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Descriptions Concerning Corporate Governance

Kesko Group’s Corporate Governance System

The highest decision-making power in Kesko is exercised by the Company's shareholders at the Company's General Meeting.

At the Annual General Meeting, the Company’s shareholders elect the Company’s Board of Directors and the Auditor. Kesko Group is managed by the Board of Directors and the Managing Director, who is the President and CEO. The President and CEO is appointed by the Board of Directors. The Company uses a so-called one-tier governance model.

Kesko Group's governance model
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The Annual General Meeting is held annually by the end of June, on a date designated by the Company's Board of Directors. The most significant matters falling within the decision-making power of the General Meeting include the election of the Board members and the Auditor, the adoption of the financial statements, the resolution on discharging the Board members and the Managing Director from liability, and the resolution on the distribution of the Company's assets, such as distributions of profit.

The Company has share series A and B, which differ with respect to the number of votes attached to the shares. An A share carries ten (10) votes and a B share carries one (1) vote at the General Meeting. When votes are taken, the proposal for which more than half of the votes were given will usually be the resolution of the General Meeting, as prescribed by the Limited Liability Companies Act.

Shareholders are invited to attend the General Meeting by a Notice of the General Meeting published on the Company’s website. The notice of the meeting and other General Meeting documents, including the Board of Directors’ proposals to the General Meeting, are made available to shareholders no later than three weeks prior to the General Meeting at the Company's headquarters and on its website at http://www.kesko.fi/. The notice of the meeting is also published in a stock exchange release.

The Company aims for all members of Kesko's Board of Directors, the President and CEO, and the Auditor to be present at the Annual General Meeting. The minutes of the General Meeting are made available to shareholders at http://www.kesko.fi within two weeks of the General Meeting. The resolutions of the General Meeting are also published in a stock exchange release without delay after the meeting.

Board of Directors

Term of Office

According to the Articles of Association, the term of office of a Kesko Board member is three (3) years, starting at the close of the General Meeting electing the member and expiring at the close of the third (3rd) Annual General Meeting after the election.

According to the Articles of Association, Kesko's Board of Directors is composed of a minimum of five (5) and a maximum of eight (8) members. All Board members are elected by the General Meeting. There are no special procedures concerning the nomination of Board member candidates or their election at the General Meeting, as the number of Board members is resolved and the members are elected by majority votes at the General Meeting based on shareholders’ proposals. The Board elects the Chair and the Deputy Chair from among its members for the whole term of office of the Board.

The Board members are elected by majority votes at the General Meeting based on shareholders’ proposals. The Board elects the Chair and the Deputy Chair from among its members for the whole term of office of the Board. In the preparation of a proposal for the Board composition, Kesko applies the practice in which significant shareholders prepare the proposals concerning the Board of Directors, including the proposal for the number of Board members, their remuneration and, as necessary, for the Board members to the General Meeting.

Board’s composition and shareholdings

The Annual General Meetings of 13 April 2015 and 4 April 2016 resolved that the Board of Directors is composed of seven (7) members.

The General Meeting of 13 April 2015 elected Esa Kiiskinen, Mikael Aro, Matti Kyytsönen, Tomi Korpisaari, Anu Nissinen, Toni Pokela and Kaarina Ståhlberg as Board members. According to the Articles of Association, the term of office of a Kesko Board member is three (3) years, starting at the close of the General Meeting electing the member and expiring at the close of the third (3rd) Annual General Meeting after the election.

Tomi Korpisaari (b. 1968, retailer) and Kaarina Ståhlberg (b. 1966, Master of Laws) resigned from the Board as of 1 March 2016. The General Meeting of 4 April 2016 resolved to replace them by retailer, trade technician Matti Naumanen and Managing Director, Master of Science in Economics Jannica Fagerholm until the close of the Annual General Meeting to be held in 2018.

In accordance with the Articles of Association, the term of office of each member of the Board of Directors will expire at the close of the 2018 Annual General Meeting.

