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The Group Kesko’s Corporate Governance
Kesko Corporation (Kesko or the company) is a Finnish public limited company in which the duties and responsibilities of the executive bodies are defined according to the Finnish law. The international Kesko Group comprises the parent company, Kesko, and its subsidiaries. The company is domiciled in Helsinki.
The highest decision-making power in Kesko is exercised by the company’s shareholders at a General Meeting. The company’s shareholders elect the company’s Board of Directors and auditor at a General Meeting. The Kesko Group is managed by the Board of Directors and a Managing Director, who is the President and CEO. The company uses a single-tier governance model.
Kesko’s decision-making and administration comply with the Finnish Limited Liability Companies Act, other regulations concerning publicly traded companies, Kesko Corporation’s Articles of Association, and the rules and guidelines of NASDAQ OMX Helsinki Ltd. In addition, the company complies with the Finnish Corporate Governance Code for listed companies (“Corporate Governance Code”). The Corporate Governance Code is available in full at www.cgfinland.fi. As provided by the Comply or Explain principle of the Corporate Governance Code, the company departs from the Corporate Governance Code’s recommendation concerning the terms of office of Board members as specified hereafter.
The terms of the members of Kesko’s Board of Directors depart from the term of one year given in Recommendation 10 of the Corporate Governance Code. The term of the company’s Board is defined in the company’s Articles of Association. The General Meeting makes decisions on amendments to the Articles of Association. According to the company’s Articles of Association, the term of office of each Board member is three (3) years with the term 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.
A shareholder which, together with controlled companies, holds over 10% of all voting rights attached to Kesko’s shares, has informed the company’s Board of Directors that it considers the term of three (3) years good for the company’s long-term development and sees no need to shorten the term of office set in the Articles of Association.
A separate Kesko’s Corporate Governance Statement referred to in the Corporate Governance Code and inspected by the Audit Committee of Kesko’s Board of Directors at its meeting on 4 February 2010 is available at www.kesko.fi.
The Annual General Meeting, which is held on a date before the end of every June as designated by the company’s Board of Directors, handles the business specified for the Annual General Meeting in the company’s Articles of Association and any other proposals that may be made to the Meeting. Kesko’s Annual General Meeting has usually been held in March or April. If needed, the company may also hold an Extraordinary General Meeting.
All General Meetings are convened by the company’s Board of Directors. An Extraordinary General Meeting must also be convened if shareholders with at least 10% of the shares so demand in writing in order to deal with a given matter. As a rule, General Meetings handle the matters placed on the agenda by the company’s Board of Directors.
Individual shareholders have the right, prescribed in the Limited Liability Companies Act, to place those matters that fall within the competence of a General Meeting, on the General Meeting agenda, provided they make a written request to the Board of Directors in time for the matter to be included in the notice of the meeting. Shareholders must send such requests, together with a written account of the reasons behind the requests or the proposed resolutions to the Kesko Group’s Legal Affairs, Kesko Corporation, FI-00016 KESKO or by e-mail to cg@kesko.fi.
The major matters to be decided by a General Meeting include:
Shareholders are invited to a General Meeting by a notice published in at least two nationwide newspapers, specifying e.g.
The notice is delivered no earlier than two (2) months and no later than twenty-one (21) days before the record date of the General Meeting. The notice and the proposals of the company’s Board to the General Meeting are published in a stock exchange release. Proposals for the number, and proposed nominations and fees of Board members made by shareholders who hold at least 10% of the votes carried by the company shares are also published in a stock exchange release.
The notice of the General Meeting and the following information is made available to shareholders on the company website at least 21 days before the General Meeting:
Shareholders have the right to participate in a General Meeting if they are registered as shareholders in the company’s register of shareholders kept by the Finnish Central Securities Depository Ltd at the record date separately given by the company. Those wishing to attend a General Meeting must notify their intention in advance by the date announced in the notice of the General Meeting, which date must not be earlier than ten (10) days before the meeting. Shareholders may attend the meeting themselves or through an authorised representative. The representative shall produce a proxy document or otherwise provide reliable evidence of the right to represent the shareholder. Each shareholder or representative may have one assistant at the meeting.
