Machine Translated by Google December, 2003 Recommendation on corporate governance systems for listed companies (Corporate Governance) Machine Translated by Google Corporate Governance Working Group On 17 February 2003, HEX Oyj, the Central Chamber of Commerce and the The secretariat of the working group has included Jaakko Raulo, Director, Confederation of Finnish Industry and Employers set up a working group (the and Tiina Kairinen, a lawyer from HEX Corporation, Leena Linnainmaa, Head of “Corporate Governance Working Group”) to examine the need to reform the 1997 Department at the Central Chamber of Commerce, and Antti Maijala, Head of recommendation of the Central Chamber of Commerce and the Confederation of Department at the Confederation of Finnish Industry and Employers. Background Finnish Industry and Employers on the governance of listed companies. The founders reports for the working group have been prepared by Salla Tuominen, a lawyer, of the working group stated that the establishment of the Corporate Governance and Sari Suvanto, an expert from HEX Oyj, and Anne Horttanainen, a lawyer from working group is based on the growing importance of the operation of the the Central Chamber of Commerce. management and control systems of listed companies and the provision of information The working group met 19 times in March-November 2003. about them. In recent years, several foreign corporate governance recommendations In order to draft the recommendation, the Working Party has examined and regulations have also been reformed, and there is a need to look at Finnish recent developments in corporate governance, in particular in the European practices from this perspective as well. Union and the United States. The working group has also clarified the practices followed in Finnish listed companies. During its work, the working group has heard Anna-Maija Simola, Director of Lama Pekka Merilampi was invited to chair the working group. Speech at the Authorized Public Accountants Association, Petri Kuusisto, Investment Director of Varma-Sampo Mutual Pension Insurance Company, and Pekka Timo, a The members of the working group have acted consulting officer at the Ministry of Trade and Industry. Dipl.ekon., KHT Lars Blomquist The working group has decided to propose the following to listed companies General Counsel Ilona Ervasti-Vaintola the adoption of a directional recommendation on corporate governance. At General Counsel Jyrki Kurkinen the same time, the Working Party notes that corporate governance practices are General Counsel Anne Leppälä-Nilsson not internationally established and will continue to evolve. Domestic and international Elmar Paananen, Deputy Chairman of the Board developments therefore need to be monitored and the recommendation updated as General Counsel Ursula Ranin necessary. President and CEO Jukka Ruuska Chairman of the Board Matti Vuoria 2 Machine Translated by Google Content 1 Introduction ................................................ .................................... 4 6 CEO ................................................ ............................ 11 Recommendation 37 Appointment Objectives of the Recommendation ................................................ ........................ 4 of the CEO ................. ............... 11 Recommendation 38 CEO Agreement ............................... ............ Structure of the recommendation ................................................ .......................... 4 11 Recommendation 39 Information to be reported on the President and CEO .................... 11 Application of the Recommendation ................................................ ................. 4 Recommendation 40 President and CEO and Chairman of the Board ..... ..... 11 2 Annual General Meeting ................................................ ................................... 5 Recommendation 1 Provision of prior information to shareholders ..... 5 Recommendation 2 7 Other management ............................................... ................................... 12 Recommendation Organization of the Annual General Meeting .................................. 5 Recommendation 3 41 Management organization .......... ...................................... 12 Recommendation 42 Information Participation of the members of the Board of Directors and the President and CEO in the Annual to be reported on the members of the Management Team ..... ....... 12 General Meeting ............................... 5 Recommendation 4 Attendance of the candidate for the Board of Directors at the Annual General 8 Remuneration ................................................ .............................. 12 Meeting ...... .................................................. 5 Remuneration of the members of the Board of Directors ............................................... ..12 Recommendation 43 Remuneration and other benefits of the members of the Board of Directors ... 12 3 Management Board ................................................ ........................... 6 Recommendation 44 Payment of the remuneration of the members of the Board of Directors in Recommendation 5 Limitation of the powers of the Management Board ................. 6 shares ................ 12 Recommendation 45 Participation of a member of the Board of Directors Recommendation 6 Information on the Management Board ............................ 6 to the share - based payment plan ... 12 Recommendation 46 Share and equity derivatives of the members of the Board of Directors 4 Board of Directors ....................................................................................6 information on fees ........................................ 12 Recommendation 7 Rules of Procedure of the Board of Directors ............................................. 6 Recommendation 8 Board meetings ................................................ 6 Remuneration of the President and CEO and other management of the company .................. 13 Recommendation 9 Evaluation of the Board's activities ................................... 6 Recommendation 47 Remuneration system and decision-making procedure for Recommendation 10 Election of members of the Board of Directors ....................................... 6 remuneration .................. ......................... 13 Recommendation 11 Number of members of the Board of Directors. .............................. 7 Recommendation 48 Employment information ........................... 13 Recommendation 12 Term of office of the members of the Board of Directors .............. ................... 7 Recommendation 13 Notification of candidates for membership 9 Internal control, risk management to shareholders ................................................. ... 7 Recommendation 14 and internal audit ............................................... ...................... 13 Recommendation 49 Internal Special order of appointment of members ...................... 7 Recommendation 15 Qualification of control policy .................. 13 Recommendation 50 Risk management organization ............................... members of the Board of Directors ............. ..................... 