Governance Information • Feb 9, 2017
Governance Information
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| I. Introduction |
02 |
|---|---|
| II. Descriptions concerning corporate governance |
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| 1. Citycon's corporate governance structure |
02 |
| 2. General Meeting of Shareholders |
03 |
| 3. Board of Directors |
03 |
| 4. Board Committees |
07 |
| 5. Chief Executive Officer (CEO) |
09 |
| 6. Corporate Management Committee |
09 |
| 7. Remuneration 10 |
Citycon's Annual Report 2016 consists of four parts. To read all the parts, please visit www.citycon.com/annual-reports
This is the first time we will publish an integrated report on our sustainability statements integrated with the financial, company and management review.
Citycon Oyj (Citycon or company) is a Finnish public limited liability company listed on the Nasdaq Helsinki Ltd (the Helsinki Stock Exchange). Citycon Oyj and its subsidiaries constitute the Citycon group.
Citycon's corporate governance principles are based on legislation in force in Finland, the rules and regulations issued for listed companies by the Helsinki Stock Exchange and the Finnish Financial Supervisory Authority as well as Citycon's Articles of Association. Corporate governance in Citycon's subsidiaries is also governed by the laws of the country in which the subsidiary is domiciled, and by each subsidiary's Articles of Association. In addition, Citycon applies the Finnish Corporate Governance Code 2015 published by the Finnish Securities Market Association (Corporate Governance Code) and Citycon's own Code of Conduct and Corporate Governance Guidelines.
This corporate governance statement (CG Statement) has been prepared in accordance with the recommendations of the Corporate Governance Code.
In 2016, Citycon followed the recommendations of the Corporate Governance Code without deviation.
This CG Statement has been prepared as a separate report, distinct from the Report by the Board of Directors. The Audit and Governance Committee of the Board of Directors has reviewed the CG Statement on 7 February 2017. Ernst & Young Oy, the company's auditor, has verified that the CG Statement has been issued and that the description of the main features of the internal control and risk management systems related to the financial reporting process is consistent with the company's Financial Statements.
This CG Statement was published on 9 February 2017 simultaneously with Citycon's Financial Statements and the Report by the Board of Directors for 2016.
Citycon's statutory bodies are the General Meeting, the Board of Directors and the CEO. The General Meeting elects members to the company's Board of Directors, and the Board of Directors appoints the company's CEO. The Board of Directors' work is enhanced by three Board committees whose members are elected by the Board of Directors among its members. In managing the company's business operations, the CEO is assisted by the Corporate Management Committee whose members are appointed, upon
the CEO's proposal, by the Board of Directors. The work of the
Board of Directors
Citycon updated its Corporate Governance Guidelines to conform with the new Corporate Governance Code
and its committees, the CEO and the Corporate Management Committee is governed by the Corporate Governance Guidelines approved by the Board of Directors. These guidelines contain charters for the Board and the committees, guidelines for the division of duties between the decision-making bodies, and guidelines for the arrangement of internal control and risk management. Charters are discussed in more detail below.
The Corporate Governance Code is available on the Securities Market Association's website at www.cgfinland.fi.
The CG Statement and the same statements for previous years since 2010 are available on the company website at www.citycon.com/corporate-governance.
Further information on page 09
Citycon's shareholders exercise their decisionmaking power at the General Meeting. According to the Articles of Association, Citycon's Annual General Meeting is held annually by the end of April, once the financial statements have been prepared. Extraordinary General Meetings are convened whenever deemed necessary for decision-making purposes or when required by law.
The company publishes the notice of a General Meeting which includes a proposal for the meeting's agenda, the documents to be presented to the General Meeting and the Board of Directors' resolution proposals on the company's website, no later than three weeks prior to the General Meeting. The notice of a General Meeting includes proposals for the composition of the Board of Directors and the remuneration of Board members, as well as a proposal for auditors if these items are included in the agenda of the meeting. In addition, where applicable information on all proposed Board members is provided on the company's website. The notice of the General Meeting is also published simultaneously as a stock exchange release.
A shareholder is entitled to demand a matter for discussion at a General Meeting if such a matter falls under the competence of the General Meeting according to the Finnish Limited Liability Companies Act and if they demand it by giving notice to the company well in advance so that the matter can be included in the notice of a General Meeting. Before the end of the financial year 1 January – 31 December 2015, the company announced on its website at www.citycon.com/ general-meeting and in the investor calendar that 31 January 2016 was the latest date on which shareholders may have requested a matter for discussion at the Annual General Meeting of 2016.
Citycon strives to facilitate the participation of its shareholders in General Meetings by arranging such meetings in a manner that enables both Finnish and international shareholders to participate in the meeting as extensively as possible and to efficiently exercise their right to vote, ask questions and speak at the meeting.
Citycon's Annual General Meeting (AGM) 2016 was held on 16 March 2016. The meeting was attended by members of the Board of Directors, the CEO, other senior executives of the company and the company's auditor. The Board Chairman's words to shareholders were heard on video.