The minutes of a General Meeting, together with voting results and appendixes relating to decisions made, can be read by shareholders on the company’s website within two (2) weeks of the meeting. Appendixes to decisions made by a General Meeting are available on the company website only insofar they describe the actual content of the decision. General Meeting decisions are also published in a stock exchange release immediately after the meeting.
Kesko’s aim is that all members of the company’s Board of Directors and the auditor are present at Annual General Meetings. Extraordinary General Meeting are attended by the Chair of the company’s Board of Directors, a sufficient number of Board members and the President and CEO. First-time candidates for the Board of Directors are present at the General Meeting that elects them, unless there is a weighty reason for their absence.
The company has two share series, A and B shares, which differ only with respect to the votes to which they give entitlement. Each A share entitles its holder to ten (10) votes and each B share to one (1) vote at a General Meeting. When votes are taken, the proposal supported by more than half of the votes will normally be the decision of the General Meeting, as prescribed by the Limited Liability Companies Act. However, the Act specifies several matters, such as amendments to the Articles of Association and decisions on directed share issues, where a legally binding decision requires a higher qualified majority in relation to the number of shares and the votes to which they give entitlement.
Kesko’s Articles of Association do not include any redemption clauses or voting restrictions. No shareholder agreements on the use of voting rights in the company or agreements on restricting the transfer of company shares are known to the company.
According to the Articles of Association, the term of office of each Board member is three (3) years with the term 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 consists of a minimum of five (5) and a maximum of eight (8) members. The General Meeting elects all members of the Board of Directors. The Board elects the Chair and the Deputy Chair from among its members. The Board of Directors elected by Kesko’s Annual General Meeting of 30 March 2009 consists of seven (7) members: Heikki Takamäki (Chair), Seppo Paatelainen (Deputy Chair), Maarit Näkyvä, Ilpo Kokkila, Esa Kiiskinen, Mikko Kosonen and Rauno Törrönen. According to the Articles of Association, the term of each Board member will expire at the close of the 2012 Annual General Meeting.
All of Kesko’s Board members are non-executive directors. The Board of Directors evaluates the independence of its members on a regular basis. Each Board member is obliged to provide the Board with sufficient information that will allow the Board to evaluate his/her independence. The majority of Kesko’s Board members are independent of the company and all Board members are independent of the company’s significant shareholders. Board members Heikki Takamäki, Esa Kiiskinen and Rauno Törrönen each have a corporation over which they exercise control and which has a chain agreement with a Kesko Group company.
The function of Kesko’s Board of Directors is to duly arrange the company’s management, operations and accounting, and to supervise the company’s financial management. The Board of Directors has confirmed the written rules of procedure that specify the Board of Directors’ duties, business to be handled, meeting practice and the decision-making process. The Board of Directors handles and decides on all matters that are financially, commercially or fundamentally significant for the Group’s operations.
The principal duties of the Board of Directors include:
The purpose of Kesko’s Board of Directors is to promote the interests of Kesko and all its shareholders. In the company, the Board members do not represent the interests of the parties who proposed their election. Board members are disqualified from participating in the handling of any matter between him/her and the company. When a vote is taken, the Board of Directors’ decision will be the opinion of the majority. If the vote results in a tie, the decision will be the opinion supported by the Chair. If the votes cast at an election end in a tie, the results will be decided by drawing lots.
The Board met 10 times in 2009, and the average attendance at meetings was 98.6%. New Board members were systematically introduced to Kesko’s activities during the year.
At its meetings, the Board of Directors has focused particularly on strategies of the Kesko Group and its divisions. At the meetings, the Board receives regular reviews from the President and CEO, handles financial reports and actively monitors the financial situation of the Kesko Group. It also approves major capital expenditure, such as store site investments. On the basis of the Audit Committee’s recommendation, the Board handles and approves the interim reports and the financial statements before they are published. The Board also discusses reports on committee meetings, made by the Chairs of the Audit Committee and the Remuneration Committee. The auditor presents his findings to the Board once a year.