7 Recommendation 16 Access to 13 information by members of the Board of Directors ....................... ...... 7 Recommendation 17 Recommendation 51 Internal audit .............................................. ..... 13 Independence of the members of the Board of Directors ..................... 7 Recommendation 18 Assessment of independence ............ ........................ 8 Recommendation 19 Information to be 10 Insider Administration ................................................ ......................... 14 Recommendation provided about the members of the Board of Directors .................. 8 Recommendation 20 Duty 52 Compliance with the insider guidelines of the Helsinki Stock Exchange.14 of board members to provide information ......... 8 11 Audit ................................................ ............................. 14 5 Board Committees ............................................... ................. 9 Recommendation 53 Notification of a candidate auditor ................. 14 Recommendation 54 Recommendation 21 Establishment of the Committee ........................................ 9 Recommendation Auditor's fees and non-audit services .................... ......................... 14 22 Reporting of the Committee to the Board .......................... 9 Recommendation 23 Rules of Procedure of the Committee ................... ......................... 9 Recommendation 24 Committee meetings .............................................. 9 12 Communication ................................................ ............................ 15 Recommendation 25 Election of committee members ..................................... 9 Recommendation Recommendation 55 Disclosure of Corporate Governance Statement ... 15 Recommendation 56 26 Announcement of committee composition. ............... 9 Electronic Investor Information ............................ ... 15 Recommendation 57 Publication of bulletins on the Internet ........... 15 Audit Committee ............................................. 9 Recommendation 27 Establishment of the Audit Committee ......................... 9 Recommendation 28 Election of the members of the Audit Committee .............. ....... 9 Recommendation 29 Independence of the members of the Audit 13 Entry into force ................................................ ............................... 15 Committee .... 9 Recommendation 30 Duties of the Audit Committee ............................... 10 Nomination Committee ........................................ 10 Recommendation 31 Establishment of the Nomination Committee .... ...................... 10 Recommendation 32 Members of the Nomination Committee ....................... .............. 10 Recommendation 33 Duties of the Nomination Committee ............................... .... 10 Compensation Committee ........................ 10 Recommendation 34 Establishment of a Compensation Committee ................ .... 10 Recommendation 35 Members of the Remuneration Committee .............................. 10 Recommendation 36 Duties of the Remuneration Committee ............................ 10 3 Machine Translated by Google 1 Introduction Objectives of the Recommendation Listed companies differ in terms of ownership structure, industry and scope of operations. There are also significant differences in the governance structures The high level of governance and transparency of listed companies of listed companies. In international comparison, a large proportion of Finnish are increasingly important selection criteria for investors. Clearly defined listed companies are medium-sized or small companies. procedures for investors, in line with international practice, facilitate investment However, it is important that the Recommendation on Corporate Governance decisions. This fact is essential in Finland, where the foreign ownership of listed reflects the international development of corporate governance. companies is exceptionally extensive internationally. The Recommendation uses the terms “explain” or “disclose” to describe the presentation of information to shareholders. In all these situations, the The basic provisions concerning the corporate governance and information must, unless otherwise stated, be presented at least in the annual information systems of Finnish listed companies are contained in the report and on the company's website. If the company does not prepare an company, accounting and securities market legislation and the rules of the annual report, the information must be provided in connection with the financial Helsinki Stock Exchange. The provisions concerning the protection of minority statements. shareholders and the exercise of property and management rights are The recommendation has been prepared for compliance with the so-called Comply or Explain contained in the Companies Act. in accordance with the principle that the company must comply with the Thus, the law contains detailed, binding provisions on the right to vote, to recommendation in full, but if the company deviates from the recommendation, it inquire and initiate, as well as the organization of general meetings. must state the deviation and the reason for the deviation. The company must The Companies Act also requires equal treatment of shareholders. provide information in its annual report and on its website compliance with this recommendation. As the Finnish corporate governance system is based on mandatory legislation, this recommendation is designed to supplement statutory procedures. The aim of the recommendation is to harmonize the operating methods of listed companies, to improve the transparency of operations, to harmonize the information provided to investors and shareholders, and to improve the flow of information. This way you can add the interest of domestic and foreign investors in Finnish listed companies and promotes confidence in the securities market. Structure of the recommendation The objectives, structure and scope of the set of recommendations are set out in Section 1. The individual recommendations are set out in Sections 2 to 12 and the entry into force is set out in Section 13. At the beginning of each main section, the general principles for this issue are set out. Recommendations are presented in bold numbering in bold. The recommendation is followed by an explanatory section containing the rationale for the recommendation and the details specifying the recommendation. The explanatory notes mention, by way of example, the situations in which a departure from the recommendation may be justified. Application of the Recommendation The recommendation is intended to be complied with by companies listed on the Helsinki Stock Exchange, unless it conflicts with the mandatory provisions of the company's domicile. Recommendations and explanatory notes use the term “company” and only where the context requires the words “listed company” or “limited liability company”. 