The Board’s composition and shareholdings as at 31 December 2016 are presented in the table below.

Board of Directors' composition and shareholdings as at 31 Dec. 2016
Name Year of birth Education Principal occupation Board member since Committee membership Kesko shares held as at 31 Dec. 2016
Esa Kiiskinen (Ch.) 1963 Business College Graduate Food Retailer 2009 Remuneration Committee (Ch.) 1,350 A shares held by him and 106,000 A shares held by companies controlled by him
Mikael Aro (Dep. Ch.) 1965 eMBA Senior Industry Advisor, Triton Partners 2015 Audit Committee (Dep. Ch.) Remuneration Committee (Dep. Ch.) 1,000 B shares held by him
Jannica Fagerholm* 1961 Master of Science (Economics) Managing Director, Signe and Ane Gyllenberg Foundation 2016 Audit Committee (Ch.) None
Matti Kyytsönen 1949 Master of Science (Economics) Chair of the Board, Silverback Consulting Oy 2015 Audit Committee 995 B shares held by him
Matti Naumanen* 1957 Trade Technician Retailer 2016 2,400 A shares held by him and 17,664 A shares held by companies controlled by him
Anu Nissinen 1963 Master of Science (Economics) CEO, Digma Design Oy 2015 Remuneration Committee None
Toni Pokela 1973 eMBA Food Retailer 2012 179,400 A shares held by companies controlled by him
* As of 4 April 2016
Independence

All members of Kesko's Board of Directors are non-executive directors. The Board evaluates the independence of its members on a regular basis in accordance with Recommendation 10 of the Corporate Governance Code.

In 2016, the Board of Directors carried out an independence evaluation in its organisational meeting held after the General Meeting of 4 April 2016, as well as on 26 April 2016. Based on that independence evaluation, the Board of Directors considered Toni Pokela not to be independent of the Company's significant shareholder, the K-Retailers’ Association, of which Pokela is the Chair of the Board. In its independence evaluation, the Board considered the majority of the Board members to be independent of the Company. A Board member is obliged to provide the Board with necessary information for the evaluation of independence.

The Board members’ independence is presented in the table below.

Board members’ independence in 2016
Independent of the Company Independent of a significant shareholder
Esa Kiiskinen (Ch.) No*** Yes
Mikael Aro (Dep. Ch.) Yes Yes
Jannica Fagerholm* Yes Yes
Matti Kyytsönen Yes Yes
Matti Naumanen* No*** Yes
Anu Nissinen Yes Yes
Toni Pokela No*** No****
Tomi Korpisaari** No No****
Kaarina Ståhlberg** Yes Yes
* As of 4 April 2016
** Until 29 February 2016
*** Each of the companies controlled by Kiiskinen, Naumanen and Pokela has a chain agreement with a Kesko Group company.
**** Pokela is the Chair of the Board of Kesko's significant shareholder, the K-Retailers’ Association. In its meeting on 11 January 2016, the Board of Directors considered Tomi Korpisaari not to be independent of a significant shareholder, because he was the Chair of the Board of Kesko's significant shareholder, the K-Retailers’ Association. The total voting interest of the K-Retailers' Association in the Company exceeded 10% on 23 December 2015.

Description of the operations of the Board of Directors and the main contents of the charter of the Board of Directors

Kesko's Board of Directors is responsible for the proper organisation of the Company's corporate governance, operations, accounting and financial management controls. It is also responsible for the supervision and control of the whole Kesko Group. The Board of Directors has confirmed a written charter for the Board of Directors’ duties, the matters it deals with, its meeting practice and decision-making procedure. In accordance with the charter, the Board deals with and makes decisions on matters that are financially, operationally or fundamentally significant to the Group.