The Board of Directors regularly assesses its operations and working practices and carries out a related self-assessment once a year. Most recently the Board made a self-assessment of its operations and working practices in December 2009. This was based on a questionnaire, followed by a discussion on the results and further actions. On the basis of the assessment, the Board of Directors decided to continue to focus on strategies.
The Board of Directors has an Audit Committee and a Remuneration Committee, both of which consist of three (3) Board members. At the close of the Annual General Meeting, the Board of Directors elects the 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 its significant shareholders. All members of the Remuneration Committee are independent of the company’s significant shareholders and the majority of them are also independent of the company. The Committees regularly assess their operations and working practices and carry out a related self-assessment once a year. The Board of Directors has confirmed written rules of procedure for the Committees that lay down their key duties and operating policies.
The Committees have no independent decision-making power, but the Board makes decisions based on the preparations made by the Committees. The Chair of the Committee reports on the work of the Committee at the Board of Directors meeting following the Committee meeting. Minutes of all Committee meetings are submitted to Board members for information.
Kesko’s Board of Directors has not established any other committees in addition to the Audit and Remuneration Committees.
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| Attendance | ||||
| Committee membership | Board | Audit Committee |
Remuneration Committee |
|
| Heikki Takamäki (Chair) | Remuneration Committee (Chair) | 10/10 | - | 3/3 |
| Esa Kiiskinen** | 8/8 | - | - | |
| Ilpo Kokkila | Remuneration Committee** | 10/10 | - | 3/3 |
| Mikko Kosonen** | Audit Committee | 8/8 | 4/4 | - |
| Maarit Näkyvä | Audit Committee (Chair) | 10/10 | 5/5 | - |
| Seppo Paatelainen (Dep. Chair since 30.3.2009) |
Audit Committee, Remuneration Committee** |
9/10 | 4/5 | 3/3 |
| Rauno Törrönen** | 8/8 | - | - | |
| Keijo Suila (Dep. Chair until 30.3.2009)* |
Audit Committee, Remuneration Committee |
2/2 | 1/1 | - |
| Pentti Kalliala* | Remuneration Committee | 2/2 | - | - |
| Jukka Säilä* |
-
|
2/2
|
-
|
-
|
Independence of the Board members in 2009 |
Independent of the company |
Independent of significant shareholders |
| Heikki Takamäki (Chair) | No*** | Yes |
| Esa Kiiskinen** | No*** | Yes |
| Ilpo Kokkila | Yes | Yes |
| Mikko Kosonen** | Yes | Yes |
| Maarit Näkyvä | Yes | Yes |
| Seppo Paatelainen (Dep. Chair since 30.3.2009) | Yes | Yes |
| Rauno Törrönen** | No*** | Yes |
| Keijo Suila (Dep. Chair until 30.3.2009)* | Yes | Yes |
| Pentti Kalliala* | No*** | Yes |
| Jukka Säilä* | No*** | Yes |
| * until 30 March 2009 ** since 30 March 2009 *** The companies in which Kalliala, Kiiskinen, Säilä, Takamäki and Törrönen exercise control each have a chain agreement with a Kesko Group company. |
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The Audit Committee comprises Maarit Näkyvä (Chair), Seppo Paatelainen and Mikko Kosonen.
According to the rules of procedure, the duties of the Audit Committee include:
The Audit Committee met five (5) times in 2009, and the average attendance at meetings was 93.3%. At Committee meetings, the CFO, the Corporate Controller, the Chief Audit Executive and the General Counsel of the Group give regularly reports on their areas of responsibility to the Committee. The Committee also receives information on the Kesko Group’s financing, risk management and insurances. The auditor is present at meetings and presents his audit plan and report to the Audit Committee.
During the year, the Committee handled reports on the financial position of the Group, including the financial statements release and interim reports before they were published and recommended that the Board of Directors discuss the interim reports and the financial statements release. It discussed the Group’s external and internal audit and risk management reports, and made a proposal to the Annual General Meeting on the auditor to be elected for Kesko.
