Governance Information • Mar 9, 2011
Governance Information
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%QTRQTCVG-IQXGTPCPEG-CV-(QTVWO-KU-DCUGF-QP-VJGlaws of Finland, the company's Articles of Association CPF-VJG-(KPPKUJ-%QTRQTCVG-)QXGTPCPEG-%QFG-YJKEJentered into force in October 2010. This Corporate )QXGTPCPEG-5VCVGOGPV-JCU-DGGP-RTGRCTGF-RWTUWCPV-VQ-4GEQOOGPFCVKQP--QH-VJG-%QFG-CPF-%JCRVGT--5GEVKQP--QH-VJG-5GEWTKVKGU-/CTMGVU-#EV-6JG-%QTRQTCVG-)QXGTPCPEG-5VCVGOGPV-KU-KUUWGF-UGRCTCVGN[-HTQO-VJG-EQORCP[oU-QRGTCVKPI-CPF-ƂPCPEKCN-TGXKGY
The company complies with the Finnish Corporate Governance Code. In addition, Fortum complies with the rules of NAS-DAQ OMX Helsinki Ltd, where it is listed, and the rules and regulations of the Finnish Financial Supervisory Authority. Fortum's headquarters is located in Espoo, Finland.
The Corporate Governance Code is available on the website of the Securities Markets Association ZZZFJğQODQGğ
)RUWXPSUHSDUHVFRQVROLGDWHGğQDQcial statements and interim reports in accordance with the International Financial Reporting Standards (IFRS), as adopted by the EU, the Securities Markets Act as well as the appropriate Financial Supervision Authority's standards and NASDAQ OMX Helsinki Ltd's rules. 7KHFRPSDQ\łVRSHUDWLQJDQGğQDQFLDO UHYLHZUHSRUWDQGSDUHQWFRPSDQ\ğQDQcial statements are prepared in accordance with the Finnish Accounting Act and the opinions and guidelines of the Finnish Accounting Board. The auditor's UHSRUWFRYHUVWKHRSHUDWLQJDQGğQDQFLDO UHYLHZUHSRUWFRQVROLGDWHGğQDQFLDO statements and the parent company ğQDQFLDOVWDWHPHQWV
The decision-making bodies managing and overseeing the group's administration and operations are the Annual
General Meeting of Shareholders, the Supervisory Board, the Board of Directors with its two Committees and the 3UHVLGHQWDQG&KLHI([HFXWLYH2IğFHU (CEO) assisted by the Fortum Management Team. The Board of Directors supervises the performance of the company, its management and organisation. The Supervisory Board, the Board of Directors and the Fortum Management Team are separate bodies, and no person serves as a member of more than one of them.
Day-to-day operational responsibility at the group level rests with the President and CEO assisted by the Fortum Management Team, and at division level with each division head assisted by a management team.
The right of shareholders to make decisions over company matters is exercised at an appropriately convened General Meeting of Shareholders by those shareholders present, or by their authorised representatives. In accordance with the Articles of Association and Finnish Corporate Governance Code, a notice to convene the General Meeting of Shareholders is issued by the Board of Directors. The notice is delivered no more than three months and no less than three weeks before the General Meeting of Shareholders by publishing the notice in two newspapers chosen by the Board of Directors. However, the notice shall
be delivered at least nine days before the record date of the General Meeting of Shareholders, as referred to in the Section 2, Sub-section 2 Chapter 4, of the Companies Act.
The Annual General Meeting is held once a year, at the latest in June. An Extraordinary General Meeting of Shareholders shall be held whenever the Board RI'LUHFWRUVRU6XSHUYLVRU\%RDUGğQGV cause for such a meeting or when provisions of the law rule that such a meeting must be held.
By decision of Fortum's Annual General Meeting 2010, a Shareholders' Nomination Committee was appointed to prepare proposals concerning Board members and their remuneration for the following Annual General Meeting. The Nomination Committee consists of the representatives of the three main shareholders and, in addition, as expert member the Chairman of the Board of Directors.
The three shareholders whose shares represent the largest number of the votes of all shares in the company on the 1st day of November preceding the Annual General Meeting will have the right to appoint the members representing the shareholders. Should a shareholder not wish to use its right to nominate, this right will be passed on to the next biggest shareholder. The largest shareholders
will be determined on the basis of the ownership information registered in the book-entry system. In case an owner is required under the Securities Markets Act to report certain changes in owner-VKLSZKHQĠDJJLQJE\VKDUHKROGHULV required), for example when the ownership is distributed among various funds, the ownership will be counted as one holding. if the owner so requests, by notifying the Board of Directors in writing no later than on 29 October.