According to the charter, the Board of Directors’ main duties include:

  • deciding on the Group strategy and confirming the divisions’ strategies
  • confirming the Group's budget and rolling forecast, which includes a capital expenditure plan
  • adopting the Group's financial and investment policy
  • confirming the Group's risk management policy and considering the Group's most significant risks and uncertainties
  • reviewing and adopting the consolidated financial statements, half year financial reports and interim reports and related stock exchange releases and the Report by the Board of Directors
  • deciding on strategically or financially significant individual capital expenditures, acquisitions, divestments or arrangements, and commitments
  • deciding on management authorisation rules
  • deciding on the essential structure and organisation of the Group
  • appointing and dismissing the Company's President and CEO, approving his/her managing director's service contract and deciding on his/her remuneration and other financial benefits
  • deciding on the appointments of the Group Management Board members responsible for lines of business, on their remuneration and financial benefits
  • deciding on the principles of Kesko's remuneration schemes and monitoring the implementation of the remuneration schemes
  • making possible proposals to the General Meeting for share issue and acquisition authorisations, and making decisions on granting shares or share options under share-based commitment and incentive schemes, and on the terms and conditions for granting them
  • establishing a dividend policy and being responsible for shareholder value performance
  • confirming the Company's values
  • reviewing the integrated Kesko’s Annual Report
  • being responsible for the other statutory duties prescribed to the Board of Directors by the Limited Liability Companies' Act or some other, and for duties prescribed by the Finnish Corporate Governance Code for Listed Companies.

The duty of Kesko's Board of Directors is to promote the interests of Kesko and all of its shareholders. The Board members do not represent the parties in the Company that have proposed their election as Board members. A Board member is disqualified from participating in the handling of any matter between him/her (including entities over which he/she exercises control) and the Company. When a vote is taken, the Board's decision will be the opinion of the majority and if a vote results in a tie, the decision will be the opinion supported by the Chair. If the votes taken at an election of a person end in a tie, the result will be decided by drawing lots.

Board of Director’s operations in 2016

In 2016, the Board held 13 meetings. The Board members' attendance rate at the Board meetings was 98.9%. In 2016, the Board has, among other things, monitored the implementation of the new strategy approved for Kesko Group in spring 2015, further clarified and concretised the chosen strategic policy definitions and made decisions on the mergers that realise the simplification of the Group’s legal structure. In order to improve profitability and ensure competitiveness, the Board has made sure that the approved cost saving targets are achieved. The Board has also made decisions on significant business arrangement in accordance with the Group’s confirmed strategy, such as the acquisitions of Onninen Oy and Ab AutoCarrera Oy and the disposal of the grocery trade in Russia and the boat business. The Board has also approved the Board’s diversity policy and made a decision on the approval of the K Code of Conduct guidelines observed by the Group. As in previous years, the Board has reviewed the financial reports and monitored the Group's financial situation, approved the most significant capital expenditures, monitored the progress of Group-level projects and approved the interim reports, the half year financial report and the financial statements before they are published.

The Board meetings regularly discuss the review by the President and CEO on key topical issues, as well as the reports by the Chairs of the Board's Audit Committee and Remuneration Committee on Committee meetings preceding the Board meetings. The Auditor presents his findings to the Board once a year in connection with the review of the financial statements.

Attendance at meetings by members of the Board and its Committees in 2016
Attendance
Board member since Committee membership Board Audit Committee Remuneration Committee
Esa Kiiskinen (Ch.) 2009 Remuneration Committee (Ch.) 13/13 4/4
Mikael Aro (Dep. Ch.) 2015 Audit Committee (Dep. Ch.)
Remuneration Committee (Dep. Ch.)
13/13 6/6
Remuneration Committee (Dep. Ch.) 4/4
Jannica Fagerholm* 2016 Audit Committee 11/11 4/4
Matti Kyytsönen 2015 Audit Committee 13/13 6/6
Matti Naumanen* 2016 11/11
Anu Nissinen 2015 Remuneration Committee 13/13 4/4
Toni Pokela 2012 13/13
Tomi Korpisaari** 2012 1/2
Kaarina Ståhlberg** 2015 Audit Committee (Ch.) 2/2 2/2
* As of 4 April 2016
** Until 29 February 2016

Principles concerning diversity

The diversity policy approved by Kesko’s Board of Directors is available at www.kesko.fi. The diversity policy has been approved and published on the website in the following form:

“Diversity is an essential component of Kesko’s success, the achievement of Kesko’s strategic objectives and good governance at Kesko. This diversity policy describes the objectives in the achievement of diversity in the operations and composition of Kesko Corporation’s Board of Directors.