The Remuneration Committee comprises Heikki Takamäki (Chair), Seppo Paatelainen and Ilpo Kokkila.
According to the rules of procedure, the duties of the Remuneration Committee include:
The Remuneration Committee met three (3) times in 2009, and the average attendance at meetings was 100%. The committee prepared a proposal for the Board of Directors on granting stock options as part of the Group executives’ and other key persons’ long-term incentive system, and approved the principles of the Group’s performance bonus system. It also monitored progress on the Group’s work and productivity programme.
Further information on Kesko’s Board members is available on Board of Directors page and at www.kesko.fi.
Kesko’s President and CEO is Matti Halmesmäki, M.Sc. (Econ.), LL.M. He has been Kesko’s President and CEO since 1 March 2005.
The President and CEO is responsible for managing the company’s activities within the guidelines and limits set by the Board of Directors, and informing the Board of Directors about the development of the company’s business and financial position. He is also responsible for arranging the company’s day-to-day administration and for ensuring the reliable arrangement of the company’s financial administration. The President and CEO also chairs the Corporate Management Board and the Boards of the Group’s major subsidiaries, such as Kesko Food Ltd and Rautakesko Ltd.
The President and CEO is elected by the Board of Directors, which also decides on the terms of the President and CEO’s service contract.
A written managing director’s service contract has been made between the company and the President and CEO.
Further information on Kesko’s President and CEO is presented on Corporate Management Board page and at www.kesko.fi.
The Kesko Group has a Corporate Management Board, the Chair of which is Kesko’s President and CEO.
The Corporate Management Board has no authority based on legislation or the Articles of Association. The Corporate Management Board is responsible for dealing with Group-wide development projects and Group-level policies and practices. In addition, the Corporate Management Board deals with the Group’s and the division parent companies’ business plans, profit performance and matters handled by Kesko’s Board of Directors, in whose preparation it also participates. The Corporate Management Board meets 8–10 times a year.
Further information on Kesko’s Corporate Management Board is presented on Corporate Management Board page and at www.kesko.fi.
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| Corporate Management Board member since |
Responsibility area | |
| Matti Halmesmäki, Chair | 1.1.2001 | Kesko’s President and CEO |
| Terho Kalliokoski President of Kesko Food Ltd |
17.3.2005 | Food trade |
| Jari Lind President of Rautakesko Ltd |
1.3.2005 | Building and home improvement trade |
| Matti Leminen President of Anttila Oy |
1.1. 2007 | Home and speciality goods trade |
| Pekka Lahti President of VV-Auto Group Oy |
1.3.2005 | Car and machinery trade |
| Arja Talma, Kesko’s Senior Vice President, CFO | 17.3.2005 | Finance |
| Riitta Laitasalo Kesko’s Senior Vice President, Human Resources |
1.1.2001 | Human Resources |
| Paavo Moilanen
Kesko’s Senior Vice President, Corporate Communications and Responsibility |
13.10.2005 | Corporate
Communications and Responsibility |
The Annual General Meeting makes decisions on the annual remuneration and other financial benefits of the members of the Board of Directors and its Committees. All fees of the members of the Board and its Committees are paid in cash. Board members have no share or share-linked remuneration systems.