The Nomination Committee is convened by the Chairman of the Board of Directors, and the Committee will choose a Chairman from among its own members. The Committee shall give its proposal to the Board of Directors of the company at the latest by 1 February preceding the Annual General Meeting.
In November 2010, the following persons have been appointed to Fortum Shareholders' Nomination Committee: Pekka Timonen, Director General, 3ULPH0LQLVWHUłV2IğFH2ZQHUVKLS Steering Department; Harri Sailas, CEO, Ilmarinen Mutual Pension Insurance Company, and Mikko Koivusalo, Investments Director, Varma Mutual Pension Insurance Company. The Chairman of Fortum's Board of Directors, Matti Lehti, serves as the Committee's expert member.
In its meeting on 1 February 2011, the Shareholders' Nomination Committee decided to propose to the Annual General Meeting, which will be held
31 March 2011, that Sari Baldauf be elected as Chairman and Christian Ramm-Schmidt as Deputy Chairman, and that members Esko Aho, Ilona Ervasti-Vaintola and Joshua Larson be re-elected. Matti Lehti and Birgitta Johansson- Hedberg have stated that they are no longer available for election. The Shareholders' Nomination Committee proposes that Minoo Akhtarzand and Heinz-Werner Binzel be elected as new members of the Board of Directors.
The Supervisory Board is responsible for overseeing that the shareholders' interests are safeguarded.
The members of the Supervisory Board, its Chairman and Deputy Chairman are elected at the Annual General 0HHWLQJIRUDRQH\HDUWHUPRIRIğFH \$SHUVRQZKRKDVUHDFKHGWKHDJHRI years may not be elected as a member of the Supervisory Board. The Supervisory Board comprises a minimum of six and
a maximum of 12 members; in February 2011 there were 10 members. The Supervisory Board meetings are also attended by three employee representatives who are not members of the Supervisory Board. More than half of the Supervisory Board's members must be present to constitute a quorum. In 2010, the Supervisory Board met 6 times.
The Board of Directors is responsible
for the administration of the Group and for ensuring that the business complies with the relevant laws and regulations, including the Finnish Companies Act, Fortum's Articles of Association, the instructions given by the General Meeting of Shareholders and the guidelines issued by the Supervisory Board. The %RDUGRI'LUHFWRUVFRPSULVHVğYHWR eight members who are elected at the Annual General Meeting for a one-year WHUPRIRIğFHZKLFKH[SLUHVDWWKHHQG
| Name | Born | Education | Occupation | Attendance in the meetings |
|---|---|---|---|---|
| Chairman Markku Laukkanen |
1950 | MSc (Soc.Sc) | Member of Parliament | 5/6 |
| Debuty Chairman Sanna Perkiö |
1962 | PhD | Member of Parliament | 4/6 |
| Martti Alakoski | 1953 | Union Chairman | 5/6 | |
| Tarja Filatov | 1963 | Member of Parliament | 4/6 | |
| Sampsa Kataja | 1972 | LL.M | Member of Parliament | 5/6 |
| Kimmo Kiljunen | 1951 | PhD (Pol.Sc) | Member of Parliament | 6/6 |
| Katri Komi | 1968 | MSc (Agriculture and Forestry) |
Member of Parliament | 4/6 |
| Panu Laturi | 1972 | MSc (Pol.Sc) | Secretary General, Green League of Finland |
6/6 |
| Juha Mieto | 1949 | Member of Parliament | 5/6 | |
| Jukka Mäkelä (1 | 1960 | MSc (Eng) | Member of Parliament | 4/4 |
| Helena Pesola | 1947 | MSc (Soc.Sc) | Director, KELA | 6/6 |
1) Jukka Mäkelä has resigned from his duties on Fortum's Supervisory Board as of 19 October 2010. He then started in his new position as the mayor of the City of Espoo.
The employee representatives on Fortum's Supervisory Board were Jouni Koskinen, Kari Ylikauppila and Sebastian Elg.
