Corporate Governance Statement


Lemminkäinen Corporation is a Finnish public listed company whose administration complies with current legislation, such as the Finnish Companies Act, the Accounting Act and the Finnish Securities Markets Act, and the company’s Articles of Association. We also observe the rules, regulations and guidelines of NASDAQ OMX Helsinki Ltd and the Finnish Financial Supervisory Authority, and we adhere to the Finnish Corporate Governance Code. The Corporate Governance Code is publicly available, e.g. on the Securities Market Association website www.cgfinland.fi.

Lemminkäinen's administrative bodies

The General Meeting is where shareholders exercise their voting rights and is Lemminkäinen’s highest decision-making body. The Annual General Meeting (AGM) elects the Board of Directors, which in turn appoints the President and CEO. The Board of Directors and the President and CEO are responsible for the management of the Group. The Group Executive Team and other management personnel assist the President and CEO in his or her duties. The Board of Directors decides on the Group’s administrative systems and ensures compliance with good governance principles.

Annual General Meeting

Lemminkäinen’s AGM is held annually within six months of the end of the previous financial year on a date determined by the Board of Directors. An Extraordinary General Meeting may be held if the Board of Directors deems it necessary, or if one is legally required.

Notice of a general meeting of shareholders is published on the company’s website no later than three weeks prior to the meeting. All of Lemminkäinen’s shareholders have the right to attend general meetings, as long as they follow the instructions given in the notice. Shareholders may either attend in person or authorise a representative to represent them. Each share carries one vote at a general meeting.

The AGM carries out all of the tasks stipulated in the Companies Act, such as adoption of the Financial Statements, profit distribution, granting discharge from liability to the members of the Board of Directors and the President and CEO, and making any potential changes to the company’s Articles of Association. The AGM also elects the members of the Board of Directors and the auditors, and decides on their remuneration.

Lemminkäinen aims to have the President and CEO, the auditor, and all members of the company’s Board of Directors and Group Executive Team present at the AGM. Unless there is a pressing reason for their absence, any prospective members of the Board of Directors who have been nominated for the first time should be present at the AGM that votes on their nomination.

2014 Lemminkäinen Corporation’s 2014 Annual General Meeting was held in Helsinki on 9 April 2014. Ninety-two shareholders attended the meeting, either in person or through an authorised representative, representing about 65.7 per cent of the company’s total number of shares and votes.

Board of Directors

Lemminkäinen Corporation’s AGM elects at least four and at most eight members each year to serve on the company’s Board of Directors, which elects a Chairman and Vice Chairman from among its members. The Board members’ terms of office end upon the conclusion of the first AGM held after their election.

The Board of Directors handles the company’s administration and the appropriate arrangement of its operations. The Board also ensures that the supervision of bookkeeping and asset management is appropriate. The Board of Directors decides on matters of principle and on any issues that would have wide-ranging implications for the company. The Board’s task is to steer the company’s operations in a manner that adds the greatest possible value to the capital invested in the company over the long term. The Board appoints and dismisses the President and CEO, supervises his or her actions, and decides on his or her remuneration and other terms and conditions of service. The Board also approves the Group’s strategy, operating principles and guiding values, as well as ensures that they are up-to-date and correctly implemented. The Board also ensures that the Group has a functional system of internal controls and that the Group’s risk management principles have been defined. It also ensures that key business risks have been identified and are being systematically monitored. The Board approves the operational guidelines and annual plan for the internal audit, and also assesses its effectiveness. Lemminkäinen’s President and CEO attends the Board’s meetings to present matters for the Board’s consideration, as does the CFO. Other members of the Executive Team and the company’s management attend meetings as required. The Group’s General Counsel acts as the secretary of the Board of Directors.

2014 At the Annual General Meeting held on 9 April 2014, the following were elected as members of the Board of Directors: Berndt Brunow, Noora Forstén, Finn Johnsson, Juhani Mäkinen, Kristina Pentti-von Walzel and Heikki Räty. At its organisational meeting on 9 April 2014, the Board appointed from among its members Berndt Brunow as Chairman and Juhani Mäkinen as Vice Chairman. The Board of Directors convened 20 times in 2014. Each member’s attendance is shown in the table below.