4 Machine Translated by Google 2 Annual General Meeting The Annual General Meeting is the company's highest decision-making body, Recommendation 4 in which shareholders participate in the company's management and supervision. Participation of a candidate for a member of the Board of Directors in During the financial year, the company must hold one Annual General Meeting. the Annual General Meeting If necessary, an extraordinary general meeting will be held. Shareholders exercise their right to speak and vote at the Annual General Meeting. A person nominated as a member of the Board for the first time must participate in the election to the general meeting, unless there are serious reasons for his absence. Recommendation 1 A person nominated as a member of the Board of Directors for the first time must, Provision of prior information to shareholders as a general rule, attend the general meeting deciding on the election in order to be Sufficient information on matters to be discussed must introduced to the shareholders. be made available to shareholders prior to the Annual General Meeting. Prior information enables shareholders to assess the need to attend the Annual General Meeting, to decide on their voting behavior and the need to ask questions at the Annual General Meeting. Shareholders who are unable to attend the meeting will also receive information about the company and make decisions regarding their ownership. The company provides prior information in the notice convening the Annual General Meeting, other information and on the company's website. Recommendation 2 Organization of the Annual General Meeting The general meeting must be organized in such a way that shareholders can effectively exercise their ownership rights. When organizing the Annual General Meeting, the company must aim to enable shareholders to participate in decision-making at the Annual General Meeting as widely as possible. Especially in companies with multinational ownership, the opportunities for shareholders to attend the Annual General Meeting vary. The company shall, by reasonable means, promote opportunities for shareholder participation. Recommendation 3 Participation of the members of the Board of Directors and the President and CEO in the Annual General Meeting The President and CEO, the Chairman of the Board and a sufficient number of Board members must be present at the Annual General Meeting. The presence of the members of the Board of Directors and the President and CEO at the Annual General Meeting is necessary for the interaction between the shareholders and the company's institutions and for the right of shareholders to ask questions. to implement. By exercising their right of inquiry, shareholders may obtain more detailed information on matters that may affect the assessment of the company's financial statements, financial position or other matters to be discussed at the meeting. The participation of the President and CEO and the members of the Board of Directors in the Annual General Meeting is particularly important. Due to the nature of the matter to be discussed at the Extraordinary General Meeting, it may be sufficient for the President and CEO, the Chairman of the Board and only some of the members of the Board to attend the meeting. 5 Machine Translated by Google 3 Management Board 4 Board of Directors According to the Companies Act, the company may have a supervisory board, which The Board of Directors is responsible for the company's administration and the supervises the company's administration and gives its opinion on the financial statements proper organization of operations. The Board directs and supervises the company's and the auditor's report to the Annual General Meeting. The Board of Directors may also executive management, appoints and dismisses the President and CEO, approves issue instructions to the Board of Directors on matters that are broadly important or the company's strategic objectives and risk management principles, and ensures the fundamentally important. operation of the management system. It is also good corporate governance for the The use of boards of directors has declined in recent years. board to ensure that the company confirms One of the reasons for this is that the Board of Directors has little practical control values to be observed in their activities. over the company's management. The Board's task is to promote the interests of the company and all shareholders. The members of the Board do not represent the parties who nominated them as members of the company. Recommendation 5 Limitation of the powers of the Management Board Recommendation 7 If the company has a supervisory board, its powers must be limited to supervising the administration and issuing instructions. Rules of Procedure of the Board The Board of Directors shall draw up written rules of procedure for its A one-tier management model, in which the Board of Directors and the President activities, the main content of which shall be explained. and CEO form the company's management, enables the company's administration to operate efficiently. In the one-tier governance model, the roles and responsibilities of Effective Board work requires that the Board's key tasks and operating principles be the Annual General Meeting, the Board of Directors and the President and CEO are defined in writing in the Rules of Procedure. Based on the information received from the clear. Articles of Association, shareholders can evaluate the Board's operations. In a two-tier governance model, the shareholders delegate the decision-making power of the Annual General Meeting to the Supervisory Board. As a result, in a one- tier governance model, ownership control is implemented more directly and efficiently Recommendation 8 than in a two-tier model. Board meetings If the company ends up with a two-tier corporate governance model, the powers of the supervisory board must be limited as far as possible in the articles of The company must disclose the number of Board meetings held during association. In this case, the company's meeting elects the company's Board of the financial year and the average number of members Directors, and the Board elects the company's CEO. However, the Management participation in board meetings. Board must always perform the tasks required by the mandatory legislation. Based on information on the number of meetings and attendance of shareholders, shareholders can assess the effectiveness of the Board's work. The average attendance of members at Board meetings may be expressed as a percentage Recommendation 6 calculated on the basis of the number of meetings held and the number of members present. Information on the Management Board The company must describe the duties and operating principles of the supervisory board and the remuneration principles for the members of the supervisory board. Recommendation 9 Evaluation of the Board 's operations By obtaining information on the duties, operating principles and remuneration of the Supervisory Board, shareholders can assess: The Board must annually evaluate its operations and working efficiency of the Management Board. methods. In order to ensure the efficiency of the Board's work, the Board's operations and working methods must be evaluated regularly. The evaluation can be carried out as an internal self-assessment or by using an external evaluator. Recommendation 10 Election of members of the Board of Directors The Annual General Meeting elects the members of the Board. According to the main rule of the Companies Act, the Annual General Meeting elects the Board of Directors. By electing the Board of Directors, the shareholders influence the company's administration and thus the company's operations as a whole. 