| Name | Born | Education | Occupation | Attendance in the Board meetings |
Attendance in the Board Comittee meetings |
|---|---|---|---|---|---|
| Chairman Matti Lehti |
1947 PhD (Econ.) | Non-executive director | 11/11 | The Nomination and Remuneration Com mittee, 5/5 |
|
| Deputy Chairman Sari Baldauf |
1955 MSc (Econ.) | Non-executive director | 11/11 | The Nomination and Remuneration Com mittee, 5/5 |
|
| Esko Aho | 1954 MSc (Pol. Sc.) | 'ZGEWVKXG 8KEG 2TGUKFGPV %QTRQ rate Relations and Responsibil ity, Nokia Corporation Non-executive director |
11/11 | The Nomination and Remuneration Com mittee, 5/5 |
|
| Ilona Ervasti 8CKPVQNC |
1951 LL. M, Trained on the bench |
Group Chief Counsel, Principal Attorney, Secretary of the Board of Directors of Sampo Plc, Member of the Group Executive Committee Non-executive director |
11/11 | The Nomination and Remuneration Com mittee (1 , 4/4, The Audit and Risk Committee, 1/1 (2 |
|
| Birgitta Johansson Hedberg |
1947 Bachelor of Art, Master of Psychology |
Non-executive director | 11/11 | The Audit and Risk Committee, 5/6 |
|
| Joshua Larson (1 | 1966 Master of Inter national Affairs, Bachelor in Rus sian language |
Private investor and consultant Non-executive director |
7/7 | The Audit and Risk Committee, 5/5 |
|
| Christian Ramm Schmidt |
1946 B. Sc (Econ.) | Senior Partner of Merasco Capital Ltd. Non-executive director |
11/11 | The Audit and Risk Committee, 6/6 |
1) New member as of 25 March 2010
2) Member until 25 March 2010
› The Board of Directors conducts an annual self-assesment.
RIWKHğUVW\$QQXDO*HQHUDO0HHWLQJIROlowing the election. More than half of the members must be present to constitute a quorum. A person who has reached the DJHRIFDQQRWEHHOHFWHGWRWKH%RDUG of Directors.
In 2010, the Board of Directors met 11 times. In addition to steering and supervising the company's operational DQGğQDQFLDOGHYHORSPHQWWKHPDLQ items during the year were Fortum's VWUDWHJ\EXVLQHVVSODQğQDQFLDOSRVLtion, performance target setting as well as risk management and policy and ğQDQFLDOUHSRUWLQJ0DLQLWHPVDOVR included investments and divestments as well as Russian operations. The Board also dealt with issues relating to sustainable business development and management performance and remuneration.
The members of the Board of Directors are all, with the exception of Ilona Ervasti-Vaintola (dependent on the company, interlocking control relationship), independent of the company and its sig-QLğFDQWVKDUHKROGHUV7KH3UHVLGHQWDQG &(2WKH&KLHI)LQDQFLDO2IğFHUDQGWKH General Counsel (being the secretary to the Board) attend Board meetings. Other Fortum Management Team members attend as required to provide information to the Board or upon invitation by the Board.
The Chairman of the Board, together with the President and CEO, prepares the items for discussion and to be decided upon at the Board of Directors' meetings.
The Board of Directors has approved a working order to govern its work.
The main contents of the Board of Directors' working order are presented on the left.
The Board of Directors conducts an annual self-assessment in order to
further develop the work of the Board. The assessment process analyses the HIğFLHQF\RIWKHZRUNWKHVL]HDQGFRPposition of the Board, the preparation of the agenda, and the level and openness of discussions, as well as the members' ability to contribute to an independent judgement.
The Board of Directors has appointed an Audit and Risk Committee as well as a Nomination and Remuneration Committee, both with at least three members. The members of these committees are all members of the Board of Directors. Members are appointed for a one-year WHUPRIRIğFHZKLFKH[SLUHVDWWKHHQG RIWKHğUVW\$QQXDO*HQHUDO0HHWLQJIROlowing the election. All the members of the Board of Directors have the right to participate in the committee meetings. The secretary to the Board of Directors acts as the secretary to the committees. The Board has approved written charters for the committees.
The main contents of the charters for the Board Committees are outlined on page 152.
7KH\$XGLWDQG5LVN&RPPLWWHH The Audit and Risk Committee assists WKH%RDUGRI'LUHFWRUVLQIXOğOOLQJLWV supervisory responsibilities in accord-DQFHZLWKWKHWDVNVVSHFLğHGIRUDXGLW committees in the Finnish Corporate Governance Code.
The Audit and Risk Committee annually reviews its charter, approves the internal audit charter and the internal audit plan and carries out a selfassessment of its work. Furthermore, the Committee meets the external auditors regularly to discuss the audit plan, audit UHSRUWVDQGDXGLWğQGLQJV
The Audit and Risk Committee reports on its work to the Board of Directors regularly after each meeting.
After the Annual General Meeting in March 2010, the Board elected among itself Birgitta Johansson-Hedberg as the Chairman and as members Joshua Larson and Christian Ramm-Schmidt to the Audit and Risk Committee. Ilona Ervasti-Vaintola was a member until the Annual General Meeting 2010.
