I. Introduction
The Finnish Corporate Governance Recommendation (the "CGR 2003"), initially issued in the year 1997, underwent last considerable revision in the year 2003. Although it has proven to be well-functioning and of an internationally high standard, new regulations and recent international developments made an update necessary. Thus, the board of the Securities Market Association established a Corporate Governance working group on 26 December 2006. The main task of the working group was to evaluate the updating needs of the then-existing code and to develop the code further. As a result, the working group decided to propose a new Corporate Governance Code for Listed Companies (the "Code"), which was first published on 20 October 2008 and approved by the Board of the Finnish Securities Market Association on the same day. The Code shall become effective on 1 January 2009 and, apart from certain exceptions, replace the currently existing Corporate Governance Recommendation for Listed Companies issued in 2003 . The main objectives of the new Code were to offer an internationally competitive Corporate Governance Code for Finnish companies, to achieve more transparency in governing bodies and, to improve international investors' access to information regarding the Finnish corporate governance system due to the fact that the number of foreign shareholders in the Finnish listed companies is one of the highest in Europe.
The purpose of this article is to introduce some of the most significant changes included in the Code that mainly relate to the board of directors and certain committees thereunder.
II. Board of Directors
1. The number of directors and the composition of the board
Recommendation 9 of the Code includes noteworthy amendments compared to earlier regarding the number of the members as well as the composition of the board.
In CGR 2003, the recommended minimum number of board members was explicitly determined. Under the CGR 2003, the Board was to comprise at least five directors.
The Code does not set numeric requirements on the number of board members as its predecessor did. In fact, the Code only states that the number of the directors needs to enable the board to take care of its duties in an efficient manner. This pertains to the assumption that the most sufficient way to call an effective board into order is a case by case decision.
In addition, in accordance with the said recommendation, the composition of the board shall also take cognizance the needs of the company operations and the development stage of the company.
Furthermore, both genders shall be represented in the board. This can be considered as one of the most significant changes, as the CGR 2003 only mentioned that the proportion of both sexes can be taken into account in the composition of the board, i.e. a mixture of both genders was not actually required. However, it still can be noted that the new wording of the Code does not constitute a requirement to setting of quotas for the genders.
2. Evaluation of independence
Although the evaluation process as such has in general gone through merely insignificant changes, the scope of certain evaluation criteria has been extended notably. According to recommendation 15 d) of the Code, a director is not independent from the company, if the director belongs to operative management of another company, and the two companies have, or have had during the past year, a customer, supplier or cooperation relationship significant to the other company. Due to the fact that the CGR 2003 concerned only ongoing customer, supplier or cooperation relationships as indication of dependency, the current wording extends the applicability of the Code considerably.
The new subsection f) of the recommendation 15 is also noteworthy, according to which provision a director cannot be considered as independent if he/she is, or has been during the past three years, a partner or an employee of the company's present auditor, or the director is a partner or an employee in an audit firm that has been the company's auditor during the past three years.
Furthermore, the subsection of the recommendation 15 dealing with issues, according to which the board may after an overall evaluation determine that a director is not independent from the company (or from a significant shareholder), has also been amended. In conformity with subsection j) of the recommendation 15, the board shall include into the said overall evaluation as a relevant circumstance the fact that a director has been an non-executive board member for more than 12 consecutive years.
Another notable amendment is included in the subsection k) of the recommendation 15. Correspondingly with the aforementioned subsection j), the fact that a private or legal person who is related party to a director are to be evaluated in the overall evaluation as a circumstance, which may compromise the independency of the director.
III. Board Committees
In general, as such the Code does not significantly change the current system relating to the Board Committees. However, it includes some noteworthy amendments regarding the two most important committees, the Audit Committee and the Nomination Committee.
1. The Audit Committee
As mentioned above, the intention of the Code has not been the renewal of the position of Audit Committee, but rather to ensure that the relevant tasks can be fulfilled even more efficiently. Hence, following alterations were introduced:
a) Appointment and the duties of the of the Audit Committee
Compared to the CGR 2003, the main duties of the Audit Committee are now listed directly in the Code instead of merely mentioned in the explanatory part. The content of the listing has also experienced some alterations. More significant, however, is that according to the Code the board of directors shall be responsible for the duties of the Audit Committee or assign them to another committee in case it decides not to establish an Audit Committee.
Noteworthy is also that in order to ensure that the committee has sufficient expertise for its specific core tasks, at least one member shall in accordance with the Code have expertise in accounting or auditing.
b) Independence of the members of the Audit Committee
In general, independence is needed to prevent insiders from influencing the work and oversight of the Audit Committee and the work of the external auditors. In accordance with the CGR 2003, adequate prevention was when all members of the audit committee were independent of the company. In order to provide more objectiveness, the Code goes even beyond this, requiring that at least one of the members shall be independent of significant shareholders, as well.
2. The Nomination Committee
a) Establishment of the Nomination Committee
The wording of the recommendation has not been subject to any amendments. However, its explanatory part has experienced some specifications. According to the Code, the board shall describe the appointment process and explain its decision, if persons who are not members of the board are appointed into the nomination Committee.
b) Independence of the members of the Nomination Committee
The independence of the members has obviously been a key issue for the working group in this context. According to the CGR 2003, neither the managing director nor any other executive director were allowed to be a member of the committee. As stated in the explanatory part of the corresponding recommendation of the Code, the majority of the members shall be independent of the company as the Nomination Board controls and supervises the operative management of the company.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
