Corporate Governance
CORPORATE GOVERNANCE STATEMENT
This Corporate Governance Statement has been prepared in accordance with Recommendation 51 of the Finnish Corporate Governance Code and chapter 2, section 6 of the Securities Markets Act. It is not part of the Report of the Board of Directors.
Oriola-KD Corporation (hereinafter “Oriola-KD” or “the company”) complies with the provisions of its Articles of Association, the Companies Act and the Securities Markets Act. The company also complies with the rules issued by NASDAQ OMX Helsinki Ltd, where it is listed, and the regulations and rules issued by the Financial Supervisory Authority. The company’s head office is located in Espoo, Finland.
Oriola-KD also observes the Finnish Corporate Governance Code, with the exception that the company’s Nomination Committee may also have members, which are not members of company’s Board of Directors. This exception is justified below in the section on the Nomination Committee. The Finnish Corporate Governance Code is available at www.cgfinland.fi.
Oriola-KD prepares its consolidated financial statements and interim reports in accordance with the EU-approved IFRS reporting standards, the Securities Markets Act, applicable Financial Supervisory Authority standards and the rules issued by NASDAQ OMX Helsinki Ltd. The Report of the Board of Directors and the parent company’s financial statements have been prepared in accordance with the Finnish Accounting Act and the guidelines and statements of the Accounting Board. The auditors’ report covers the Report of the Board of Directors, the consolidated financial statements and the parent company’s financial statements.
Tasks and responsibilities of the management bodies
The administration and management of the company is the responsibility of the General Meeting of Shareholders, the Board of Directors and the President and CEO, whose duties and responsibilities are mainly laid down in the Finnish Companies Act and the Securities Markets Act. The administration and management of the company are also based on the decisions made by the General Meeting of Shareholders and the company.
General Meeting of Shareholders
The General Meeting of Shareholders is the highest decision-making authority of the company. In the General Meeting of Shareholders, the company’s shareholders exercise their powers in accordance with the Companies Act and the Articles of Association. The General Meeting of Shareholders decides on the matters that under the Companies Act and the Articles of Association are within its purview. A General Meeting of Shareholders is convened by the Board of Directors. Under the Articles of Association, the Annual General Meeting is held annually by the end of May on a date determined by the Board of Directors. An Extraordinary Meeting of Shareholders may be convened in the manner provided for in the Limited Liability Companies Act. The Notice of General Meeting must be published in one daily newspaper in the capital city no earlier than two months and no later than twenty-one days prior to the meeting. Oriola-KD also publishes the Notice of General Meeting as a stock exchange release and on its website.
The matters on which the Annual General Meeting decides include the approval of the financial statements, the distribution of profits, discharging liable parties from liability, and the election of the Board members, the Chairman of the Board and the auditors, as well as their remuneration. Decisions to amend the Articles of Association are also taken by a General Meeting of Shareholders. For such an amendment to be made, it must be supported by at least 2/3 of the votes cast and of the shares represented at the meeting.
At General Meetings, each class A share carries 20 votes and each class B share one vote. No shareholder may vote using an amount of votes that exceeds 1/20 of the total number of votes carried by the shares of different share classes represented at the General Meeting. To amend this provision of the Articles of Association, a resolution is required that must be supported by at least 4/5 of the votes cast and of the shares represented.
A shareholder has the right to have matters that, under the Companies Act, falls within the competence of the General Meeting dealt with by the General Meeting, if the shareholder so requests in writing to the Board of Directors well in advance of the meeting so that the matter can be included in the Notice of General Meeting.
The General Meeting of Shareholders should be attended by the President and CEO, the Chairman of the Board of Directors, a sufficient number of Board members, the auditing firm’s principally responsible auditor as well as all those put forward as candidates for Board membership for the first time.
Annual General Meeting 2009
The Annual General Meeting of Oriola-KD Corporation held on 16 April 2009 approved the financial statements and discharged the President and CEO and the Board members from liability for the 2008 financial year. The Annual General Meeting also authorised the Board to decide on the purchase of the company’s class B shares and on a share issue of class B shares against payment. All decisions of the Annual General Meeting are available at the company’s website, at www.oriola-kd.com.
Board of Directors
The Board of Directors is responsible for the administration of the company and the appropriate organisation of its operations.
The Board of Directors is responsible for managing the company’s operations in accordance with the law and the Articles of Association. The Board also ensures that good corporate governance is complied with throughout the Oriola-KD Group.