Citycon published the decisions taken by the General Meeting 2016 in stock exchange release and on its website. The minutes of the General Meeting were available on the company's website within two weeks of the General Meeting.
Minutes of the General Meetings, General Meeting documents presented on the website and summaries of the resolutions of each General Meeting since 2010 are available in Citycon's GM archive at www.citycon.com/ agm-archive.
General information on General Meetings and shareholder rights can be found at www.citycon.com/general-meeting.
According to Citycon's Articles of Association, the company's Board of Directors consists of a minimum of five and a maximum of ten members. The Articles of Association do not contain any regulations on a specific procedure according to which the Board members are to be appointed.
The General Meeting of shareholders decides on the number of members of the Board of
Directors and elects them at the Annual General Meeting and, when necessary, at Extraordinary General Meetings.
According to the Corporate Governance Code, the majority of the directors shall be independent of the company. In addition, at least two directors who are independent of the company shall also be independent of the significant shareholders. The Board of Directors evaluates the independence of the directors annually.
The Board of Directors' proposal to the General Meeting on the composition of Citycon's Board of Directors is prepared by the Nomination and Remuneration Committee of the Board of Directors. The company's strategy and the requirements set by its operations, the company's development stage and the diversity principles specified by the company for the Board shall be taken into account when planning the composition of the Board of Directors. According to the diversity principles the factors to be taken into account in the planning of the composition of the Board include the appropriate number of Board candidates and their background, independence, age, gender, skills and experience. However, the ultimate proposal to the General Meeting on the composition of the Board of Directors shall always be based on the candidates' merit. A person to be elected to the Board of Directors also must have the possibility to devote a sufficient amount of time to the work. Both genders shall be proposed as Board members.
Members of the Board of Directors and candidates for the Board are obligated to provide the Board with sufficient information for the evaluation of their qualifications and independence, and to notify the Board of any changes to this information.
The company shall ensure that new directors are adequately familiarised with the company and its business operations and practices.
The Board of Directors elects the Chairman and one or more Deputy Chairmen from among its members.
Citycon's AGM on 16 March 2016 set the number of Board members at ten. The following Board members were re-elected: Chaim Katzman, Bernd Knobloch, Arnold de Haan, Kirsi Komi, Rachel Lavine, Andrea Orlandi, Claes Ottosson, Per-Anders Ovin and Ariella Zochovitzky. Dor J. (Dori) Segal was elected as a new member. The members of the Board of Directors were elected for a term of one year that ends at the close of the first AGM following their election.
The Board of Directors evaluated its members' independence on 16 March 2016. The Board of Directors concluded that all Board members are independent of the company. Furthermore, according to the Board of Directors' evaluation, Arnold de Haan, Bernd Knobloch, Kirsi Komi, Claes Ottosson, Per-Anders Ovin and Ariella Zochovitzky are independent of the company's significant shareholders. Chaim Katzman, Rachel Lavine and Dori Segal are in the employ of or Board members of Citycon's main shareholder, Gazit-Globe Ltd., or its affiliated companies and, therefore, are not independent of the company's significant shareholders. Andrea Orlandi is in the employ of Canada Pension Plan Investment Board, the parent company of CPP Investment Board European Holdings S.àr.l, which is a significant shareholder in the company. Therefore, Andrea Orlandi is not independent of the company's significant shareholders.
The Chairman of the Board in 2016 was Chaim Katzman, with Bernd Knobloch and Dori Segal serving as Deputy Chairmen.