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| Annual fee | Fee per year, € | |
| 2009 | 2006–2008 | |
| Chair of the Board | 80,000 | 60,000* |
| Deputy Chair of the Board | 50,000 | 42,000* |
| Board member | 37,000 | 30,000* |
| Meeting fees | Fee per meeting, € | |
| 2009 | 2006–2008 | |
| Fee for Board meeting | 500 | 500 |
| Fee for Committee meeting | 500 | 500 |
| Fee to Chair for Committee meeting
if he/she
is not also Chair or Deputy Chair of the Board |
1,000 | 1,000 |
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| Annual fees | Meeting fees | Total, € | |||
Board |
Audit Committe | Remuneration Committee |
|||
| Heikki Takamäki (Chair) | 75,000 | 5,000 | - | 1,500 | 81,500 |
| Esa Kiiskinen** | 27,750 | 4,000 | - | - | 31,750 |
| Ilpo Kokkila | 35,250 | 5,000 | - | 1,500 | 41,750 |
| Mikko Kosonen** | 27,750 | 4,000 | 2,000 | - | 33,750 |
| Maarit Näkyvä | 35,250 | 5,000 | 5,000 | - | 45,250 |
| Seppo Paatelainen (Dep. Chair since 30.3.2009) | 45,000 | 4,500 | 2,000 | 1,500 | 53,000 |
| Rauno Törrönen** | 27,750 | 4,000 | - | - | 31,750 |
| Keijo Suila (Dep. Chair until 30.3.2009)* | 10,500 | 1,000 | 500 | - | 12,000 |
| Pentti Kalliala* | 7,500 | 1,000 | - | - | 8,500 |
| Jukka Säilä* | 7,500 | 1,000 | - | - | 8,500 |
| Total | 299,250 | 34,500 | 9,500 | 4,500 | 347,750 |
The remuneration system of the President and CEO and other executives of Kesko consists of a fixed monthly salary, a performance bonus based on criteria set annually, an executive’s pension benefits, and a stock option system. The company has no share remuneration system.
Kesko’s Board of Directors makes decisions on the individual salaries and other financial benefits of the President and CEO and the Corporate Management Board members responsible for the business divisions, on the principles of the performance bonus system, and on the bonuses to be paid. As for the other executives, Kesko’s Board of Directors makes decisions on performance bonus principles. The President and CEO makes decisions on the salaries and bonuses of Corporate Management Board members other than those mentioned above and on the details of other executives’ performance bonus systems, following the one-over-one principle. Depending on the profit impact of each management position, the maximum bonuses of Kesko’s President and CEO and other company executives can vary up to an amount corresponding to an executive’s salary for 3–8 months. The performance bonus criteria consist of the Group’s profit before extraordinary items and tax, the executive’s area-specific EP ratio and operating profit, net sales performance, customer and personnel indicators, and an overall assessment. The results used as the basis for the performance bonuses are exclusive of non-recurring items, and the weights given to the bonus criteria vary depending on the task. Bonuses are paid at the end of March, after the annual financial statements have been completed. The management’s performance bonus system covers about 100 executives of the Kesko Group.
In addition, Kesko has a valid year 2003 stock option scheme for Kesko Group executives, which expires on 30 April 2010, and a valid year 2007 stock option scheme for Group executives and other key persons. The 2007 option scheme includes an obligation placed by Kesko’s Board of Directors on option recipients to use 25% of their option income to buy company shares for permanent ownership. Kesko’s Board of Directors makes decisions on the distribution of stock options on the basis of proposals made by the Remuneration Committee and within the terms and conditions of the stock option scheme decided by the company’s General Meeting.
Further information on the terms and conditions of Kesko’s stock option schemes is available on Shares and shareholders page and at www.kesko.fi.