The Board’s focus areas in 2014 included improving Lemminkäinen’s profitability clearly and strengthening its balance sheet and financial position. The most important agenda topics discussed included changes related to the President and CEO and the Group Executive Team, the clarification of the business portfolio, changes in the reporting structure and the operating model, the rights offering, the bond, the hybrid bond and the divestment of the technical building services business.

The Board carried out a self-assessment of its structure, working methods, and compliance with its rules of procedure. The results of this self-assessment are used to develop the Board’s working methods. The Board also assessed the independence of its members.

Members of the Board of Directors

Members Independent   
of the company
Independent
of major shareholders
Board of
Directors
Audit
Committee  
Nomination
Committee   
HR
Committee
Berndt Brunow 1),
born 1950,
B.Sc. (Econ.)
 Yes Yes Chair (20/20)   Chair
(2/2)1)
Chair1) (5/5)
Juhani Mäkinen,
born 1956,
Counsellor of Law
Yes Yes Vice (19/20) Member (6/6)    
Noora Forstén,
born 1981,
Secondary School Graduate, entrepreneur
Yes No Member (20/20)   Member
(2/2)
Member (5/5)
Finn Johnsson,
born 1946,
M.Sc. (Econ.)
Yes Yes Member (19/20)      
Kristina Pentti-von Walzel,
born 1978,
M.Sc. (Econ.),
B.Sc. (Pol.Sc.),
Director, Libera
Yes No Member (20/20) Member (6/6) Member
(2/2)
Member (5/5)
Heikki Räty,
born 1953,
M.Sc. (Econ.),
Managing Director, Helectron Oy Ab
Yes Yes Member (20/20)  Chair
(6/6)
   

Chair=Chairman, Vice=Vice Chairman
Attendance rate in brackets
1) Did not participate in the committee work when acting as interim President & CEO from 2 April to 31 July 2014

Board committees

At its annual organisational meeting, the Board of Directors appoints three committees from among its members: the Audit Committee, Nomination Committee, and HR Committee. These committees assist the Board of Directors by preparing and drawing up proposals and recommendations for the Board’s consideration. The Board of Directors has approved the rules of procedure governing these committees.

Audit Committee

The Audit Committee monitors and supervises Lemminkäinen’s annual statements and financial reporting processes and the statutory audit of the consolidated and parent company’s Financial Statements. The Committee monitors the adequacy and effectiveness of the Group’s risk management, internal control and internal auditing. It also handles the section of the Group’s Corporate Governance Statement that describes the main features of the internal control and risk management systems associated with the financial reporting process.

The Audit Committee deals with reports and plans prepared by the internal audit unit. It also assesses the independence of the statutory auditor or firm of authorised public accountants and, in particular, the provision of ancillary services to the audited firm. The Audit Committee evaluates potential auditors and submits a proposal for the Board of Directors’ consideration.

The Audit Committee meets at least four times per annum. It comprises a Chairman and at least two members appointed by the Board of Directors. The company’s auditor, internal auditor and management representatives are also invited to meetings. Members of the Audit Committee must be independent of the company, and at least one member must also be independent of the company’s major shareholders. All members must be competent in the Audit Committee’s task domain, and at least one member must have expertise in accountancy, bookkeeping or auditing in particular.

2014 The Audit Committee convened six times in 2014. The members and their meeting attendance are presented in the Members of the Board of Directors table.

In addition to mandatory items, other matters discussed by the Audit Committee included the Group’s financial arrangements, balance sheet structure, and progress in the Group’s efficiency improvement programme. The committee also discussed measures aimed at the improvement of financial reporting.

Nomination Committee

The Nomination Committee makes preparations for the AGM by drawing up a list of proposed nominees for the Board of Directors and making a recommendation on their remuneration.

The Nomination Committee meets at least once per annum. It consists of a Chairman and between two and four members appointed by the Board of Directors. The majority of the members of the Nomination Committee must be independent of the company. The President and CEO and other members of the company’s management may not be members of the Committee.