Chairman of the Board Chaim Katzman
Member and Chairman of the Board of Directors since 2010 LL.B., Israeli and US citizen, born 1949 Main occupation: Norstar Holdings Inc. (former Gazit Inc.), founder, controlling shareholder and Chairman of the Board of Directors since 1991; Equity One Inc., founder and Chairman of the Board of Directors since 1992; Gazit-Globe Ltd., Executive Chairman of the Board of Directors since 1998 The Board's assessment of independence: Independent of the company Citycon shares*: 178,856 Membership in Citycon's Board committees: Nomination and Remuneration Committee, Chairman
Rachel Lavine Member of the Board of Directors since 2015 CPA., MBA, Israeli citizen, born 1965 Main occupation: Atrium European Real Estate Ltd., Vice Chairman of the Board of Directors 2014 – 19 January 2017; Gazit-Globe Ltd., CEO 2015 – 19 January 2017 The Board's assessment of independence: Independent of the company Citycon shares*: - Membership in Citycon's Board committees: Audit and Governance Committee Strategy and Investment Committee
Member of the Board of Directors since 2012, Deputy Chairman since 2013 University degrees in Law and Business Administration, German citizen, born 1951 Main occupation: Professional nonexecutive director The Board's assessment of independence: Independent of the company and significant shareholders Citycon shares*: 108,685 Membership in Citycon's Board committees: Audit and Governance Committee Strategy and Investment Committee
Andrea Orlandi
Member of the Board of Directors since 2014 MBA (INSEAD), Italian citizen, born 1971 Main occupation: Canada Pension Plan Investment Board (CPPIB), London, Managing Director, Head of Real Estate Investments Europe since 2014 The Board's assessment of independence: Independent of the company Citycon shares*: - Membership in Citycon's Board committees: Audit and Governance Committee Strategy and Investment Committee
Member and Deputy Chairman of the Board of Directors from 16 March 2016 High school, US citizen, born 1962 Main occupation: Gazit-Globe Ltd., Member of the Board of Directors since 1993, Deputy Chairman of the Board of Directors since 2008, CEO since 20 January 2017, First Capital Realty Inc., Chairman of the Board of Directors since 2015 The Board's assessment of independence: Independent of the company Citycon shares*: 57,174 Membership in Citycon's Board committees: Strategy and Investment Committee, chairman (from 16 March 2016)
Claes Ottosson Member of the Board of Directors since 2004
Electrical Engineer, Swedish citizen, born 1961 The Board's assessment of independence: Independent of the company and significant shareholders Main occupation: ICA Kvantum Hovås, Managing Director since 1990 Citycon shares*: 77,802 Membership in Citycon's Board committees: Nomination and Remuneration Committee Strategy and Investment Committee
Arnold de Haan Member of the Board of Directors since 2014 LL.M, Dutch citizen, born 1954 Main occupation: Boishaen B.V., Founder and Managing Director since 2008 The Board's assessment of independence: Independent of the company and significant shareholders Citycon shares*: 200,000 Membership in Citycon's Board committees: Nomination and Remuneration Committee Strategy and Investment Committee
Kirsi Komi Member of the Board of Directors since 2011 LL.M., Finnish citizen, born 1963 Main occupation: Professional nonexecutive director The Board's assessment of independence: Independent of the company and significant shareholders Citycon shares*: 11,933 Membership in Citycon's Board committees: Audit and Governance Committee Nomination and Remuneration Committee
Member of the Board of Directors since 2009 B.A. (Economics and Accounting), CPA (Israel), MBA, Israeli citizen, born 1957 Main occupation: C.I.G. Consultants Ltd., General Manager & partner since 2001; C.I.G. Zochovitzky Ltd., General Manager & partner since 2012 The Board's assessment of independence:
Nomination and Remuneration Committee
Independent of the company and significant shareholders Citycon shares*: 11,700 Membership in Citycon's Board committees:
Audit and Governance Committee, chairman Nomination and Remuneration Committee
Board members' personal details can also be found on the company's website at www.citycon.com/board-directors and information on their personal shareholdings in Citycon at www.citycon.com/insiders-shareholdings.
The Board of Directors' duties and responsibilities are determined by the Finnish Limited Liability Companies Act, the Corporate Governance Code, Citycon's Articles of Association and the written charter of the Board of Directors. The charter of the Board of Directors is included in the Corporate Governance Guidelines approved by Citycon's Board of Directors. The main content of the charter is described below. According to the charter the most important duties of the Board in addition to its statutory duties are:
The CEO provides the Board of Directors with a regular review of the most significant matters with regard to the company's operations, business environment and financial position.
The Board of Directors convenes according to a predetermined meeting schedule eight times a year and when deemed necessary. The meeting schedule is based on the company's financial reporting schedule, the schedule of the asset distribution and the Board of Directors' strategy and budget meetings, as indicated in the Board's year clock shown on the right.
Items are discussed in Board meetings in accordance with a prepared agenda. The Board of Directors constitutes a quorum if more than half of its members are present. Considering the Board of Directors' international composition, the use of telephone or video conferencing for meetings is possible. Minutes are kept of each meeting, and they are reviewed and approved in the following meeting.
The Board of Directors evaluates its operations and working methods annually. The Nomination and Remuneration Committee ensures that the evaluation is carried out. In 2016, the evaluation was conducted as self-evaluation.
In 2016, Citycon's Board of Directors held six meetings in addition to its original meeting schedule, convening a total of 12 times during the year. Meetings in addition to the original meeting schedule were mainly associated with the transition to the quarterly asset distribution schedule, and with the Eurobond issued in August. During the year, the Board of Directors held one meeting in Stockholm at Citycon's office in Kista Galleria.