6 Machine Translated by Google If the company has a supervisory board, according to the Companies Act, it Recommendation 14 elects the Board of Directors, unless otherwise provided in the Articles of Association. However, effective and direct corporate governance requires that the company's Special order of appointment of members meeting elects a board of directors, even if the company has a supervisory board. The If the members of the Board of Directors are appointed in a special working group that prepared the reform of the Companies Act has also proposed that order according to the Articles of Association, the company must the election of the members of the Board of Directors should always be the size of the company explain the order of appointment in the notice of the Annual General Meeting. task. The Articles of Association may stipulate that less than half of the members of the Board of Directors shall be appointed in a different order than at the Recommendation 11 General Meeting. The special appointment procedure may concern, for example, the right of employees to appoint members to the board. Number of board members The provision of the Articles of Association on the special order of appointment is At least five members must be elected to the board. explained in the notice of the Annual General Meeting so that the shareholders are informed The effective performance of the Board's duties requires that the Board have at about the election procedure for the members of the Board of Directors. least five members. However, in some situations, it may be justified to elect less than five Recommendation 15 members to the board. In a smaller company, a three-member board may be able to handle it effectively enough Qualifications of board members to write about the duties of the government. The person to be elected to the Board of Directors must have the qualifications required for the position and be able to exercise sufficient time to complete the task. Recommendation 12 Successful performance of board duties requires knowledge of the business or The term of office of the members of the Board of Directors its components. It is important for the tasks and efficient operation of the Board that Board members must be elected for one year at a time. the Board consists of members with diverse, complementary experience and Shareholders must be able to regularly assess the performance of board expertise. The composition may also take into account the age and gender members. The effective implementation of corporate governance requires that distribution of the members. members be evaluated and elected at the company's annual meeting. The shareholders decide on the election and re-election of the members of the Board of A member of the Board must have the opportunity to focus on the Directors, so there is no need to limit the successive terms of office of the members. company's affairs sufficiently extensively. A member of the board, especially the chairman of the board, is often required to make a significant contribution outside the meetings. The adequacy of the time available to a member of the Board of Directors is affected by, for example, his or her full-time, part-time and Recommendation 13 concurrent Notification of candidate members to shareholders government functions. Nominees notified to the Board of Directors must be announced in the notice convening the Annual General Meeting if the proposal is made Recommendation 16 by the Nomination Committee of the Board of Directors or if the candidate is supported by shareholders holding at least 10% of the company's Access to information for Board members voting rights. The company must provide the members of the Board with sufficient consented to the selection. Notice of Annual General Meeting information about the company's operations. candidates nominated after submission shall be made public In order to perform his or her duties, a member of the Board needs information separately. about the company's structure, business and markets. The new member must be The election of the members of the Board of Directors is one of the most acquainted with the company's operations, and the board member must be constantly important decisions to be made at the Annual General Meeting, which is why provided with the necessary information about the company's operations. shareholders must be informed of the nominees well in advance of the Annual General Meeting. However, before providing information about candidates, the Recommendation 17 company must ensure that the candidates have given their consent to the position. Independence of the members of the Board The majority of the members of the Board of Directors must be independent of the company. In addition, at least two of the members of that majority must be independent of the company's significant shareholders. The Board of Directors is responsible for directing and supervising the company's executive management. The position requires a majority of board members 7 Machine Translated by Google has no dependency on the company. Although it is recommended that members of the In all situations, the assessment of independence must also take into Board own shares in the company, a majority of the members of the Board who are account the interests of private persons belonging to a related party in independent of the company must include at least two members who are also independent accordance with Chapter 1, Section 4 of the OYL. of the company's significant shareholders. This composition of the Board of Directors or similar circumstances of legal persons. To the company supports the fact that the Board of Directors acts in the interests of the company and all companies belonging to the same group as the company are equated. shareholders. There is no internationally agreed content for the independence criteria. The above criteria are divided into three parts. Recommendation 18 None of the circumstances set out in points (a) to (e) cause a member to be considered independent of the company. Sections (f) to (g) deal with matters on the basis of which the Assessment of independence Board of Directors may, on the basis of the overall female assessment, consider that the The board must assess the independence of its members and state member is not independent of the company. Sections (h) to (i) set out the criteria according which of them are considered independent to which a member of the Board of Directors cannot be considered independent of the why. company's significant shareholders. A member is not independent of the company if a) the member has an employment or service relationship with the company; (b) the member has an employment relationship with the company Recommendation 19 in the last three years before the government Information to be reported on board members the start of membership; The company must disclose the following personal and ownership (c) the member receives from the company or the executive management of the company the moon information about the members of the Board higher compensation than the authorized persons • name non - governmental