The Committee met six times in 2010. Also regularly participating in the Committee's meetings were external DXGLWRUV&KLHI)LQDQFLDO2IğFHU&)2 Head of Internal Audit, Corporate Controller and General Counsel as the Secretary to the Committee as well as other parties invited by the Committee.
The main items during the year included reviewing the interim reports, WKHğQDQFLDOVWDWHPHQWVLQWHUQDODXGLW and risk management reports and policies as well as the corporate governance statement, monitoring of certain important projects and issues, preparing a recommendation for the election of the external auditor, as well as regulatory compliance.
After the Annual General Meeting in March 2010, the board elected among itself Matti Lehti as the Chairman and as members Esko Aho, Sari Baldauf and Ilona Ervasti-Vaintola, to the Nomination and Remuneration Committee. The Com-PLWWHHPHWğYHWLPHVGXULQJ2WKHU regular participants at the Committee meetings were the President and CEO, Senior Vice President, Corporate Human Resources, and General Counsel as the secretary to the Committee.
The Nomination and Remuneration Committee reports on its work to the Board of Directors regularly after each meeting.
The main items during the year included the top management performance evaluations and compensation issues, including incentive programme and performance target-setting for the management.
The role of the President and CEO is to manage the Group's business and administration in accordance with the Finnish Companies Act and related legislation and the instructions from the Board of Directors. Tapio Kuula, MSc (Eng), MSc (Econ), born 1957, has been the President and CEO since May 2009.
The President and CEO is supported by the Fortum Management Team. The performance of the President and CEO is evaluated annually by the Board of Directors. The evaluation is based on objective criteria that include the performance of the company and the achievement of goals previously set for the President and CEO by the Board's Nomination and Remuneration Committee.
Fortum Management Team and operational organisation
The Fortum Management Team currently consists of nine members, including the President and CEO to whom the members of the Management Team report. The General Counsel acts as the Secretary to the Management Team. The Management Team meets regularly on a monthly basis. In addition, there are meetings dealing with strategy and business planning, as well as performance reviews and people issues such as management reviews.
The Fortum Management Team sets the strategic targets, prepares the Group's annual business plans, follows up on the results, plans and decides on investments, mergers, acquisitions and divestments within authorisation. Each member of the Management Team is responsible for the key day-to-day operations and the implementation of operational decisions in their respective organisations.
The business divisions of Fortum are Power, Heat, Russia, and Electricity Solutions and Distribution. Power Division consists of Fortum's power generation, physical operation and trading as well as expert services for power producers. Heat Division consists of combined heat and power generation, district heating and cooling activities and business to business heating solutions. Russia Division consists of power and heat generation and sales in Russia. It includes OAO
Fortum and Fortum's over 25% holding in TGC-1. Electricity Solutions and Distribution Division is responsible for Fortum's electricity sales and distribution activities. The division consists of two business areas: Distribution and Electricity Sales. The staff functions are Finance, Corporate Relations and Sustainability, Corporate Human Resources, Corporate Strategy and R&D.
Fortum's Corporate Internal Audit is responsible for assessing and assuring the adequacy and effectiveness of internal controls in the company. Furthermore, it evaluates the effectiveness and HIğFLHQF\RIYDULRXVEXVLQHVVSURFHVVHV the adequacy of risk management, and, e.g., compliance with laws, regulations and internal instructions. The Standards for the Professional Practice of Internal Audit form the basis for its work.
Corporate Internal Audit is independent of the divisions and other units at Fortum. It reports to the Audit and Risk Committee of the Board of Directors and administratively to the CFO. The purpose, authority and responsibility of Corporate Internal Audit is formally GHğQHGLQLWVFKDUWHU7KHFKDUWHUDQG the annual audit plan are approved by the Audit and Risk Committee.
The company has one auditor, which VKDOOEHDQDXGLWğUPFHUWLğHGE\WKH Central Chamber of Commerce. The auditor is elected by the Annual General 0HHWLQJIRUDWHUPRIRIğFHWKDWH[SLUHV DWWKHHQGRIWKHğUVW\$QQXDO*HQHUDO Meeting following the election.
Fortum Corporation's Annual General Meeting on 25 March 2010 elected Authorised Public Accountant Deloitte & Touche Oy as auditor, with Authorised Public Accountant Jukka Vattulainen having the principal responsibility.
Fortum's Board of Directors approves the Corporate Risk Policy, which sets the objective, principles and division of responsibilities for risk management activities within the Group as well as GHğQHVWKH)RUWXPULVNPDQDJHPHQW process. The Fortum risk management process is also embedded in the internal control framework, and the process level internal control structure has been created by using a risk-based approach. The same approach is also used for the ğQDQFLDOUHSRUWLQJSURFHVV)RUWXPłV internal control framework includes main elements from the framework introduced by the Committee of Sponsoring Organisations of the Treadway Commission (COSO).