2014 The Nomination Committee convened twice in 2014. The members and their meeting attendance are presented in the Members of the Board of Directors table.

The Committee made a proposal containing a list of proposed nominees for Lemminkäinen’s Board and a recommendation on the remuneration of Board and Committee members. The AGM approved the Nomination Committee’s proposal, which was presented at the AGM on 9 April 2014.

During the period from 2 April to 31 July 2014, the company deviated from Recommendation 29 (Members of the nomination committee) of the Finnish Corporate Governance Code in that during this period the Chairman of the Board of Directors Berndt Brunow, acting as the Chairman of the Committee, served as interim President and CEO. Berndt Brunow did not participate in the committee work during this period.

HR Committee

The HR Committee handles matters relating to senior management’s salaries and incentives, as well as other key terms and conditions of their service agreements. The Committee also deals with Group-level remuneration, incentive and retention schemes as well as other HR issues.

The HR Committee meets at least once per annum. It consists of a Chairman and between two and four members appointed by the Board of Directors. The majority of the members of the HR Committee must be independent of the company. The President and CEO and other members of the company’s management may not be members of the Committee.

2014 The HR Committee convened five times in 2014. The members and their meeting attendance are presented in the Members of the Board of Directors table.

At its meetings, the HR Committee discussed management incentive practices, short- and long-term management incentives, the elements and earning criteria of short- and long-term incentives in 2015, and who falls within the scope of the management incentive scheme in 2014 and 2015. The Committee also discussed long-term incentives for 2015–2018. The Committee drew up a list of remuneration recommendations, which was approved by the Board of Directors.

During the period from 2 April to 31 July 2014, the company deviated from Recommendation 32 (Members of the remuneration committee) of the Finnish Corporate Governance Code in that during this period the Chairman of the Board of Directors Berndt Brunow, acting as the Chairman of the Committee, served as interim President and CEO. Berndt Brunow did not participate in the committee work during this period.

Management

President and CEO

The President and CEO is responsible for the day-to-day management of the company in line with the Board of Directors’ guidelines and instructions. He or she is responsible for the Group’s day-to-day administration and business planning. The President and CEO undertakes the execution of measures approved by the Board of Directors and handles preparations for any measures that are strategically important at the Group level. The President and CEO makes sure that the Group has adequate management resources and the company’s bookkeeping complies with legislation. He or she also ensures the appropriate arrangement of the Group’s administration and asset management.

As of 1 August 2014, Casimir Lindholm, M.Sc. (Econ.), MBA (born 1971), has served as President and CEO of Lemminkäinen Corporation. From 2 April to 31 July 2014, he served as the company’s deputy CEO. The Chairman of the Board of Directors, Berndt Brunow, acted as the company’s interim President and CEO from 2 April to 31 July 2014, after Timo Kohtamäki left the company on 2 April 2014.

During the period from 2 April to 31 July 2014, the company deviated from Recommendation 36 (Managing director and chairman of the board) of the Finnish Corporate Governance Code in that during this period the Chairman of the Board of Directors served as interim President and CEO. The underlying reason for the deviation was the fact that, as the former President and CEO left the company, the company would have been without a President and CEO until the appointment of the actual President and CEO.

Executive Team

Lemminkäinen’s Group Executive Team consists of the parent company’s President and CEO and other members appointed by the Board of Directors. The President and CEO is Chairman of the Executive Team and appoints its secretary.

The Executive Team meets regularly, at least once a month and supports the President and CEO in, for example, the preparation and execution of strategic matters, operating plans as well as matters of principle and any other significant matters. The Executive Team also assists the President and CEO in ensuring information flow and smooth internal cooperation.

2014 There were several changes in Lemminkäinen’s Executive Team in 2014. At the end of the review period, Casimir Lindholm served as Lemminkäinen’s President and CEO and the Chairman of the Executive Team. The other members of the Executive Team were Executive Vice Presidents Harri Kailasalo (Infrastructure construction), Pauli Mäkelä (Building construction, Finland) and Maaret Heiskari (Russian operations), Ilkka Salonen, CFO, and Tania Jarrett, Executive Vice President, HR. The Group’s Head of Group Communications and Marketing acted as the secretary of the Executive Team. The table below contains more detailed information on the members of the Executive Team and their positions in 2014.