The most important matters to be dealt with by the Board are listed in the Board’s rules of procedure. Accordingly, the Board’s responsibilities include approving the company’s strategy, financial targets, budgets, major investments and risk management principles. The Board appoints and dismisses the company’s President and CEO. The Board of Oriola-KD also serves as the Board of Directors for the Oriola Group. The Board of Directors considers and decides on all the most significant matters concerning the operations of the Group and the business segments regardless of whether these matters legally require a decision by the Board of Directors of Oriola-KD. The Board has also approved the rules of procedure of the Audit Committee, the Compensation Committee and the Nomination Committee.
The Board of Directors convenes in accordance with a timetable agreed in advance and also convenes as required. In addition to making decisions, the Board of Directors also receives during its meetings topical information about the operations, finances and risks of the Group. Board meetings are also attended by the President and CEO, the Executive Vice President & CFO and the General Counsel (who acts as the secretary of the Board). Members of the Group Management Team attend Board meetings at the invitation of the Board. Minutes are kept of all meetings. In 2009, the Oriola-KD Board convened 21 times, six of which were conference call meetings. The Board members’ average attendance rate was 96.7%.
The members of the Board of Directors are elected by the General Meeting of Shareholders. Under the Articles of Association, the Board of Directors consists of no fewer than five and no more than eight members. The members of the Board are elected for one year at a time and the term of the Board expires at the end of the next Annual General Meeting following their election. Persons aged 67 and above may not be elected to the Board of Directors. The Chairman of the Board of Directors is elected by the General Meeting of Shareholders. The Deputy Chairman of the Board is elected by the Board of Directors.
The Nomination Committee’s recommendation to the Board for the Board’s proposal regarding the composition and remuneration of the Board are given in the Notice of Annual General Meeting. The personal details of the proposed Board members are presented on the company’s website.
Board of Directors 2009-2010
The Annual General Meeting of the company held on 16 April 2009 confirmed that the Board of Directors of Oriola-KD shall have seven members and elected the following persons as Board members:
• Mr Olli Riikkala, b. 1951, Chairman of the Board, M.Sc. (Eng.), M.Sc. (Econ.), MBA
• Mr Antti Remes, b. 1947, Vice Chairman, M.Sc. (Econ.)
• Mr Harry Brade, b. 1969, M.Sc. (Eng.), MBA
• Mr Pauli Kulvik, b. 1951, M.Sc. (Eng.) MBA
• Ms Outi Raitasuo, b. 1959, Advocate, Master of Laws (Helsinki), LL.M (Toronto)
• Mr Jaakko Uotila, b. 1949, Pharmacist, Master of Science in Management
• Mr Mika Vidgrén, b. 1960, Pharmacist, Doctor of Pharmacy, Adjunct Professor
In its organisation meeting held on the same date, the Board of Directors elected Antti Remes as its Vice Chairman.
The Board of Directors has evaluated the independence of its members and determined that all members are independent of both the company and its major shareholders. The Board has also conducted an internal self-assessment of its activities and working practices.
Board Committees
The Board of Directors has an Audit Committee and a Compensation Committee. In addition, the company has a Nomination Committee. The Committees’ rules of procedure are confirmed by the Board. The Committees are preparatory bodies that submit proposals to the Board on matters within their purview. Minutes are kept of the Committees’ meetings. The Committees report to the Board at regular intervals. The Committees do not have independent decision-making powers; their task is to submit recommendations to the Board on matters under consideration.
In its organisation meeting, held after the Annual General Meeting, the Board of Directors appoints the members of the Audit Committee and the Compensation Committee and the Chairman from among its own members.
The process of appointing the members of the Nomination Committee is detailed below in the section on the Nomination Committee.
In addition to the Audit, Compensation and Nomination Committees, the Board of Directors may appoint ad hoc committees for preparing specific matters. Such committees do not have Board-approved rules of procedure and the Board does not release information about their term, composition, the number of their meetings or the members’ attendance rates.
Audit Committee
The task of the Audit Committee is to further the supervision of the company’s operations and financial reporting. The Audit Committee’s responsibilities include reviewing the consolidated financial statements and interim reports, and the basis of these reports, together with the company’s principally responsible auditor; reviewing together with the company’s principally responsible auditor any deficiencies in the supervision system observed in control inspections during the financial year and any other deficiencies reported by auditors; reviewing any deficiencies in the control system observed in internal audit during the financial year and any other observations and recommendations made; reviewing the plans of action for the control inspection and internal audit and giving recommendations to company management on focus areas for internal audits, evaluating the appropriateness of the supervision of company administration and risk management; and reviewing changes in the principles of company accounting and external reporting prior to their introduction. In addition, the Audit Committee’s duties include preparatory work on the decision on electing the auditor and for the decision on obtaining an extended audit, evaluation of the advisory services provided the auditor and carrying out any other tasks assigned to it by the Board. The Audit Committee has four members.