̏ Interim report 1 Jan – 30 Sep
distribution of assets*
JULY
̏ Interim report 1 Jan – 30 Jun
| ̏ Interim report 1 Jan – 30 Sep |
MARCH | ||
|---|---|---|---|
| ̏ | Annual General Meeting | ||
| ̏ | Chairman and Deputy Chairman | ||
| (Chairmen) of the Board | |||
| ̏ | Chairmen and members of Board | ||
| Committees | |||
| Q4 | Q1 | Independence assessment of the directors Possible quarterly distribution of assets* |
|
| SEPTEMBER ̏ Possible quarterly |
Q3 | Q2 | APRIL ̏ Interim report |
̏ Interim report 1 Jan – 31 March
FEBRUARY
Meeting
previous year
̏ Financial statements and Report by the Board
̏ Proposal for profit/asset distribution and other proposals to the General
̏ Corporate Governance Statement ̏ Performance bonuses for the
̏ Possible quarterly distribution of assets*
The average attendance rate at Board meetings in 2016 was 96%. The graph below indicates attendance rates by member.
At the beginning of 2016, Citycon's Board of Directors recorded the principles concerning the diversity of the Board of Directors in the company's Corporate Governance Guidelines. According to the principles of diversity, when planning the composition of the Board, the Nomination and Remuneration Committee shall take into account the candidates' background, independence, age, gender, skills and experience, the suitable number of candidates and their opportunity to devote a sufficient amount of time to their work. In addition, the company's strategy, the requirements set by the company's operations and the company's stage of
development shall be taken into account in the composition of the Board of Directors. The Nomination and Remuneration Committee shall take account of proposing both genders as members of the Board of Directors.
The company's Nomination and Remuneration Committee took into account the company's diversity principles when preparing a proposal for the composition of the Board of Directors for the Board of Directors to be presented to the AGM 2016. The directors elected to the Board of Directors in 2016 are presented above under 3.3 Information about Board members.
In 2016, the composition of Citycon's Board of Directors was balanced with regard to the
diversity principles. The members of Citycon's Board of Directors had versatile expertise and international background. The competence, education, experience and seniority of the directors complemented each other. The Board of Directors had special expertise and experience in the fields of real estate and retail business, financing and accounting, legal affairs and business management and administration. The directors represented eight nationalities. Both genders were represented on Citycon's Board of Directors in accordance with the objectives specified by the company, and the directors were active in their participation in the Board work.
The composition of Citycon's Board of Directors is international and diverse
* All Board members are independent of the company
* Total but not continuous duration if the person has been a Board member in two different periods
Citycon's Board of Directors is assisted by three committees set up by the Board of Directors: the Audit and Governance Committee, the Nomination and Remuneration Committee and the Strategy and Investment Committee.
In Board committees, directors are able to delve into matters in greater detail than the Board of Directors as a whole. Each committee's main duties and working principles are established in writing by the committee charters included in Citycon's Corporate Governance Guidelines approved by Citycon's Board of Directors.
The Board of Directors elects the Board Committee members and chairmen from among its members. The CEO does not belong to any of the committees. A committee always has at least three members. The committee members shall have the expertise and experience required for the duties of the committee.
The committees' chairmen report on issues discussed by the committees to the Board of Directors. In addition, minutes are prepared of all committee meetings and made available to all Board members.
The members of Board committees in 2016 are listed above under 3.3 Information about Board members and below in connection with the description of each committee.
The Audit and Governance Committee supports the Board in reviewing questions pertaining to the company's financial reporting. It controls, oversees and develops Citycon's corporate governance practices.
According to the committee charter, the most important duties of the Audit and Governance Committee are as follows:
Members of the Audit and Governance Committee must be independent of the company and at least one committee member must be independent of the company's significant shareholders. Committee members must have expertise and experience in the respective field. At least one committee member must be a financial expert with sufficient knowledge and experience in the fields of accounting or auditing and in the accounting principles applicable to the company.
Citycon's responsible auditor attends the Audit and Governance Committee meeting in which the company's annual financial statements are reviewed, and reports on audit findings. The responsible auditor also attends other Audit and Governance Committee meetings upon the committee's request. In 2016, the company's responsible auditor, Mikko Rytilahti at Ernst & Young Oy, attended the committee meetings in which the company's interim reports, financial statements and budget-related risks were reviewed.
The Audit and Governance Committee meets at least four times a year, in accordance with the company's financial reporting schedule, to review the interim reports and annual financial statements of the company. In 2016, the Audit and Governance Committee also reviewed the company's risk management reporting, internal audit plans and reports, property portfolio valuation reports and property valuation process, the new practices pursuant to the requirements of the EU's Market Abuse Regulation, the updating of the Insider Guidelines and Disclosure Policy, the updating of the Corporate Governance Guidelines in accordance with the new Corporate Governance Code, and familiarized with the audit regulation reform. The committee also prepared its proposal for the Board of Directors on the election of the auditor and the remuneration payable to the auditor to be presented to the AGM.
During the year, the Audit and Governance Committee convened seven times with an average attendance rate of 98%. The graph below indicates attendance rates by member.
The Nomination and Remuneration Committee's task is to ensure that proposals regarding Citycon's Board member election and remunerations are efficiencly prepared. The committee is also responsible for the preparation of matters regarding the appointment and remuneration of the CEO and other senior executives and regarding the employee remuneration schemes.