Board size and election of its members

According to the Company’s Articles of Association, the term of office of a Board member is three (3) years, starting at the close of the General Meeting electing the member and expiring at the close of the third (3rd) Annual General Meeting after the election. According to the Articles of Association, Kesko's Board of Directors is composed of a minimum of five (5) and a maximum of eight (8) members. A sufficient number of Board members promotes the diversity of Board composition, as the areas of expertise and competence of the Board members are mutually complementary and the Board’s independence requirements are satisfied.

The Board members are elected by majority votes at the General Meeting based on shareholders’ proposals. The Board elects the Chair and the Deputy Chair from among its members for the whole term of office of the Board. In the preparation of a proposal for the Board composition, Kesko applies the practice in which significant shareholders prepare the proposals concerning the Board of Directors, including the proposal for the number of Board members, their fees and, as necessary, for the Board members to the General Meeting.

Planning the Board composition

The composition of Kesko’s Board of Directors shall support Kesko’s current and future business operations. The Board members are appointed on their merits. One of the essential features in the Board composition is that the Board members’ educational backgrounds, experience, professional competences and age and gender distribution support Kesko’s business objectives and enable efficient Board work from Kesko’s point of view. The Board members shall also be able to devote a sufficient amount of time to Board work.

Kesko aims to achieve a balanced gender distribution in the composition of its Board of Directors. The composition of the Board shall reflect experience in both national and international business operations. The educational background of the Board members shall represent multiple disciplines and diversity. In addition, Kesko’s Board shall include members with strong experience in the trading sector and in-depth knowledge of the retailer business. The achievement of objectives is monitored annually and reported in the corporate governance statement.”

Monitoring the implementation of diversity policy objectives in 2016

In 2016, two of the seven Board members were women, in other words, the proportion of the gender with smaller representation in the Board was approximately 29%. The Board members have diverse and multi-sectoral experience backgrounds and several Board members also have experience in international business. The Board members’ educational background is multi-sectoral and diverse (see Hallituksen jäsenten henkilötietojen kuvaus in section ”Board’s composition and shareholdings”). Several Board members have experience in the trading sector and the principal occupation of three of the seven Board members is acting as a K-retailer.

Board’s Committees

Kesko has the Board’s Audit Committee and Remuneration Committee, both of which are composed of three (3) Board members. At the close of the Annual General meeting, the Board elects the Chairs, the Deputy Chairs and the members of the Committees from among its members for one year at a time.

All members of the Audit Committee are independent of the Company and the Company’s significant shareholders. In the election of the Audit Committee members, the competence requirements for Audit Committee members have been taken into account.

All members of the Remuneration Committee are independent of the Company's significant shareholder and its majority is also independent of the Company. In the election of the Remuneration Committee members, the competence requirements for Remuneration Committee members have been taken into account.

The Committees regularly assess their operations and working methods and carry out a related self-assessment once a year. The Board has confirmed written charters for the Committees, which contain the main duties and operating principles of the Committees.

The Committees have no independent decision-making power. Instead, the Board makes decisions on matters based on the Committees’ preparatory work. The Committee Chair reports on the Committee's work at the Board meeting following the Committee's meeting. Minutes of the Committee meetings are submitted for the information of the Board members.

Kesko's Board of Directors has not established any other committees in addition to the Audit and Remuneration Committees. Nor has the General Meeting appointed any committees or boards.