services, or • Year of birth other advice, for example a board member in a consulting position • training in the company; • main activity (d) the member is a member of the executive management of another • Key work experience • Board company and there are customers, membership start time a supplier or partnership relationship that is significant to that other • key concurrent positions of trust company; or • shareholdings in the company (e) a member is a member of the executive management of a company • the company's equity derivatives to incentive schemes of which a member of the board of directors is a member of the based ownership and rights executive management of the first-mentioned company (cross- control relationship). Based on the information received from the members of the Board of Directors, shareholders can assess the operating conditions of the members of the Board of Directors In addition, the Board may, on the basis of an overall assessment and their relationship with the company. consider that a member is not independent of the company if (f) the member is involved in the company 's performance, or Recommendation 20 in a share-based payment plan. Duty of Board Members to Provide Information The evaluation takes into account the remuneration system the economic importance of the system; or A member of the Board of Directors shall provide the Board of Directors (g) the company is aware of any other factor that may affect it with sufficient information to assess his or her competence and the independence and ability of the member to represent all independence. changes. shareholders. The assessment of independence referred to in Recommendation 18 requires the A member is not independent of a significant share company to obtain information from the members of the Board of Directors for this purpose. from the owner if A member of the Board of Directors must also inform the company of the personal and h) the member has control over the company in accordance with ownership information referred to in Recommendation 19. A member of the Board of Chapter 1, Section 3 of the OYL or the member has a Directors shall also notify if there is a material change in the matters notified by him. relationship within the meaning of sub-paragraphs a) to b) with a party that has control of the company; or (i) the member is a significant shareholder in the company itself or is a significant shareholder in a relationship within the meaning of points (a) to (b). Rumblings qualifying shareholder means one who holds at least 10% of all the shares in the company or the total number of votes. 8 Machine Translated by Google 5 Board Committees The functioning of the company's corporate governance system requires that the owners can assess the activity of the committee and thus the efficiency of the the work of the Board be organized as far as possible board's work. in an efficient way. Matters for which the Board is responsible preparation can be streamlined by setting up committees of board members. The Recommendation 25 members of the Board who work in the committee can get acquainted with the Election of committee members matters discussed in the committee more extensively than the entire Board. The Board elects the members of the committee and the chairman of the committee from among its members. Recommendation 21 As the committees work to assist the Board and prepare matters pertaining to the Board, the Board elects the members of the committee from among its members. Establishment of a committee The effective performance of the Board's duties may require the establishment of Board committees. Recommendation 26 The establishment of committees may be necessary, in particular, to oversee the Announcement of committee composition company's reporting and control systems and to appoint executives, as well as to develop the company's remuneration systems. Especially in companies with large The company must announce the composition of the committee. businesses, the committees increase the efficiency of the Board's work. Based on the information concerning the members of the committee, the shareholders can assess the efficiency of the committee's work and the relationship The committees assist the Board by preparing the Board of the committee members with the company. matters. The Board is responsible for addressing the committees performing the tasks assigned to them. The committees do not have independence Audit Committee decision-making power, but the government makes its decisions collectively. The Board of Directors may also, if necessary, establish committees other Recommendation 27 than those mentioned below, combine the tasks assigned to different committees Establishment of the Audit Committee or decide that a particular matter shall be prepared by the entire Board of Directors. The Audit Committee must be established in a company whose business scope requires the preparation of financial reporting and control matters in a smaller composition than the entire Board. Recommendation 22 Reporting of the Committee to the Board The scope of the company's business may require that some of the members of The committee shall report regularly on its work the Board of Directors focus in particular on matters related to financial reporting to the government. and control. The Audit Committee has better opportunities than the entire Board to familiarize itself with issues related to the company's finances and control, and to take The company can internally define the reporting details and schedule. The reports care of communication with the auditors and the internal audit. shall include at least a summary of the matters dealt with by the committee and the measures taken. Recommendation 28 Recommendation 23 Election of members of the Audit Committee Committee rules of procedure At least three must be elected to the Audit Committee The board must approve the committee's key members. The members must have the qualifications required for the tasks and operating principles in a written charter, the main points of committee's remit. which shall be explained. The effective performance of the duties of the Audit Committee requires that the With the help of written rules of procedure, the role of the committee in the Committee has at least three members. The members of the committee must have company is clarified. The tasks and operating principles must be defined in such a way that sufficient knowledge of accounting and accounting policies, as the committee deals that the committee can function effectively. with matters concerning the company's financial reporting and control. Recommendation 24 Committee meetings Recommendation 29 The company must disclose the information held during the financial year Independence of the members of the Audit Committee number of committee meetings. The members of the Audit Committee must be independent of the Based on information on the number of meetings, the share company. 