According to the committee charter, the most important duties of the Nomination and Remuneration Committee are as follows:
The members of the Nomination and Remuneration Committee must be independent of the company.
When seeking potential new Board members, the Nomination and Remuneration Committee shall take account of the requirements of the company's strategy and operations, the diversity principles of the Board and the company's stage of development. The company's diversity principles are described above under 3.5 Diversity of the Board of Directors. The committee begins preparations for the election of Board members in the autumn prior to the following year's AGM. The Nomination and Remuneration Committee consults significant shareholders of the company in this matter.
The Nomination and Remuneration Committee meets at least twice a year. In 2016, the Nomination and Remuneration Committee prepared proposals for the Board of Directors to be presented to the AGM concerning the number and remuneration of Board members and the composition of the Board. Other matters addressed at the committee's meetings focused on, among others, the company's short- and long-term remuneration schemes and remunerations paid under the schemes.
During the year, the Nomination and Remuneration Committee convened three times with an average attendance rate of 100%. The graph below indicates attendance rates by member.
| Chaim Katzman Chairman |
100% |
|---|---|
| Arnold de Haan | 100% |
| Kirsi Komi | 100% |
| Claes Ottosson | 100% |
| Per-Anders Ovin | 100% |
| Ariella Zochovitzky | 100% |
The Strategy and Investment Committee supports the Board of Directors in defining and monitoring the company's strategic direction.
According to the committee charter, the most important duties of the Strategy and Investment Committee are as follows:
The members of the Strategy and Investment Committee must be independent of the company.
The Strategy and Investment Committee meets as necessary but at least twice a year. In 2016, the Strategy and Investment Committee made recommendations for resolutions to the Board regarding, for instance, divestment of non-core assets and property development projects. The committee also discussed
measures for further development of Citycon's property portfolio and the market conditions in Citycon's operating countries.
During the year, the Strategy and Investment Committee convened five times with an average attendance rate of 97%. The graph below indicates attendance rates by member.
| Dori Segal | |
|---|---|
| Chairman (from 16 March 2016) |
100% |
| Ronen Ashkenazi Chairman |
100% |
| (until 16 March 2016) | |
| Arnold de Haan | 100% |
| Bernd Knobloch | 100% |
| Rachel Lavine | 80% |
| Andrea Orlandi | 100% |
| Claes Ottosson | 100% |
Citycon's Board of Directors appoints the company's CEO and decides on the terms and conditions of his/her service agreement. The service terms of the CEO are stipulated in a written service agreement approved by the Board of Directors.
According to the company's Corporate Governance Guidelines, the duties of the CEO are as follows:
̏ ensure that Board members continuously receive all the information they need to monitor the company's financial position, liquidity, financing and development
̏ inform the Board of Directors of any major events, decisions and plans related to the company's business
Marcel Kokkeel (LL.M., born 1958), a Dutch citizen, has been the company's CEO since 2011. The CEO's service agreement is valid for an indefinite duration. The period of notice of the service agreement is six months, both for the CEO and the company. In case of notice by the company, the CEO shall be paid, in addition to the salary payable for the notice period, a severance pay consisting of 1.5 times the CEO's fixed annual salary at the moment of termination.
In managing the company's business operations, Citycon's CEO is assisted by the Corporate Management Committee, comprising at least three members.
As an expert body, the Corporate Management Committee's main duty is to assist the CEO in the management of the company's operative business, to co-ordinate and develop the company's various operative functions and to promote information flow and co-operation between different parts of the organisation.
The Corporate Management Committee assists the CEO in accordance with the company's Corporate Governance Guidelines, particularly in the following matters:
̏ preparing changes and revisions related to the company's strategy in accordance with the guidelines issued by the Board of Directors for presentation to the Board
The Corporate Management Committee usually convenes twice a month. In 2016, the Corporate Management Committee convened 20 times. The secretary to the Corporate Management Committee was Henrica Ginström, Vice President, IR and Communications.
Chief Executive Officer (CEO), Chairman of the Corporate Management Committee Marcel Kokkeel
Member of the Corporate Management Committee since 2011 LL.M. (Law), Dutch citizen, born 1958 Citycon shares*: 535,160 Citycon stock options 2011: 1,000,000
Chief Operating Officer Jurn Hoeksema Member of the Corporate Management Committee since 2014 M.Sc. (Engineering), Dutch citizen, born 1974 Areas of responsibility: operational business and shopping centre management Citycon shares*: 3,000
Citycon stock options 2011: -
General Counsel, Head of Legal Affairs Anu Tuomola Member of the Corporate Management Committee since 2011 LL.M., Trained at the Bench, Finnish citizen, born 1974 Areas of responsibility: legal, compliance, secretary of the Board of Directors Citycon shares*: - Citycon stock options 2011: 300,000
Citycon's Remuneration Statement is provided as a separate report, distinct from this CG Statement. The Remuneration Statement includes the description of the decision-making procedure concerning the remuneration of the directors, the CEO and any other executives and of the main principles of remuneration, as well as the remuneration report which discloses the remuneration paid during the previous reporting period.