Audit Committee

The Board's organisational meeting, held after the Annual General Meeting of 4 April 2016, elected the following Board members as Audit Committee members:

  • Jannica Fagerholm (Ch.)
  • Mikael Aro (Deputy Ch.)
  • Matti Kyytsönen

During the period 1 January 2016 to 29 February 2016, the Chair of the Audit Committee Chair was Kaarina Ståhlberg.

According to its charter, the duties of the Audit Committee include:

  • monitoring of Kesko Group's financial situation and funding situation and the process of financial statements reporting
  • supervision of the Company's financial reporting process
  • evaluation of the efficiency of the Company's internal control, internal audit and risk management systems
  • revision of the Company’s Corporate Governance Statement
  • approval of the operating instructions, annual audit plan, budget and resources for the Company's Internal Audit and reviewing the reports submitted to the Committee
  • monitoring of the statutory audit of the financial statements and the consolidated financial statements
  • evaluation of the independence of the Company's audit firm
  • evaluation of related (non-audit) services to Kesko by the audit firm and its network firms
  • preparation of a proposal to the General Meeting for a resolution on the election of the Company's Auditor and communicating with the Company's Auditor.

In 2016, the Audit Committee held six (6) meetings. Its members' attendance rate at the Committee meetings was 100%. At the Committee meetings, the Group's Chief Financial Officer, the Group Controller and the Chief Audit Executive regularly report on their areas of responsibility to the Committee. The Committee also receives reports on Kesko Group's funding situation, taxation, information management, risk management and insurances. The Auditor is present at the Committee meetings and presents his audit plan and report to the Audit Committee.

During the year, the Committee reviewed the reports on the Group's financial situation, including the financial statements release, the half year financial report and the interim reports, and made a recommendation to the Board on the review of the reports and the financial statements release. In addition, the Committee reviewed the reports of the Group's external and internal audits, risk management and legal affairs and the reporting on non-financial information, the adoption of new IFRS standards and their impacts on the Group’s reporting, the allocation of the prices of strategic business arrangements, their impacts and risks as well as treatment in the half year financial report and the interim reports. The Committee also discussed the external quality assurance of internal audit and its results, the situation of the Group’s real estate associates, the cyber security development plan and the policy of purchasing ancillary services from audit firms. The Committee also assessed the Auditor's independence and consultation services provided to the Group. The Audit Committee prepared and submitted a proposal to Kesko’s Annual General Meeting 2016 for the election of the Auditor based on the competitive bidding process for Auditors conducted towards the end of 2014.

Remuneration Committee

The Board's organisational meeting, held after the Annual General Meeting of 4 April 2016, elected the
following Board members as Remuneration Committee members:

  • Esa Kiiskinen (Ch.)
  • Mikael Aro (Deputy Ch.)
  • Anu Nissinen

According to its charter, the duties of the Remuneration Committee include:

  • preparation of matters pertaining to the remuneration and other financial benefits of the President and CEO and his/her managing director's service contract to the Board
  • preparation of matters pertaining to the remuneration and other financial benefits of the Group Management Board members responsible for lines of business; decisions on the remuneration and financial benefits of the Group Management Board members other than those responsible for lines of business are made by the President and CEO within the limits set by the Chair of the Remuneration Committee
  • preparation of matters pertaining to the appointment of the President and CEO and the Group Management Board members responsible for lines of business, and the identification of their potential successors
  • development of remuneration schemes and preparing them to the Company's Board of Directors, including:
    • evaluation of the remuneration of the President and CEO and the other executives, and ensuring the appropriateness of the remunerations schemes
    • preparation of possible share or share-based commitment and incentive schemes
    • preparation of the distribution of shares or share options under the share or share-based commitment and incentive schemes, and the preparation of their terms and conditions
  • revision of the Remuneration Statement in connection with the financial statements
  • answering questions related to the Remuneration Statement at the General Meeting. Questions are primarily answered by the Committee Chair
  • preparation of the principles for the performance and result criteria of the remuneration schemes, and monitoring their implementation and evaluating their impacts on Kesko's long-term financial success.