 

Position

Executive Team member who held the position in 2014

The members of the Executive Team, as of 1 January 2015

      

President and CEO and Chairman of the Executive Team

Casimir Lindholm, as of 1 August 2014

Berndt Brunow, interim President and CEO, 2 April–31 July 2014

Timo Kohtamäki, until 2 April 2014

Chief Financial Officer

Ilkka Salonen, as of 8 April 2014
(from 8 April to 30 June 2014, Salonen acted as interim CFO)

Robert Öhman, until 7 April 2014

Executive Vice President, HR

Tania Jarrett, as of 1 November 2014

Tiina Mellas, until 19 June 2014

Executive Vice President, Infrastructure construction
(as of 1 January 2015 Executive Vice President, Infra projects)

Harri Kailasalo

Executive Vice President, Building construction, Finland

Pauli Mäkelä, as of 1 November 2014

Casimir Lindholm, until 31 July 2014 (from 1 August to 31 October 2014 Lindholm acted as interim EVP)

Executive Vice President, Russian operations

Maaret Heiskari

Executive Vice President, Paving
(as of 1 January 2015)

Robert Blumberg, as of 1 January 2015

Members who have left the Executive Team   

Executive Vice President, Scandinavia1)

Timo Vikström, until 30 July 2014

Executive Vice President, Technical building services1)

Marcus Karsten, until 13 June 2014

 Chief Strategy Officer2)

Tiina Mikander, until 1 November 2014

Executive Vice President, Procurement2)

Jouni Pekonen, until 9 June 2014

 1) Due to the reporting structure that was changed on 1 August 2014, the Scandinavia business segment was integrated into the Infrastructure construction business segment. On 13 June 2014, the technical building services business was divested in its entirety to Are Oy.

2) President and CEO Casimir Lindholm is responsible for Lemminkäinen’s strategy and Executive Vice President, Infrastructure construction Harri Kailasalo is responsible for procurement.

The Executive Team held eighteen meetings in 2014. The Executive Team’s key topics during 2014 were the improvement of the company’s profitability and efficiency (the Deliver 2014 cost-saving programme), the strengthening of the balance sheet and the capital structure (the EUR 100 million efficiency programme), and the improvement of long-term competitiveness (the reviewed strategy and new organisation).

Controls

The principles of the internal control, risk management and internal audit adhered to by Lemminkäinen Corporation have been approved by the Board of Directors.

Internal control and risk management seek to ensure that the company’s business is efficient and profitable, that reporting is consistent and reliable, and that applicable laws, regulations and the Group’s operating principles are observed.

Internal control

The Board of Directors is responsible for ensuring that the Group’s internal control and risk management are adequate for the scope of the company’s business operations, and that their supervision is appropriately organised. The Board supervises the President and CEO to ensure that he or she handles the company’s business operations and administration in accordance with the guidelines and instructions issued by the Board of Directors. In order to ensure adequate risk management, the Board of Directors discusses the Group’s financial reports, business segment reviews and any substantial changes that have occurred in the company’s business. The Board’s Audit Committee also assesses the adequacy and efficiency of internal control and risk management.

The President and CEO is responsible for the organisation of internal control. Among other duties, he or she ensures that the company’s bookkeeping complies with the law and that asset management is handled in a reliable manner.

Lemminkäinen’s business is organised into business segments whose Executive Vice Presidents report to the President and CEO. The Group’s other directors and managers are responsible for internal control within their own areas of responsibility.

Lemminkäinen controls and monitors its functions to ensure their efficiency and appropriateness, primarily through financial reports and business reviews prepared by management at the business area, business segment and Group level. In addition, the Group set up an Investment Board in 2014. The Investment Board convenes twice a month to discuss and prioritise the Group’s most important projects and investments while ensuring that the Group’s resources are allocated as well as possible.

Risk management

Risk management is an essential part of Lemminkäinen’s business operations. Risk management seeks to ensure that the Group’s strategic and operational targets are achieved with the best possible result and by increasing shareholder value.

