Directors’ Institute Finland (DIF) is an independent non-profit association which contributes to the development of the professional capabilities of its members and promotes good corporate governance. DIF has 720 members with significant experience on board work. DIF is a member of The European Confederation of Directors Associations (ecoDa).
DIF welcomes the revision of the G20/OECD Principles of Corporate Governance. We find that the draft reflects well the recent developments in the field of good corporate governance.
Hereby we submit some considerations to the draft.
Shareholders
Shareholder rights
According to the draft, shareholder rights in cases of violation should be obtained at reasonable cost (II). We agree with the target. However, it certainly doesn’t always get fulfilled.
According to the draft, management team is replaced by the board (II). We would like to add that the management team can be replaced by the CEO although in most cases the decision is taken to the board.
The text discusses legal proceedings started against management (II). We find that instead of management, the term should be executive directors when shareholders rights are in question.
To the following text (II.B.):
Shareholders should be sufficiently informed about, and have the right to approve or participate in, decisions concerning fundamental corporate changes such as: 1) amendments to the statutes, or articles of incorporation or similar governing documents of the company; 2) the authorisation of additional shares; and
we propose the following addition to ascertain that such significant transactions are included in text and valid:
3) extraordinary transactions, including the transfer of all or substantially all corporate assets, that in effect result in the sale of the company.
Shareholder meetings
DIF supports the possibility to use virtual or hybrid format in shareholder meetings according to company decision. We would like to point out, however, that virtual and hybrid meetings may not always be realistic due to difficulties in identifying shareholders from other jurisdictions, for institutions with a wide range of companies in the portfolio to arrange the participation in a large number of meetings, language issues, ignorance of legislation of the company’s jurisdiction, time differences or the excessive length of meetings in some jurisdictions. Advance voting may in some cases be the most efficient way of decision-making in general meetings. (II.C.3)
As for voting in absentia, we find that this procedure would be useful to develop (II.C.6).
Although we support the elimination of impediments to cross-border voting (II.C.7), we find that a quick solution of the current problems to be unrealistic due to the issues mentioned above related to point II.C.3.
Multiple voting rights
The text mentions that multiple voting rights can lead to potential for abuse. We suggest to be added that the potential for abuse is neutralized with strong minority shareholders’ rights as well as transparent information about the existence and terms of the multiple share rights. (II.G.)
Boards
We note that the description of the responsibilities of the board in the beginning of Chapter V concentrates on control, omitting the boards’ important responsibility to steer companies to a successful future (strategic decisions).
Regarding the test that “Directors’ and officers’ liability insurance policies may also change managerial incentives, thus warranting shareholder approval or disclosure” we are not sure what this refers to. (II.C.5.)
Non-executive boards
The well-known and well-functioning Nordic model of governance – non-executive boards – is fully missing from the text (V). We find it important not to omit this model.
Diversity
DIF promotes diversity of boards. We suggest that industry-knowledge be added to diversity criteria (V.E.4.).
Capital structure decisions
According to the draft, optimal capital structure is best decided by the management and the board (II.E.1.) We find that capital structure cannot be decided by the management but it should be decided by the board if a GM decision is not required.
Committees
We would suggest that in addition to nomination committees consisting of board members, it is also good practice when nomination committee is formed of shareholders if shareholders are available to join such a committee. (II.C.5.).
It should be mentioned that when a company does not have an audit committee the whole board is responsible for those tasks (V.D.8.). Audit committees are not mandatory in all jurisdictions; the alternative being the whole board being responsible for the tasks of the audit committee.
It should be recognized in the text that many companies have started to emphasize the importance of employees below the executive team and consequently have changed their remuneration committees to people committees (names may vary), covering not just top-level remuneration but people issues more widely (V.E.2.)
Also, it should be noticed that not all corporate governance codes require nomination and remuneration committees, although they are given as a tool to strengthen preparatory work of the board (V.E.2.)
Stakeholders
DIF recognizes the importance of companies’ engagement with their relevant stakeholders. We suggest the use the term “relevant stakeholders” instead of stakeholders, in order to avoid that about any person or organization may deem itself to be stakeholder. It should be up to a company to identify its relevant stakeholders.
Regarding stakeholders, we are hesitant of the addition of “taking into account the interests of stakeholders” in V.A. The proposed addition is open to a wide variety of interpretations and may lead to frivolous litigation. At the minimum the following should be added: “when consistent with jurisdictional requirements” and instead of “stakeholders” the term should be “a company’s relevant stakeholders”.
Miscellaneous
Regarding the clarity of the text, we wonder why IV.E., a general paragraph of disseminating information is placed after paragraphs regarding auditor.
Related party transactions
We recognize the potential to abuse in regard of related party transactions (II.F.). However, legal certainty is important, and we find nullity to be a questionable outcome especially if rules are unclear.
Non-financial/sustainability disclosure/reporting/information
The text discusses non-financial disclosure/reporting/information in several points. It also uses sustainability information. We would suggest a consistent use of terminology, possibly using the more up-to-date term sustainability reporting.
Sincerely,
Directors’ Institute Finland – Hallitusammattilaiset ry
Kim Ignatius
Chair of the Board of Directors
Leena Linnainmaa
Secretary General