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| Fixed salary | Bonuses | Fringe benefits | Total | |||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |
| Matti Halmesmäki | 569,300 | 541,100 | 152,250 | 280,000 | 23,014 | 17,460 | 744,564 | 838,560 |
| Corporate Management Board* |
1,415,291 | 1,359,636 | 93,650 | 346,910 | 112,441 | 101,085 | 1,621,382 | 1,807,631 |
| Total | 1,984,591 | 1,900,736 | 245,900 | 626,910 | 135,455 | 118,545 | 2,365,946 | 2,646,191 |
| * excluding President and CEO Matti Halmesmäki ** based on 2008 performance ***based on 2007 performance |
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Granted stock options |
Retirement age |
Retirement benefits*, pension as % of pension- able salary |
Notice period, months |
Severance pay | |||
| 2009 (2007C) |
2008 (2007B) |
2007 (2007A) |
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| Matti Halmesmäki, Chair | 50,000 | 50,000 | 50,000 | 60 | 66 | 6 kk | 12 months’ salary |
| Terho Kalliokoski | 30,000 | 25,000 | 25,000 | 62 | 66 | 6 kk | 6 months’ salary |
| Jari Lind | 25,000 | 25,000 | 25,000 | 62 | 66 | 6 kk | 6 months’ salary |
| Matti Leminen | 20,000 | 20,000 | 20,000 | 60 | 66 | 6 kk | 12 months’ salary |
| Pekka Lahti | 20,000 | 20,000 | 20,000 | 62 | 66 | 6 kk | 6 months’ salary |
| Arja Talma | 25,000 | 25,000 | 25,000 | Based on the Employees’ Pensions Act |
Based on the Employees’ Pensions Act |
6 kk | 6 months’ salary |
| Riitta Laitasalo | 15,000 | 15,000 | 15,000 | 60 | 66 | 6 kk | 12 months’ salary |
| Paavo Moilanen | 15,000 | 15,000 | 15,000 | 60 | 66 | 6 kk | 12 months’ salary |
| Total | 200,000 | 195,000 | 195,000 | ||||
| * Supplementary pension benefits are granted by department A of the Kesko Pension Fund in accordance with its rules. |
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Kesko’s financial reporting and planning are based on the Kesko Group’s management system (Fig. 1). The Group units’ financial results are reported and analysed inside the Group on a monthly basis, and disclosed in interim reports published quarterly. Financial plans are prepared for quarterly periods, in addition to which significant changes are taken into account in the monthly performance forecasts. The Group’s and its units’ strategies and related long-term financial plans are updated annually.
Fig 1. The Kesko Group’s management system
The Kesko Group’s financial reporting and its control is divided between three organisational levels. The subsidiaries analyse and report their figures to the respective divisions, which then report the division-specific figures to Corporate Accounting. Analyses and controls for ensuring the correctness of reporting are used at each level.
The correctness of reporting is ensured by using different automated and manual controls at every reporting level. In addition, the income statement and balance sheet are analysed by controllers at subsidiary, division and Group level every month. The implementation of analyses and controls is supervised on a monthly basis at company, division and Group level.
The Group’s financial performance and the achievement of financial objectives are monitored via Group-wide financial reporting. Monthly performance reporting includes Group-, division- and subsidiary-specific results, progress compared to the previous year, comparisons with financial plans, and forecasts for the next 12 months. The Group’s short-term financial planning is based on plans drawn up by the quarter, extending for 15 months. The financial indicator for growth is sales performance, while that for profitability is the accumulation of economic value added, monitored via monthly internal reporting. When calculating economic value added, the requirements concerning return on capital are determined annually on market terms, and the performance requirements take account of risk-related division- and country-specific differences. Information about the Group’s financial situation is given by interim reports and the financial statements release. The Group’s sales figures are published in a stock exchange release each month.
Financial planning takes place in the subsidiaries, divisions and the Group where rolling plans, each for a 15-month period, are made. The plans are updated quarterly, and any significant changes are taken into account in the monthly performance forecasts. Any deviations between the plan and the actual result are analysed by the company, division and Corporate Accounting, and the reasons are reported to the division and Corporate Accounting every month.
The performance reports provided monthly for the Group’s top management comprise the subsidiaries’, divisions’ and the consolidated income statements and balance sheets. Each subsidiary is primarily responsible for the financial reporting and the correctness of its figures. The financial management and the controlling function of each division analyse the respective division’s figures, while Corporate Accounting analyses the whole Group’s figures. The income statement and the balance sheet are analysed monthly at the company, division and Group level, based on the documented division of duties and specified reports. This enables a real-time knowledge of the financial situation, as well as real-time response to possible defects. The performance reports provided for the top management also include Group-level monitoring of sales on a weekly, monthly and quarterly basis.
Public performance reporting comprises interim reports, the annual financial statements and monthly sales reports. The same principles and control methods are applied to the public performance reporting as to the monthly performance reporting. The Audit Committee reviews the interim report and the financial statements and gives a recommendation to the Board of Directors. The Board of Directors approves the interim report and the financial statements before they are published.