9 Machine Translated by Google Due to the nature of the issues to be discussed in the Audit Committee The duties of the Nomination Committee are defined in the rules of procedure the members of the committee must be independent of the company as to be approved by the Committee, according to the company's own starting points. mentioned in recommendation 18 above. The duties of the Nomination Committee may include, for example: • preparing the election of Board members for the Annual General Meeting for the proposal to be made Recommendation 30 • preparation of remuneration matters for Board members Duties of the Audit Committee • Searching for candidates to succeed members of the Board The Board shall determine the Audit Committee tasks. The tasks of the Nomination Committee are described in Recommendation 23 in accordance with. The duties of the Audit Committee are defined by the according to the company’s own starting points. The duties of the Audit Committee may include, for example: Remuneration Committee • monitoring the company's financial situation Committee) • financial reporting (financial statements, interim reports) control Recommendation 34 The adequacy of internal control and risk management; and Establishment of a Remuneration Committee conformity assessment The Board of Directors may streamline the handling of • Processing internal audit plans and reports remuneration and appointment matters for the President and CEO • Assessing compliance with laws and regulations and other members of the company's management, as well as the • preparation of the auditor's selection decision remuneration systems for other personnel, by establishing a Remuneration Commit • Communication with the auditor and the auditor's reports walkthrough The Remuneration Committee can be more effective than the entire Board • Evaluation of the auditor's advisory services focus on developing remuneration systems for the company's CEO and other management. The use of the Remuneration Committee promotes The tasks of the Audit Committee are described in Recommendation 23 the transparency and systematic nature of the company's remuneration in accordance with. systems. Nomination Committee Recommendation 35 Members of the Remuneration Committee Recommendation 31 The President and CEO or any other member of the company's Establishment of the Nomination Committee management may not be a member of the Remuneration Committee. The Board of Directors may enhance the preparation of nomination Due to the nature of the matters to be discussed in the Remuneration Committee and remuneration matters for Board members by establishing a nomination the President and CEO or other members of the Board of Directors may not committee. be members of the Committee. Finding people to be elected to the Board and mapping the candidates' experience and abilities before they are elected is important Recommendation 36 to ensure and balance the Board's expertise. The Board of Directors may Duties of the Remuneration Committee intensify the preparation of the election of members through the Nomination Committee. The use of the Nomination Committee promotes the transparency The Board shall determine the Remuneration Committee and systematic nature of the selection process. tasks. The duties of the Remuneration Committee are defined for the Committee Recommendation 32 the company’s own starting points by. The duties of the Remuneration Committee may include e.g. Members of the Nomination Committee kiksi: The President and CEO or any other member of the company's • preparation of the salary and other benefits of the company's management may not be a member of the Nomination Committee. CEO and Deputy CEO Due to the nature of the matters to be discussed in the Nomination Committee, the • Remuneration of other members of the company's management company's President and CEO or other members of the Board of Directors belonging to preparation of matters the company's management may not be members of the committee. • preparing the appointment of the President and CEO, the Deputy President and CEO and other members of the company's management and mapping their successors Recommendation 33 • preparation of matters concerning the company's remuneration systems Duties of the Nomination Committee The Board shall determine the Nomination Committee The responsibilities of the Remuneration Committee are described in the recommendation tasks. 23. 10 Machine Translated by Google 6 CEO The President and CEO manages the day-to-day administration of the company in The election of the President and CEO as Chairman of the Board is restricted accordance with the instructions and regulations issued by the Board of Directors. because the Board has a duty to supervise the President and CEO. Given the scope and quality of the company's operations, the President and CEO may take unusual or far-reaching actions only as authorized by the Board. The CEO is The company must strive to split the CEO and the board responsible for the legality of the company's accounting and the sound organization of the responsibilities of the chairman are clearly defined so that the decision- financial management. making power in the company is not effectively left to one person. As a general rule, this presupposes that the CEO does not serve as chairman of the board. However, special circumstances, such as the company's industry, the scope of Recommendation 37 operations or a particular stage of development, or the structure of the ownership Appointment of the President and CEO structure, may justify a combination of roles. The Board appoints the CEO. If the company concludes that the CEO and the Chairman of the Board are Pursuant to the Companies Act, the Board of Directors appoints the President and the same person, the company must explain the reasons for the decision. CEO, unless the Articles of Association prescribe a nomination position for the Supervisory Board. In view of the key role of the President and CEO and the effective implementation of corporate governance, it is justified that the Board of Directors appoints the President and CEO even in cases where the company has a Supervisory Board. In this case, the duties and responsibilities of the company's institutions are clear. The working group that prepared the reform of the Companies Act also suggests that the appointment of the President and CEO should be the responsibility of the Board. Recommendation 38 CEO agreement The terms and conditions of employment of the CEO shall be defined in a written CEO agreement, which shall be administered by the Board approved by the Commission. The position of the President and CEO in the company requires that the terms and conditions of the President and CEO's employment be defined in writing in an agreement approved by the Board. The main elements of the CEO agreement are described below in accordance with this Recommendation 48. Recommendation 39 Information to be reported on the CEO The company must notify the CEO's personnel ownership information. The President and CEO is given the same personal and ownership information as the members of the Board of Directors (see Recommendation 19). In connection with the appointment, personal information about the CEO will be provided. Other information about the CEO will be announced upon receipt of the assignment in connection with. Recommendation 40 CEO and Chairman of the Board The CEO should not be elected Chairman of the Board. According to the Companies Act, the President and CEO may be elected Chairman of the Board only if the company has a Supervisory Board. 