In 2016, the Remuneration Committee held four (4) meetings. Its members' attendance rate at the meetings was 100%. The Committee prepared, among other things, the proposals to the Board for the vesting criteria and the target group of share awards, for the principles of management's performance bonuses for 2016, as well as for the Group’s new performance bonus principles for 2017. The Committee made preparations for the appointments of the Executive Vice President for the car trade and the Company’s Executive Vice Presidents, examined management’s remuneration practices more generally as well as made preparations for a reform of management’s total remuneration. In addition, the Committee discussed, among other things, Kesko’s Remuneration Statement.

Managing Director (President and CEO) and his duties

Kesko has a managing director who is the President and CEO. Kesko’s President and CEO is Master of Science in Technology Mikko Helander (b. 1960). He became Kesko’s President and CEO on 1 January 2015. Helander has also been a member of the Group Management Board and Kesko’s Executive Vice President during the period 1 October 2014 to 31 December 2014, and he has been the Chair of the Group Management Board since 1 January 2015.

The President and CEO's duty is to manage Kesko Group’s operations in accordance with the instructions and orders issued by the Company’s Board of Directors and to report to the Board about the developments in the Company's business operations and financial situation. He is also responsible for the Company's day-to-day governance and he oversees that the financial matters are organised in a reliable manner. The President and CEO also chairs the Group Management Board and the subsidiary Boards essential with regard to business operations.

The President and CEO is elected by the Board of Directors. The Board has decided the terms and conditions of the President and CEO's service contract. A written managing director's service contract, approved by the Board, has been made between the Company and the President and CEO.

As at 31 December 2016, Helander owned a total of 20,005 Kesko B shares. Helander’s shareholdings as at 31 December 2016 is also presented in the table under ”Group Management Board”.

Group Management Board

Kesko Group has a Group Management Board, the Chair of which is Kesko's President and CEO.
The Group Management Board does not have any powers under law or the Articles of Association. The Group Management Board’s duty is to discuss Group-wide development projects and Group-level policies and procedures. In addition, the Group Management Board discusses, among other things, the Group's and the division parent companies' business plans, profit performances and matters dealt with by Kesko's Board of Directors, in whose preparation it also participates. The Group Management Board meets 10–15 times a year.

Group Management Board members, areas of responsibility and shareholdings as at 31 Dec. 2016
Group Management Board member since Area of responsibility Shares held as at 31 Dec. 2016
Mikko Helander, Chair 1 Oct 2014 Kesko's President and CEO 20,005 B shares held by him
Jorma Rauhala, Executive Vice President, grocery trade division 5 Feb 2013 Grocery trade 13,670 B shares held by him
Terho Kalliokoski, Executive Vice President, building and technical trade division 17 Nov 2005 Building and technical trade 24,009 B shares held by him
Pekka Lahti, Senior Vice President, car trade division* 1 Mar 2005 Car trade 15,401 B shares held by him
Jukka Erlund, Executive Vice President, Chief Financial Officer 1 Nov 2011 Finance and accounting 11,478 B shares held by him
Matti Mettälä, Executive Vice President 1 Oct 2012 Human resources 6,952 B shares held by him
Anne Leppälä-Nilsson, Executive Vice President, Group General Counsel 1 Jan 2015 Legal affairs 8,183 B shares held by her
Lauri Peltola, Executive Vice President 2 Mar 2015 Corporate responsibility,
communications and stakeholder relations
2,670 B shares held by him
Anni Ronkainen, Executive Vice President 20 Apr 2015 Chief Digital Officer 2,670 B shares held by her
* Johan Friman (b. 1965, Master of Science in Economics) has been appointed Executive Vice President for the car trade division as of 1 Jan. 2017. Pekka Lahti will retire on a pension in accordance with his service contract on 1 April 2017.