Corporate governance is a term for which there is no satisfactory generally accepted Finnish translation. While a number of proposals have been made, the English term is widely used in Finnish texts. In the narrow sense of the term, corporate governance refers to the way in which the board of directors of a company works and operates. More generally, it refers to the activities and regulation of the corporate administration.
For the State as an owner and shareholder, corporate governance means primarily a coherent, well-functioning system of decision-making powers and supervision in state-owned and state-affiliated companies. Essentially, it means efficient ownership steering and exercise of shareholder control by the State and, more generally, sound administrative policies. The State’s ambition is to be a responsible and active owner that encourages companies to embrace and uphold clear and transparent administrative systems conducive to increasing shareholder value.
The state ownership policy seeks to actively develop the corporate governance systems and recommendations on a continuous basis. As one of the major shareholders in Finnish listed companies, the State wants to ensure that the decision-making and monitoring systems in place in the companies are up to current standards. The systems need to give due consideration to the owners’ interests and stand up to international comparison. Accordingly, the State monitors current developments in this area both in Finland and abroad. It promotes procedures that guarantee a high standard of governance in state-owned and state-affiliated companies with due regard to all shareholders and other interested parties.
With the increasing internationalisation of the financial markets and growing foreign ownership, it is extremely important that Finland and Finnish companies have corporate governance systems in place that are also understandable and acceptable to international investors. In terms of international standards, a key instrument is the ‘OECD Principles of Corporate Governance’ revised in April 2004. The OECD Principles have quickly achieved the position of an international standard and also serve as the basis for the Finnish State’s corporate governance recommendations. Finnish business organisations published their own corporate governance recommendations in 2003.
State-owner’s corporate governance policy and policy instruments
The corporate governance policy pursued by the State is largely based on the ‘Procedures for addressing corporate governance issues at state-owned and associated companies’ (13 November 2000). This recommendation underlines the Government’s neutrality and obligation to contribute to the increase in shareholder value.
At the same time, the State has sought to promote and develop policies regarding executive remuneration, bonuses and the incentive rewards of key individuals. The guiding principles in these efforts are to safeguard the interests of the owners and increase shareholder value. For example, the Cabinet Committee on Economic Policy issued a statement on these matters in spring 2007.
As of 2006, the State has posted on its website company-specific information on remuneration at unlisted companies in which the State holds interests (press releases of 31 January 2006 and 9 May 2006).
In 2004, the Cabinet Committee on Economic Policy issued a statement on the nomination of members to boards of directors (press release of 19 February 2004) and on the harmonisation of the age limits for board membership (press release of 23 November 2004).
In 2002, a decision was made to adopt a new policy, under which the Chief Executive Officer or members of the executive management may not serve on company boards (press release of 20 February 2002). A Government resolution on Supervisory Boards was issued in 2000.