In 2009, the Audit Committee met four times and the attendance rate of the Committee’s members was 100%.
As of 16 April 2009, the Chairman of the Committee is Mr Antti Remes and the other members are Mr Harry Brade, Ms Outi Raitasuo and Mr Mika Vidgrén. The members of the Audit Committee are independent of the company and its major shareholders.
Compensation Committee
The Compensation Committee deals with and prepares matters concerning compensation and remuneration of the management and personnel of the Oriola-KD Group as well as matters relating to certain corporate management appointments and makes proposals on such matters to the Board. The Committee’s responsibilities include dealing with, evaluating and making proposals on the remuneration structure and compensation and incentive schemes for Group management and personnel; monitoring the functioning of these systems to ensure that management compensation schemes promote achievement of the company’s goals and are based on personal performance; dealing with and preparing other matters relating to the compensation and remuneration of management and personnel, and submitting proposals on these to the Board; and dealing with and conducting preparatory work on matters concerning management appointments for decision by the Board. The Compensation Committee has three members.
In 2009, the Compensation Committee convened 7 times and the attendance rate of the Committee’s members was 90.6%.
As of 16 April 2009, the Chairman of the Committee is Mr Olli Riikkala and the other members are Mr Pauli Kulvik and Mr Jaakko Uotila. The members of the Compensation Committee are independent of the company and its major shareholders.
Nomination Committee
The Nomination Committee of Oriola-KD is a body established by the Board for the purpose of preparing and presenting to the Board a recommendation for the proposal to be put to the Annual General Meeting concerning the composition and remuneration of the Board. The Committee members are appointed by the Board, which also appoints one of the members as the Committee’s Chairman. Members of the Committee do not need to be members of the Board of Directors. The purpose of this deviation from the Corporate Governance Code is to enable election of major shareholders in the company to the Nomination Committee and thus to ensure that their opinions are heard well before the Annual General Meeting. Prior to appointing the Committee members, the Chairman of the Board arranges a meeting with the company’s twenty largest shareholders, determined on the basis of number of votes. The purpose of the meeting is to consult the major shareholders on their views as to the composition of the Committee. The Committee presents its recommendation concerning the proposal on the composition and remuneration of the Board to be put before the Annual General Meeting at a meeting held before the end of the January preceding the Annual General Meeting, to which the Chairman of the Board invites the company’s twenty largest shareholders, determined on the basis of number of votes.
After the meeting, the Committee notifies the Board of the recommendation it has prepared. The Nomination Committee evaluates the independence of the proposed Board members it has recommended. The Committee’s recommendation does not affect the Board’s independent decision-making authority or its right to put proposals before the General Meeting. In 2009, the Nomination Committee convened four times and the attendance rate of the Committee’s members was 100%.
On 12 November 2009, the Board of Directors elected the following persons to the Nomination Committee: Mr Harry Brade, Mr Risto Murto, Mr Olli Riikkala, Mr Timo Rita¬kallio, Mr Seppo Salonen and Mr Into Ylppö. Mr Into Ylppö was elected as Chairman of the Committee. The members of the Committee are independent of the company and its major shareholders.
President and CEO and Executive Vice President
The Board of Directors appoints the President and CEO of Oriola-KD and decides on the terms of his/her employment. The current President and CEO of the company is Mr Eero Hautaniemi, M.Sc. (Econ.), born in 1966. In accordance with the Companies Act, the President and CEO manages the company’s day-to-day business affairs in accordance with the guidelines and instructions issued by the Board of Directors. In addition, the President and CEO also ensures that the company’s accounting complies with Finnish law and that the management of assets is organised in a reliable way. The terms and conditions of the President and CEO’s employment are specified in a written service contract.
When necessary, the Board of Directors also appoints an Executive Vice President. The company’s Executive Vice President and deputy to the CEO is Mr Kimmo Virtanen, CFO, M.Sc. (Econ.), born in 1968.
Group Management Team
The Group Management Team consists of the President and CEO of Oriola-KD as Chairman and persons appointed by the Board. Currently, the Group Management Team consists of nine members, including the President and CEO, to whom the Team members report. The Group Management Team meets at least once a month to address matters concerning the entire Group. The Group Management Team is not a decision-making body. Its purpose is to assist the President and CEO in the implementation of Group strategy and in operational management, and to facilitate the Group-wide distribution of information concerning the entire Group.
External audit
The company has one auditor, which must be a firm of authorised public accountants. The auditor is elected annually by the Annual General Meeting for a term that expires at the end of the next Annual General Meeting following the election. The task of the auditor is to audit the consolidated financial statements, the financial statements of the parent company, the accounting of the Group and the parent company and the administration of the parent company. The company’s auditor submits the auditors’ report to the shareholders in connection with the annual financial statements, as required by law, and submits regular reports on its observations to the Board’s Audit Committee.