11 Machine Translated by Google 7 Other management 8 Rewarding The operational management of the company takes place in accordance with A well-functioning reward system is an essential tool in implementing owner the management organization approved by the company. The management control. The purpose of the remuneration system is to increase the motivation organization is an important part of the company's corporate governance system. of the company's Board of Directors, the President and CEO and other The organization often also includes a management team. The management management to act in the interests of the company and shareholders. In addition team does not have a formal corporate status, but it does play a significant role to the basic remuneration, the remuneration plan includes, among other things, in the company's management organization. incentive schemes linked to the development of the company's earnings, pension Other management means the members of the management team or, if the plans, share-based payment schemes and share-based payment schemes. company does not have a management team, the via persons. Remuneration of Board members Recommendation 41 Recommendation 43 Management organization Remuneration and other benefits of members of the Board of Directors The company must describe the management organization. If the The company must disclose the remuneration and other benefits of company has a management team, the company must describe the a Board member for the work of the Board and committees composition, tasks and responsibilities of the management team for the financial year. areas. Information on the remuneration and benefits of the members of the Board of The report on the organization of management must set out the operational Directors enables shareholders to assess the amount of remuneration in relation nature of the management's activities, as opposed to the company's legal to the Board's activities to achieve the company's objectives. Open disclosure institutions. also makes it easier to compare the fees and other benefits paid by different Management team means the Group's management team or it companies. a similar group that meets regularly. The management team usually consists of the company's operational business directors. Recommendation 44 Payment of the Board fee in shares The main task of the Management Team is to assist the President and CEO. The shareholdings of the members of the Board of Directors can be increased by paying the Board and committee fees in full or in part in the company's own shares. Recommendation 42 The shareholding of the members of the Board of Directors promotes the Information to be provided on the members of the management team implementation of corporate governance. One good way to increase the The company must disclose the personal and ownership information shareholding of Board members is to pay Board and committee fees of the members of the management team. If the company does not have in whole or in part. The company, on the other hand, takes care of you a management team, the company must determine the other members obligations arising from the regulation of insiders of the management from whom the information must be disclosed. account. The members of the Management Team or other members of the management are Recommendation 45 provided with the same personal and ownership information as the members of the Board of Directors (see Recommendation 19). Participation of a Board member in an equity derivative plan Participation of a member of the Board of Directors outside the company in a share-based payment plan system is not recommended. An external member of the Board of Directors means a person who has no employment or service relationship with the company. The use of share-based payment schemes to remunerate members of the Board of Directors is not, in principle, justified from the point of view of shareholders' interests. Recommendation 46 Information on the remuneration of the Board members' shares and equity derivatives The company must inform the member of the Board of Directors of the shares and share management transferred as a reward during the financial year amounts of rights. 12 Machine Translated by Google 9 Internal control, risk management and internal audit The company shall disclose to each member of the Board the number of shares The objective of internal control and risk management is to ensure that the paid as remuneration to the work of the Board or committees, as well as the company's operations are efficient and effective, that information is reliable and disclosure of other remuneration and benefits. If the members of the Board that regulations and operating principles are complied with. Internal audit can participate in share-based payment plans, the share-based payments received help streamline the government under these plans are also reported. performance of its supervisory duties. Recommendation 49 Remuneration of the President and CEO and other management of Operating principles of internal control the company The company must define the operation of internal control platform. Recommendation 47 Successful business requires the company to constantly monitor its Remuneration system and decision - making procedure for operations. The Board of Directors ensures that the company has defined remuneration the operating principles of internal control and that the company monitors the The company must explain the basics of the remuneration system effectiveness of control. and the decision-making procedure for the company's CEO and other management. Recommendation 50 Based on the information obtained from the remuneration plan, shareholders Arranging risk management can assess the incentive of the plan from the perspective of increasing the company's result and shareholder value. The publicity of reward schemes The company must explain the principles according to which risk contributes to the creation of more competitive and motivating schemes. The management is organized. information to be provided is, for example, the total number of shares and Risk management is part of the company's control system. The purpose of risk women's rights in the share management addressed to the President and CEO management is to ensure that the risks affecting the company's business are and other management. identified and monitored. Effective risk management requires the definition of risk management principles. In order to evaluate the company's operations, it is The company must determine which body decides on the CEO important that shareholders are provided with sufficient information on risk and rewarding other management. It is usually natural for the body that management. Also a description of the significant risks that have come to the appointed him to decide on the remuneration of the person. Bars for the notice of the Board preparation of seminary matters are possible to demonstrate to the Board is recommended. the Remuneration Committee (see Recommendation 34). Recommendation 51 Recommendation 48 Internal audit Employment information The company must explain how the internal audit function is The company must describe the following