Citycon's Remuneration Statement is available on the company's website at www.citycon.com/remuneration.
Corporate Management Committee member since December 2015 M.Sc. (Communications), Norwegian citizen, born 1967 Areas of responsibility: marketing and branding Citycon shares*: - Citycon stock options 2011: -
Chief Investment Officer Nils Styf Member of the Corporate Management Committee 2012 - 31 August 2016 M.Sc. (Business and Administration), Swedish citizen, born 1976 Citycon shares*: 10,770 (on the day of resignation, 31 August 2016) Citycon stock options 2011: 300,000
* Includes the shares and share-based rights in the company and companies belonging to the same group held by the CEO or Corporate Management Committee member and corporations over which he or she exercises control.
Information on Corporate Management Committee members' career histories and positions of trust is available on the company's website at www.citycon.com/corporatemanagement-committee.
The purpose of Citycon's risk management and internal control is to ensure that the Group's operations are both efficient and effective, that reporting is consistent and reliable and that the applicable laws and regulations as well as the Citycon group's operating principles are observed. Internal control of financial reporting aims to ensure that any interim reports and financial statements to be published are reliable and are prepared in compliance with the accounting policies and reporting principles applied by Citycon and give materially correct information about the company's financial position.
Citycon has a total of 102 subsidiaries, 39 joint ventures and associated companies and 3 companies with less than 20% minority ownership in its operating countries.
The risk management and reporting process involves identifying the existing risks, assessing the risk management measures and making new risk limitation plans if the current measures are
Citycon's risk management and reporting process involves identifying, analysing, measuring, limiting and monitoring the most important business-related risks
not deemed sufficient for the management of the identified risks. The objective is to achieve the business targets and improve the risk management
in the company continuously. Successful risk management decreases the likelihood of risk realisation and mitigates the negative effects of a realised risk. Risk management constitutes part of the company's internal control.
The risk reporting process gathers data on risk analysis and the respective management plans into one group-wide risk register, for annual reporting to Citycon's Board of Directors. This is done in conjunction with the budgeting process, so that the risks are linked to the annual targets. In order to evaluate the importance of each risk, an estimate of the loss associated with a realised risk is determined together with the probability of risk realisation. This also improves the comparability of risks between units and functions. In addition, the realised risks during the previous year are assessed and reported.
Each function in the company has a designated person who is the owner of the risks in that area and is also responsible for the reporting of risks, the limitation plans and the monitoring of the implementation of the plans. Core risks are reported to the Group Treasurer, who prepares the risk report for the Board of Directors. The CEO and the Corporate Management Committee are responsible for developing and maintaining the processes in accordance with the risk management principles approved by the Board of Directors. The Board of Directors monitors the company's business risks and uncertainties on a regular basis and reports them as required by law and the
regulations and guidelines issued by the Finnish Financial Supervisory Authority.
Each year, Citycon assesses risks related to processes deemed
significant to financial reporting, to serve as a basis for internal control over external financial reporting. In addition to the group's finance function, the business units' financial management participates in the risk assessment process. Fraud risks are also assessed in this connection.
The company's key risks and uncertainties and the most important risk management measures and principles are covered more extensively annually in Citycon's financial statements.
Successful risk management decreases the likelihood of risk realisation and mitigates the negative effects of a realised risk
Each function has a designated person who is the owner of the risks in that function and is responsible for the reporting of risks, the limitation plans and the monitoring of the implementation of the plans
Reporting to the Group Treasurer The Group treasurer prepares the risk report
Risk register
Risk analysis data and other risk management measures
The CEO and the rest of the Corporate Management Committee develop and maintain processes in accordance with the risk management principles approved by the Board of Directors
Linkage to Citycon's processes and controls
Subjects of internal audit chosen on risk management basis - the first and second defence lines*
Reporting to the Board of Directors
A summary of the risk register in connection with the budget review, connecting to annual targets and assessment of realised risks
Citycon's internal control system is based on the international COSO 2013 framework (Committee of Sponsoring Organizations of the Treadway Commission). It includes the key principles related to the control environment, risk assessment, control activities, information, communication and monitoring activities. The cornerstones of Citycon's control environment include group-level operating policies and guidelines, harmonised controls in the operating processes and assessment of controls and deviations during the reporting period.
In 2016, Citycon continued to develop, supervise and monitor the internal controls in
Roles in internal control and risk management
CEO and other members of the CMC First defence line Business processes and support functions Second defence line Risk management, internal control environment, group guidance Third defence line Three defence lines
Internal audit
Independent reporting line
Overall responsibility Board of Directors
its processes, within the framework prepared in 2010 and updated in 2014.
