On December 2 2003, a working group nominated by HEX Integrated Markets, the Central Chamber of Commerce of Finland and the Confederation of Finnish Industry and Employers published a new Finnish Corporate Governance Recommendation. The Recommendation is a result of the working group's review of the previous corporate governance recommendation for Finnish listed companies issued in 1997.
The purpose of the Recommendation is to harmonize the practices followed by listed companies, to improve the transparency of their operations, to harmonize the information made available to investors and shareholders, and to improve the quality of that information. Another aim is to make Finnish listed companies more attractive to investors and enhance confidence in the Finnish securities market.
The Recommendation will complement the statutory provisions set out in the Finnish Companies Act. Companies listed on the Helsinki Exchanges will comply with the Recommendation, which will become effective on July 1 2004. The Recommendation has been incorporated into the Helsinki Exchanges' rules for listed companies.
The central issues addressed in the Recommendation include the independence of board members as well as open and transparent remuneration policies for both board members and managing directors. The new guidelines also enhance the efficient operation of the board by establishing committees such as audit committees, nomination committees and compensation committees. The board may also establish other committees if necessary. According to the Recommendation at least two members of the board should be independent from significant shareholders in the company. This is intended to support the requirement for the board to act in the interests of the company and all shareholders collectively. According to the Recommendation, open communication on the fees and other benefits of the board members allows shareholders to compare them with those paid by other companies.
The Recommendation also addresses issues such as the organization of shareholders' meetings, the election and number of board members, as well as internal control and risk management. When organizing shareholders' meetings, for example, the Recommendation says companies should strive for the widest participation possible.
The Recommendation follows the so-called comply or explain principle. This means listed companies will have to comply with all provisions of the Recommendation or state important grounds for such deviation. Companies will also have to publish information about their corporate governance systems and levels of compliance with the Recommendation in their annual reports and on their websites.