Risk management is based on the risk management policy approved by the Board of Directors. The Board also supervises the implementation of risk management. Where necessary, the Board assesses and updates the Group’s specified risk levels and decision-making authorisations. The President and CEO may tighten, but not loosen, these specifications set by the Board. The Board’s Audit Committee monitors the adequacy and effectiveness of the Group’s risk management in accordance with the annual Action Plan.

The President and CEO is responsible for the implementation of risk management. Members of the Group Executive Team are responsible for the execution of the policy in their respective areas of responsibility. Personnel receive training in systematic and effective risk management, including legal and contractual matters. Detailed guidelines for different areas, such as competition law and insider issues, have also been drawn up. Monitoring compliance with these guidelines falls within the scope of line operations and management, and internal training on them is also provided.

The main features of internal control and risk management systems associated with the financial reporting process

Internal control associated with the financial reporting process aims to ensure that the company’s management has sufficient and accurate information available for leading the company and that the financial reports published by the company give a true view of the company’s business development and financial position.

The structure and management of Lemminkäinen’s financial reporting process

Lemminkäinen’s financial administration is organised into the Financial Shared Services function, the Group Controlling (Management accounting) and Taxes function, the Group Accounting (Group consolidation) function and segment-specific business controlling functions. In financial administration in Sweden (excluding Rekab) and Finland, the basic processes are handled in the Financial Shared Services, whereas other foreign subsidiaries have separate financial administration organisations. All of the units mentioned above report to the Group’s CFO.

Lemminkäinen’s financial reporting process consists of internal and external accounting. Internal accounting focuses on the monitoring and forecasting of the Group’s profit performance and measures, whereas external accounting fulfils the information presentation requirements of the International Financial Reporting Standards endorsed by the European Union and, with regard to the notes to the financial statements, the presentation requirements set by the Finnish accounting and company legislation. The Board of Directors’ Report and the parent company’s Financial Statements are prepared in accordance with the Finnish Accounting Act and the instructions and statements issued by the Finnish Accounting Standards Board.

Group reporting employs both a standard chart of accounts and a reporting and consolidation system. The accounting principles used in internal and external accounting are consistent.

In Finland and Sweden (excluding Rekab), a single financial administration system is used in all financial reporting, and other foreign companies use local systems. The SAP business management system was implemented in Finland in 2013 and in Sweden in 2014.

Main features and control environment of internal control of the financial reporting process

The company publishes an external accounting interim report quarterly (each year’s final quarter is reported as part of the financial statements bulletin). The interim report includes a description of the business development and financial position in the review period with comparative figures as well as a short-term forecast about the development of the operating environment and the result. The Board of Directors discusses and approves the interim reports, the financial statements bulletin as well as the financial statements and the report of the Board of Directors.

Group Controlling provides instructions on internal accounting reporting timetables and content and combines financial information from different business segments to prepare a monthly management report. The monthly management report includes the Group’s and the business segments’ income statement, capital employed, investments, order book, operative key indicators and a description of the most business-critical events. In addition, the report contains a rolling forecast of the development of the Group’s and the business segments’ financial position. The Group Executive Team, the Group’s Board of Directors and the Board’s Audit Committee monitor the development of the financial position and assess the achievement of targets monthly.

Group Accounting (the Group accounting function) provides guidance for Group companies in drawing up their quarterly external accounting Group reports. In addition to Group guidance, the Group accounting function and the Group Controlling function also support and coordinate the Financial Shared Services, the business segments’ business controlling functions, and subsidiaries in their financial reporting. The business segments’ business controlling functions also ensure that their profit centres draw up the monthly internal accounting report in accordance with the specified principles and instructions. The Group Controlling function reconciles internal and external accounting every quarter to verify the reliability of financial information.

The internal audit unit, too, assesses processes associated with financial reporting. In 2014, the internal audit unit examined procedures related to management reporting and the project reporting process as well as internal controls and authorisations associated with financial administration processes and systems. In addition, the internal audit unit assessed procedures related to the financial reporting of the subsidiaries.