The development of internal control focused on the implementation and monitoring of the internal control operating models of the Norwegian business acquired in July 2015. The assessment of the effectiveness of control points continued by testing controls in the business units and group functions. The company evaluated the testing, and any exceptions in the tests were assessed individually and in aggregate. On the basis of the summary prepared by the company, there are no indications that these control deviations would lead to material errors in Citycon's financial statements.
Audit
The division of duties included in Citycon's Corporate Governance Guidelines and the group's organisational structure ensure that the areas of responsibility and division of authority are clear for all functions and the management and employees.
At Citycon, the Board of Directors is responsible for arranging and maintaining adequate and effective internal control.
In accordance with the Board of Directors' and its committees' written charters included in the company's Corporate Governance Guidelines, the Board's Audit and Governance Committee assesses the company's financial reporting process and the appropriateness of the internal control system and reviews the internal control reports. The duties of the Board of Directors and the Audit and Governance Committee are presented in more detail in the section regarding the Board of Directors and its committees.
It is the CEO's duty to attend to the implementation of practical actions regarding internal control and to maintain an organisational structure in which responsibility, authority and reporting relationships are clearly and comprehensively defined in writing. Citycon uses an authorisation matrix that covers all functions. It defines the division of authority by specifying approval limits in euros for each job.
In addition, all of Citycon group's employees have a written job description, which includes the employee's key duties, areas of responsibility and authorisations. Job descriptions are reviewed twice a year during employee
performance reviews, in which each employee's performance is assessed against set targets.
The ethical principles and business norms of Citycon's business are specified in Citycon's Code of Conduct, which is one of the basic documents of the company's corporate governance principles. Compliance with the principles is promoted through internal communication and training. Citycon makes an effort to ensure that its key business partners also comply with the same or similar ethical principles.
On Citycon's website at www.citycon.com/sustainability/ report-violation, Citycon group's personnel and business partners can report violations and suspected violations of Citycon's Code of Conduct.
The company's accounting and reporting manuals define the standards, processes and responsibilities for financial reporting. These manuals facilitate the achievement of Citycon's objectives regarding the reliability of financial reporting. The Board of Directors approves group-level policies and any changes to them. Accounting and reporting manuals and policies are available on the company's intranet site. Meetings are held on a regular basis in which the manuals are discussed with all personnel involved in the financial reporting process.
Descriptions have been drawn up of processes that are significant to Citycon's business and reporting. These are implemented in the organisation's daily operations and thus
constitute a material part of the daily risk management within the organisation. Process descriptions have been supplemented by defining control points in each process, based on the risk assessment in reporting. These control points include, for example, approvals, reconciling sub-ledgers and accounts, analytic reviews, limitations of access rights and segregation of duties. Control points for each process are documented in control catalogues, which have been customised by the business units to reflect the characteristics of their own organisation's operations.
The defined control points are designed to detect and correct material errors and deviations in financial reporting. The number of control points varies by process, from
approximately 10 to 20. These control points are also included in the descriptions of the dayto-day duties of employees participating in the reporting.
All external communication is carried out in accordance with Citycon's Disclosure Policy. The Board of Directors approves all financial reports issued by the company before they are published as stock exchange releases.
The control points of the internal control are communicated to Citycon group's personnel. Business units have the main responsibility for this communication; they discuss the internal control targets and the defined control points in their meetings at various organisational levels.
Citycon's business area executives are responsible for ensuring that the relevant laws and regulations are adhered to in their respective areas of responsibility. The Corporate Management Committee also monitors compliance with laws and regulations as part of regular supervisory activities. The financial performance of the group and business areas is monitored monthly through the group's business review processes.
In Citycon group, monitoring of internal control includes both ongoing and separate evaluations and audits. The objective of the monthly analysis of reported figures at various levels (e.g. shopping centre, cluster, business unit, group) is to detect whether the reported figures deviate from budgeted or forecast figures. The purpose of internal controls monitoring and testing is to detect control deviations in each significant process for financial reporting that might affect the accuracy of Citycon's financial reporting if the deviation in question is not corrected.
In 2016, testing of internal controls continued with regard to the main processes of the group management and each business area. These tests were carried out by assessors who are independent of the business areas' daily operations and were steered by the group management. The significance and impacts of deviations detected in these tests were evaluated by the group management, and the necessary corrective measures were initiated. On the basis of the resulting summary drawn up by the group management, there are no indications that these control deviations would lead to material errors in Citycon's financial statements.
Payroll accounting process
Citycon has a separate internal audit function. The duties of internal audit include independent and objective auditing activities, as well as value-adding consulting activities that improve operations. Internal audit contributes to the achievement of the company's objectives through systematic assessment and development of the company's risk management, internal control and corporate governance processes. The internal audit function reports directly to the Board's Audit and Governance Committee and, administratively, to the CEO. The internal audit reporting relationships are also described in section II. Descriptions concerning corporate governance of this CG Statement (see the figure 'Citycon's corporate governance model'). A representative from Citycon's organisation has been designated to co-ordinate the practical work of internal audit. In 2016, internal audit services were purchased from an external service provider, PricewaterhouseCoopers Oy.