The Kesko Group has adopted the International Financial Reporting Standards (IFRSs) endorsed by the European Union. The accounting policies adopted by the Group are included in the accounting manual, updated as the standards are amended. The manual contains guidelines for stand-alone companies, the parent company, and instructions for the preparation of consolidated financial statements.
The Kesko Group’s financial management information is generated by division-specific enterprise resource planning systems, via a centralised and controlled common interface, into the Group’s centralised consolidation system, to produce the Group’s main financial reports. The key systems used in the production of financial information are certified and secured by back-up systems, and they are controlled and checked regularly to ensure reliability and continuity.
Kesko’s risk management is proactive and an integral part of management and day-to-day activities. The objective of Kesko’s risk management is to ensure the implementation of Group strategies, the delivery of customer promises, the maintenance of shareholder value, and the continuity of business. Efficient risk management is a competitive advantage for Kesko.
The risk management policy approved by the Board of Directors guides risk management in the Kesko Group. The policy defines the objectives, principles, responsibilities and key practices of risk management. Kesko divides risks into strategic, financial, operational and damage/loss risks.
In the Kesko Group, a risk is defined as any kind of uncertainty that may lead to:
The Kesko Group applies a business-oriented and comprehensive approach to risk assessment and management. This means that key risks are systematically identified, assessed, managed, monitored and reported as part of business activities at the Group, division, company and unit levels in all the countries where Kesko operates. Risk identification and assessment play a key role in Kesko’s strategies and rolling planning.
Kesko has a uniform risk assessment and reporting system. Risks are identified and prioritised by assessing the impact and probability of their materialisation, and the level of management. An owner is named for all risks and the most significant risks are analysed in detail to find out causes and effects. The risks classified as critical are regularly dealt with by the Corporate Management Board, which also monitors the actions taken. The development of the risk situation is also assessed on the basis of the progress made through these actions and the changes in external factors, for example. In risk assessments the time span is one year, except for strategic risks where the span is 3–5 years. The outcome is a clearer picture of the scope, mutual relations and expected trends of the risks.
The management of financial risks is based on the Group’s treasury policy, confirmed by Kesko’s Board of Directors. The Group Treasury is centrally responsible for funding, liquidity management, debt investor relations and the management of financial risks.
Providing insurance cover is part of Kesko’s risk management, and the insurance policy confirmed by Kesko’s Board of Directors defines the principles of providing insurance. The aim is to ensure that the Group’s employees, property, business and liabilities have proper and economical insurance cover, while taking account of legislative requirements, and the Group’s current risks and risk-bearing capacity. The Group’s risk management functions are responsible for providing Group-level insurance programmes, for their competitive tendering and for brokerage services as part of the Group’s damage/loss risk management.
Objectives relating to risks and opportunities are set for the divisions and the business operations.
The business division and Group management are responsible for risk management in practice. Each division has appointed one Board member, usually the finance director, to be responsible for coordinating risk management and security and providing guidelines in each respective division and reporting on risk management activities. In addition, the food, building and home improvement, and home and speciality goods divisions each have a risk manager who is responsible for the development and control of risk management and security in the division in cooperation with the business management and supporting functions.
The Group’s risk management function controls and coordinates the development of joint risk management and security procedures, introduces best practices to the Group and reports on risk management to the Group management.
Kesko has a Group-level Risk Management Steering Group, which is chaired by the President and CEO, and consists of the representatives of the management of the various divisions and Group units. The Steering Group discusses risk management and safety procedures and key policy definitions, and assesses and monitors the Group’s risks and safety situation, and the implementation of risk management responses.
Kesko’s Board of Directors discusses the major risks and the responses required to control them, and assesses the efficiency of risk management. Significant risks and uncertainties, as well as changes in and responses to them, are reported to Kesko’s Board of Directors’ Audit Committee when the interim reports are handled. The Board of Directors also submits reports to the market on significant risks and uncertainties in connection with the financial statements as part of the Report by the Board of Directors.
The Corporate Internal Audit annually assesses the efficiency of the Group’s risk management and reports on it to Kesko’s Board of Directors’ Audit Committee.