Risk management associated with the financial reporting process

One of the tasks of risk management is to identify and proactively deal with threats associated with the accuracy of financial reporting, the realisation of which could lead to a situation in which the management would not have sufficient and accurate information available for leading the company and the financial reports published by the company would not give materially true information and assessment about the company’s business development and financial position. The Group’s CFO is responsible for risk management associated with financial reporting.

Lemminkäinen manages the risks associated with the financial reporting process with instructions related to accounting, reporting and investments and the Group’s treasury policy. One of the aims of the unified SAP reporting system is to harmonise and simplify the financial reporting process and to mitigate the risks related to the management of several parallel systems.

Project-type operations, in which the percentage-of-completion method and the recognition-on-completion method of revenue recognition are applicable, are characteristic of Lemminkäinen’s business. Approval authorisations determined by the magnitude and risks of the undertaking are defined for projects. The day-to-day financial control of construction projects is supervised by the project organisation. The business segment management regularly examines the current project forecast and any updates, project risks, the degree of project completion, and revenue recognition. Recognition of revenue from construction projects is based on the management’s judgement and estimates.

Internal audit

The internal audit unit is subordinate to the Board of Directors and operates under the supervision of the President and CEO. It consists of the Head of Internal Audit and as many internal auditors as are required for the unit to carry out its work. Internal auditing resources are strengthened as required by procuring internal auditing services from external service providers. Its operating principles are defined in the internal auditing instructions approved by the Board of Directors.

The internal audit unit assists the Board of Directors in its supervisory role by obtaining information on the adequacy and functionality of risk management and internal control in the Lemminkäinen Group and its business units. The internal audit unit assesses the economy and efficiency of resource usage, the reliability of reporting, the protection and security of assets, and compliance with regulations, operating principles and guidelines. Malpractice reports are regularly submitted to the Board of Directors’ Audit Committee.

2014 The internal audits of 2014 focused on malpractice reports, construction project management, development project assessment and internal control of financial reporting, among other areas.

Insider admisinistration

Lemminkäinen observes NASDAQ OMX Helsinki Ltd’s insider guidelines, which are supplemented by the insider guidelines approved by Lemminkäinen’s Board of Directors. The company maintains a public and company-specific register using Euroclear Finland Oy’s Sire system.

Insiders subject to disclosure requirements are the members of Lemminkäinen’s Board of Directors, the President and CEO, and the chief auditor of the accounting firm. The company also defines the members of Lemminkäinen’s Group Executive Team as insiders subject to disclosure requirements. The share ownership of all insiders subject to disclosure requirements has been made public.

Lemminkäinen also maintains permanent company-specific registers of people who regularly receive inside information due to their position or duties. Their share ownership has not been made public. When necessary, registers of project-specific insiders are also kept.

Auditing

Lemminkäinen has one auditor, which must be a firm of authorised public accountants approved by Finland’s Central Chamber of Commerce. The Annual General Meeting elects the auditor for a term of office that runs until the end of the following Annual General Meeting.

The scope of the audit encompasses the Group’s accounting, administration, Financial Statements and Board of Directors’ Report for each financial year. The Auditor makes regular reports to the Audit Committee and submits an Auditor’s Report to the Annual General Meeting. The Auditor’s Report contains a statement as to whether the Financial Statements and the Board of Directors’ Report give a true and fair view, as defined in the rules governing financial reporting, of the Group’s operative result and financial position, and as to whether the information contained in the Board of Directors’ Report is consistent with the Financial Statements. The auditor’s fee is paid annually, in accordance with the Annual General Meeting’s decision.

2014 PricewaterhouseCoopers Oy, a firm of authorised public accountants, is Lemminkäinen’s auditor. Kim Karhu has been chief auditor since 2011. In 2010, Lemminkäinen invited bids from firms of authorised public accountants.

In 2014, Lemminkäinen paid its auditor EUR 457,843 (657,373) in auditing fees and EUR 595,472 (358,217) in consultancy fees. The increase in consultancy fees is due to the rights offering and other financial arrangements Lemminkäinen carried out.


 

 
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