The Internal Audit Charter was last approved by the Board's Audit and Governance Committee in 2014. According to the charter, the duties of internal audit include, among others, assisting the Board of Directors, its committees and the corporate management with the assessment of processes related to the identification and management of risks, supervision of financial reporting, efficiency of operations and
compliance with law. Within the scope of the authorisation granted through the Internal Audit Charter, the internal audit function has unlimited access to Citycon's functions, processes, documents and personnel in order to perform audits.
The internal audit function assists the Audit and Governance Committee in assessing and monitoring the adequacy and effectiveness of Citycon's internal controls and risk management, by performing audits in group legal entities and processes in accordance with the annual plan approved by the Audit and Governance Committee. The annual plan is approved by the Audit and Governance Committee at its meeting each year. The progress of the audits according to the internal audit annual plan is reported to the Audit and Governance Committee each quarter. In addition, the Audit and Governance Committee deals with all internal audit reports at its meeting, including observations, recommendations and action plans. Observations from the previous year and the progress of the action plans are reported to the Audit and Governance Committee's second meeting of the year.
In accordance with Citycon's audit plan, internal audits in 2016 focused on the implemented shopping centre lease and rental income management system and process, controls related to payment system access rights, processes and controls related to IT system environment, follow-up of the implementation of internal guidelines and policies in Norway (Norway being a new operating country) and follow-up of previous years' audit observations.
The company has determined that its related parties comprise Citycon Oyj and its subsidiaries, associated companies, joint ventures; Board members; CEO and other Corporate Management Committee members; and the company's largest shareholder Gazit-Globe Ltd. that held 43.9% of the company's shares and votes on 31 December 2016.
Citycon evaluates and monitors transactions concluded between the company and its related parties and reports on them as required by the Finnish Limited Liability Companies Act and regulations concerning the preparation of financial statements, in the company's Report by the Board of Directors, the notes to the financial statements and interim reports. In addition, the company's Executive Vice President and Chief Financial Officer reports quarterly on the company's related party transactions, if any, to the Audit and Governance Committee of the Board of Directors and to Board members who are independent of significant shareholders. In decision-making pertaining to related party transactions, the company ensures that potential conflicts of interests are appropriately taken into account and related parties or their representatives do not participate in the decision-making.
In 2016, the company had no related party transactions deviating from the company's normal business operations or not made on market or market equivalent terms.
Citycon applies the EU's Market Abuse Regulation (MAR) and the Insider Guidelines issued by Nasdaq Helsinki Ltd. The Insider Guidelines approved by the company's Board of Directors supplement the applied insider regulation and specify the company's insider administration procedures. The company's
General Counsel and Head of Legal Affairs, Anu Tuomola, is in charge of Citycon's insider issues.
In 2016, the Insider Guidelines were updated to correspond to the MAR regulation that came into effect in July.
As a result of the MAR regulation, Citycon no longer has public insiders or a permanent, company-specific insider register. Instead, it has project- and event-based insider lists.
The company has specified the members of the Board of Directors, the CEO and other members of the Corporate Management Committee as persons discharging managerial responsibilities. Citycon maintains a list of persons discharging managerial responsibilities and their related parties in Euroclear Finland Ltd's SIRE system. The persons on the list are obligated to report their business transactions in Citycon's financial instruments to the company and the Financial Supervisory Authority. Citycon publishes such business transactions in stock exchange releases.
Project- or event-based insider lists are established at the beginning of insider projects. The lists include information of persons participating in projects, such as capital market events or significant company or property business transactions. During insider projects, they are not allowed to trade in financial instruments related to the company.
Citycon applies a silent period of 30 calendar days prior to announcing its financial statements and interim reports. The silent period concerns persons discharging managerial responsibilities in the company and other company employees
who participate in the preparation of financial statements and interim reports. During that period, they are not allowed to trade in securities issued by Citycon, or other securities or financial instruments targeting Citycon shares or securities entitling to Citycon shares. In addition, persons discharging managerial responsibilities are at all times obligated to consult Citycon's insider administration prior to a planned transaction in Citycon's financial instruments.
Silent periods are shown in the investor calendar, available at www.citycon.com/investor-calendar.
On 16 March 2016, Citycon's Annual General Meeting re-elected audit firm Ernst & Young Oy the company's auditor, with Mikko Rytilahti (Authorised Public Accountant) acting as the responsible auditor appointed by the firm since 2014.
In 2016, Citycon paid EUR 0.7 million in remuneration to its auditor, related to its general audit. In addition, Citycon purchased advisory services from the auditor by less than EUR 50,000 , relating to matters such as the company's financing transactions and the bond issued in August.
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