Read more about Fortum's risk management process and largest risks on pages 51–56 and 81–89.
Fortum has an internal control framework supporting the execution of the strategy and ensuring regulatory compliance. The values and Code of Conduct set the foundation for the internal control framework. The framework consists of group-level structures, corporate-level processes as well as business and support process-level controls. The Audit and Risk Committee, appointed by the Board of Directors, has oversight over risk management within the Group. Corporate Risk Management, an indepen dent function headed by the Chief Risk 2IğFHULQWKH&)2łV2IğFHLVUHVSRQVLEOH for reporting risk exposures on weekly and monthly basis to the CFO and the President and CEO as well as regularly to the Audit and Risk Committee. It is also responsible for maintaining the company's risk management framework. In the ğQDQFLDOUHSRUWLQJSURFHVVWKHRZQHU ship of the overall control structure is in the Corporate Accounting and Control unit headed by the Corporate Controller DVSDUWRIWKH&)2łVRIğFH
As part of the Fortum risk management SURFHVVDOVRULVNVUHODWHGWRğQDQFLDO UHSRUWLQJDUHLGHQWLğHGDQGDQDO\VHG annually. Additionally, all new risks are analysed and repaired as they have been LGHQWLğHG%XVLQHVVULVNVDUHUHSRUWHG thoroughly in connection with the planning process and the follow-up is
integrated to operational management through regular reporting. The control risk assessment has been the basis for creating the process-level internal control framework and the same applies to the control points to prevent errors LQWKHğQDQFLDOUHSRUWLQJSURFHVV7KH results of the control risk assessment and the process level controls have been reported to the Audit and Risk Committee. The control framework has been FKDQJHGGXULQJWRUHĠHFWWKHQHHGV of the new organisation and for the purpose of ensuring that a project has been established to systematically go through the controls in different organisations.
Fortum's organisation is decentralised and a substantial degree of authority and responsibility has been delegated to the divisions in form of control responsibilities even though some areas like commodity market risk control has been more centralised in the organisation. Each division has its own staff and other resources. Control activities are applied in the business processes and, from a ğQDQFLDOUHSRUWLQJSHUVSHFWLYHWKH\ ensure that potential errors or deviations are prevented, discovered and corrected. The Fortum policy structure ensures that governance around all activities exists.
,QğQDQFLDOUHSRUWLQJWKH&RQWUROler's manual sets the standards. The Corporate Accounting and Control
XQLWGHğQHVWKHGHVLJQRIWKHFRQWURO points, and internal controls cover the HQGWRHQGğQDQFLDOUHSRUWLQJSURFHVV However, the part of the organisation responsible for performing the controls is also responsible for the effectiveness of the controls. There are transaction process level controls and periodic controls. The periodic controls are linked to the monthly and annual reporting process and include reconciliations and analytical reviews to ensure the correctness of ğQDQFLDOUHSRUWLQJ
The Controller's manual including Accounting manuals, Investment manual and reporting instructions as well as poli cies are stored on intranet sites accessible by all people involved in the ğQDQFLDOUHSRUWLQJSURFHVV3URFHVVHV and related documentation have been developed in many areas during 2010. Additionally, Corporate Accounting and Control and Risk Management functions regularly arrange meetings in which information around the processes and
practices is shared to ensure uniform application of the processes. Investor Relations and Financial Communications together with Accounting and Control maintain the instructions for UHOHDVLQJğQDQFLDOLQIRUPDWLRQ
Financial results are followed up in the monthly reporting. In addition, the quarterly Performance Review meetings with Group and division manage ment are embedded in the Fortum Performance Management process. Financial performance is ultimately reviewed by the Audit and Risk Committee and Board of Directors.
The Performance Reviews have a monitoring role also in ensuring that the internal controls are functioning. As part of the Fortum internal control framework, all divisions are accountable for assessing the effectiveness of the controls they are responsible for. For the ğQDQFLDOUHSRUWLQJSURFHVVGLYLVLRQDQG corporate-level controller teams are responsible for this assessment. Additionally, Corporate Risk Management also has monthly meetings covering control issues with divisions' risk control units. Also Corporate Internal Audit's DJHQGDLQFOXGHVDUHDVUHODWHGWRğQDQcial reporting, and internal controls are always reviewed in these audits. In addition, control maturities are followed up with regular assesments.
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Read more about Fortum's corporate governance online.
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