employment organized in the company. relationship between the CEO and the full-time Chairman of the Board financial benefits: The report shall describe the function of the internal audit • salaries and other benefits for the financial year organization and key principles of audit work. • shares received as a reward during the financial year The organization and working methods of the company's internal audit and equity derivative rights depend on, among other things, the quality and scope of the company's • retirement age and pension criteria • period of notice, pay for business, the number of employees and other similar factors. the period of notice and other possible claims arising from the termination conditions for compensation. Given the important role of the President and CEO and the potential full- time Chairman of the Board, it is important that shareholders receive detailed information about their financial benefits. The information enables shareholders to assess the amount and content of the remuneration of the President and CEO and the full-time Chairman of the Board in relation to the achievement of the goals set for them. Transparent information also facilitates the financial support granted to the executives of various companies comparison of benefits. 13 Machine Translated by Google Disclosure of insider shareholdings and trading promotes confidence The auditor plays an important role as an audit body appointed by the in the securities market. The efficient management of a listed shareholders. The audit provides shareholders with an independent company's insider affairs requires that insider administration be organized opinion on how the company's accounting, financial statements and in a consistent and reliable manner. administration have been handled. Recommendation 52 Recommendation 53 Compliance with the insider guidelines of the Helsinki Stock Exchange Notification of a candidate auditor The company must comply with the guidelines for insiders on the Prepared by the Board of Directors or the Audit Committee Helsinki Stock Exchange and explain the key procedures for insider the proposal for the auditor must be announced in the notice convening administration. the general meeting. If the candidate auditor is not known to the Board of Directors when submitting the notice of the Annual General Meeting, Adherence to the insider guidelines issued by the Helsinki Stock the candidacy must be announced separately. Exchange to listed companies unifies and streamlines the handling of insider matters in different companies. Based on information on insider The election of the auditor is one of the most important decisions of the management procedures, shareholders can evaluate the company's insiders Annual General Meeting, which is why shareholders must be informed of administration. the candidate auditor in good time before the Annual General Meeting. Preparation for the selection of the auditor may be demonstrated by an audit committee. Recommendation 54 Auditor 's fees and non - audit services The company must disclose the auditor's fees for the account period. If fees have been paid to the auditor for non-audit services, these fees must be disclosed separately. Based on the information on the auditor's fees, shareholders can evaluate the auditor's performance. As the auditor is the company's supervisor of the company's operations, shareholders must also be provided with information on the fees paid to the auditor for non-audit services. Companies belonging to the same group as the audit firm, other companies belonging to the same chain and companies controlled by the auditor are equated with the auditor. 14 Machine Translated by Google 12 Information Good governance of a listed company requires reliable and up-to-date Recommendation 57 information. This supports the correct pricing of securities and promotes confidence in the securities market. Based on the information provided by the Publication of bulletins on Internet sites company, shareholders can assess the operation of the company's corporate The company shall make available on its website all information governance system and make decisions regarding their ownership. disclosed pursuant to the disclosure obligation for a listed company. In addition to the content of the information, the clarity of the Publishing all investor information about the company in one place makes it presentation and the electronic distribution of information will promote transparency easier for shareholders to access information. and increase shareholders' access to information. The compilation of press releases and other information about the company on the Internet gives the shareholder a good overview of the company's operations Recommendation 55 and financial condition. Presentation of corporate governance information (Corporate Governance Statement) The company must ensure that at least the following items are presented on the company's website: • Information on the corporate governance of listed companies 13 Entry into force compliance with the Recommendation on possible deviations and their reasons • Annual General This recommendation will enter into force on 1 July 2004. The recommendation can be if Meeting • Articles of Association however, comply immediately after its adoption. • Board of Directors and Supervisory Board The decisions of the Annual General Meeting and amendments to the • CEO and other management Articles of Association that may be required to comply with the recommendation • the auditor may be made in the first year following the entry into force of the recommendation. • Shares, share capital and major share at the Annual General Meeting, before which the company does not have to owners and flagging notifications made from the last justify its policy deviating from the recommendation. For 12 months • redemption provisions in the Articles of Association • known shareholder agreements of the company • annual report • Others described in this recommendation above factors involved A clear presentation of the corporate governance aspects will help shareholders to get an overall impression of the company's operations. It is essential that the corporate governance statement clearly defines the issues and is easy to find. In addition to the company's website, it is recommended that the issues be described in the annual report, as applicable. The presentation may include references to information contained elsewhere in the Annual Report or on the Company's website. Recommendation 56 Electronic investor information The company must have a website on the Internet. The company can use the Internet to improve its communication. Share for the owner, using the website is quick and effortless. Information in electronic form can be updated more easily than written releases, giving shareholders the latest information on the company. 15 Machine Translated by Google Fabianinkatu 14, PO Box 361, Aleksanterinkatu 17, PO Box 1000, Eteläranta 10, PO Box 30, FI-00131 Helsinki FI-00131 Helsinki, Finland tel. FI-00101 Helsinki tel. (09) 68 681, fax +358 9 616 671, fax +358 9 tel. (09) 69 69 69, fax (09) 6868 2403/6. krs, (09) 6868 6166 7368 www.hex.com (09) 65 03 03 2316/8. krs www.keskuskauppakamari.fi www.tt.fi 16