The Annual General Meeting of Oriola-KD Corporation held on 16 April 2009 elected PricewaterhouseCoopers Oy, a firm of authorised public accountants, as the company’s auditor, with Heikki Lassila, APA, as the principally responsible auditor. The fees for the audit proper paid to the auditing firm PricewaterhouseCoopers Oy in 2009 totalled EUR 227.000. An additional sum of EUR 322,000 was paid for other consultation provided to Group companies.
Internal audit
The Group does not have its own separate internal audit organisation. Oriola-KD meets its internal audit requirements by assigning reporting and audit tasks to the company’s auditing firm in accordance with an audit plan approved each year by the Audit Committee of the Board of Directors’.
The risk management and internal supervision systems connected with financial reporting
Risk management system
The purpose of risk management is to help the Group to achieve its objectives. The risks threatening the achievement of the objectives can only be managed if they are identified and assessed.
The Board of Directors of Oriola-KD Corporation approves the risk management policy and the risk management objectives and guides and supervises the planning and implementation of the risk management. The Board-appointed Audit Committee supervises risk management in the Group.
The management of the Oriola-KD Group has operative responsibility for risk management. The general principles governing risk management and its development, coordination and monitoring are the responsibility of a risk management team, which reports to the Group’s CFO.
Oriola-KD’s risk management policy is part of the Group’s management process and its different components. The purpose of the policy is to ensure that risks can be comprehensively identified, assessed, managed and monitored throughout. It is an integral part of Oriola-KD’s planning and management system, decision-making, daily management, monitoring and reporting.
The principle governing the risk management policy is illustrated above. The risks that may interfere with the achievement of the objectives in the sector in question are identified and assessed as part of business operations planning. The first steps in the risk management process are:
1) Risk identification
2) Evaluation of the likelihood of the risks occurring if no preventive measures are taken
3) Evaluation of the consequences of the risks occurring, by calculating the cumulative financial losses during the strategy period
4) Preparation of a risk management plan (measures helping to avoid risks, to make them less likely or to mitigate the consequences)
5) Risk management is incorporated into the monitoring reports regularly submitted to the management
As part of the risk management efforts, the Group’s risk management team maintains a risk database, which can be continuously updated by including new risks that have been identified and that can threaten business operations.
The Group Management Team and the Board of Directors receive yearly reports on the risk management situation.
Supervision environment
The purpose of Oriola-KD’s internal supervision system is to support the implementation of the Group strategy and to ensure that all regulations are observed. The company’s internal supervision is based on a Group structure, in which the Group’s operations are organised into business segments and Group functions. Group functions issue Group-level guidelines laying down the operational framework and the persons responsible for the process. The guidelines cover such areas as accounting, reporting, financing and investments.
Supervisory measures
The supervisory measures refer to instructions and guidelines that help to ensure the proper management of all functions. They help to ensure that all risks that are connected with the achievement of the company’s objectives can be identified and prevented. The measures cover all Group levels and functions and information systems play an important role in them. Information systems are of vital importance to effective internal supervision as many of the supervisory measures rely on information technology.
Communications and distribution of information
Effective communications and distribution of information help to ensure the reliability and correct timing of financial reporting, for example by making instructions and guidelines on financial reporting as widely known as possible. Oriola-KD’s accounting manual contains instructions and guidelines on accounting and financial reporting that must be observed in all Group companies. The instructions are based on the international IFRS standards. Changes in IFRS standards are monitored in the Group and the manual is updated whenever changes are introduced. The manual helps to ensure that the Group can meet all reliability requirements concerning its financial reporting.
In addition to a Group-level accounting manual, individual business segments also have their own sets of instructions that have been drawn up in accordance with their needs. The guidelines drawn up for individual business segments are consistent with the Group-level accounting manual and as a result there are no contradictions.
New instructions are regularly published on the company’s internal website. Staff members can provide feedback to the management and anonymously report any questionable activities through the company intranet. Corporate Communications is responsible for all external communications, as laid down in the Group’s communications policy.
Monitoring
The Group Management Team monitors the performance of the Group using monthly reports. The financial situation of the Group is also monitored in each Board meeting. The Audit Committee and the Board of Directors examine the interim reports and financial statements before their publication. Monitoring of the monthly reports also ensures the effectiveness of the internal supervision. Each business segment must ensure effective supervision of its own operations as part of Group-level internal supervision. The business segments and a Group-level controller organisation are responsible for the evaluation of the processes covering financial reporting. The evaluations must contain balances and analyses, which are compared with budgets, assessments and various economic indicators.
