governed, managed and operated.SandozMan ufa c t u ri n g ( N TO)A lc o n1 174Excluding 4.6% of the share capital held as treasury shares by Novartis AG or its fullyowned subsidiaries

Item 6. Directors, Senior Management and EmployeesAccording to a disclosure notification filed with NovartisAG, Norges Bank (Central Bank of Norway), Oslo, held2.1% of the share capital of Novartis AG but was not registered in the Novartis Share Register as of December31, 2018.According to disclosure notifications filed with NovartisAG and the SIX Swiss Exchange, each of the followingshareholders held between 3% and 5% but was not registered or registered with less than 2% of the share capital of Novartis AG as of December 31, 2018:- BlackRock Inc., New York- The Capital Group Companies Inc., Los AngelesDisclosure notifications pertaining to shareholdingsin Novartis AG that were filed with Novartis AG and theSIX Swiss Exchange are published on the latter’s electronic publication platform and can be accessed ations/significant-shareholders.html.Number of shares heldCross shareholdingsRegistered shareholders by typeNumber ofregisteredshareholders% of registeredshare capital1–10025 1930.06101–1 00098 6291.611 001–10 00035 4583.86As of December 31, 201810 001–100 000100 001–1 000 0003 1303.184585.411 000 001–5 000 000624.895 000 001 or more 13050.22162 96069.23Total registered shareholders/sharesUnregistered shares30.77Total1Novartis AG has no cross shareholdings in excess of5% of c apital, or voting rights with any other company.Including significant registered shareholders as listed aboveAs of December 31, 2018Individual shareholdersDistribution of Novartis sharesLegal entities 1The information in the following tables relates only toregistered shareholders and does not include holders ofunregistered shares. Also, the information provided in thetables cannot be assumed to represent the entire NovartisAG i nvestor base because nominees and J PMorganChase Bank, N.A., as ADS depositary, are registered asshareholders for a large number of beneficial owners.As of December 31, 2018, Novartis AG had approximately 163 000 registered shareholders.Nominees, fiduciariesand ADS depositaryTotal1100.00Shareholders in %Shares in %96.3612.873.5832.580.0654.55100.00100.00Excluding 4.6% of the share capital held as treasury shares by Novartis AG or its fullyowned subsidiariesRegistered shareholders by countryAs of December 31, 2018Shareholders in %Shares in 0.190.73Luxembourg0.050.53Switzerland 188.1742.11United Kingdom0.5224.64United States0.3626.81Other countriesTotal3.161.83100.00100.00Registered shares held by nominees are shown in the country where the company/affiliate entered in the Novartis Share Register as shareholder has its registered seat.1Excluding 4.6% of the share capital held as treasury shares by Novartis AG or its fullyowned subsidiaries 175