As a result of the global financial crisis, risk management has become increasingly important. Risk management has been harmonised in the Kesko Group and divisional management now plays an increasingly important role in risk management. The risk assessment and management system has been made more explicit, and the process is now more efficiently applied in all countries where Kesko operates.
The divisions have made their risk assessments and updated them according to the schedule of the strategy process and rolling planning. The management of the division parent companies and the Group have discussed the companies’ risks and how to manage them. In their own areas of responsibility, the Group units have also analysed the risks threatening Group objectives and how to manage them.
On the basis of these risk analyses, the Group’s risk management function has prepared summaries of significant risks and their management on a quarterly basis. The resulting risk report has been handled by the Audit Committee of Kesko’s Board of Directors. Major risks and uncertainties have been reported in connection with the interim reports.
Continuity has been ensured by updating the existing continuity and contingency plans, arranging crisis exercises and appointing substitutes for people in critical duties. Preparations for the swine flu pandemic started in the spring. The risk management function has also arranged competitive tendering of insurances, improved loss prevention and the safety of shopping centres. As a result of the ‘glass splint problem’ that spread from Sweden, Kesko revised its instructions relating to groceries.
Kesko’s risk management function will continue its work to reduce wastage, prevent malpractice, maintain and test continuity plans, and provide cost-efficient insurance services. Management’s crisis exercises will be arranged on a more regular basis. The risk reporting model will be developed, for example, by improving the use of electronic portals.
The risk management function works in close cooperation with other Group units, particularly with the finance, treasury and IT functions. Cooperation will be improved with the Corporate Internal Audit and responsibility functions in order to ensure that ethical working principles are implemented and the management of environmental risks improves.
Significant risks and uncertainties related to Kesko’s business operations and risk management responses are described in the Report by the Board of Directors page, in notes Nos. 44–45 to the consolidated financial statements and at www.kesko.fi.
Kesko’s Corporate Internal Audit is responsible for the Group’s independent assessment and assurance function, required from a listed company, which systematically defines and verifies the efficiency of risk management and control, as well as of management and administration. The management and organisation are supported to ensure that Kesko’s goals and objectives are achieved, and to develop the control system. The Audit Committee of Kesko’s Board of Directors has confirmed the Charter of Kesko’s Corporate Internal Audit.
The Corporate Internal Audit works under the Group’s President and CEO and the Audit Committee, and it reports on its audit findings and recommendations to the Audit Committee, the President and CEO, the management of the audited activity or business, and the external auditors. The function covers all of Kesko’s divisions, companies and activities. The Corporate Internal Audit is divided into the foreign audit, the Group audit and the IT audit and has a staff of 11. Auditing is based on risk analyses and the control discussions carried on with Group and divisional management. An internal audit plan, subject to approval by the President and CEO and the Audit Committee, is prepared annually. The Corporate Internal Audit can also carry out special audits during the year. If required, the unit acquires external services for occasional needs or assessment assignments that require special competence.
The Corporate Internal Audit cooperates with the Group’s risk management function and participates in the work of the Risk Management Steering Group. The Corporate Internal Audit assesses the effectiveness of Kesko’s risk management system annually.
According to its Charter, the Corporate Internal Audit must have sufficient resources available and the knowledge, skills and other competencies needed for performing its duties. The auditors’ competencies are developed by systematic professional education and examinations. Kesko’s Corporate Internal Audit currently has six employees with the international qualification of Certified Internal Auditor, granted by the Institute of Internal Auditors (IIA). The extent and expertise of auditing is ensured and coordinated by regular contacts and exchange of information with the Group’s other internal assurance operations and external auditors.
The focal areas in the internal audit have included foreign operations and corporate IT. In foreign operations audits, the emphasis has been on basic controls and the management of goods stocks and trade receivables, while in the corporate IT audit special attention has been paid to new systems projects, IT continuity and security. Compliance with Kesko’s accounting policies and reporting guidelines has been verified and assessed in audits in Finland and other countries.
According to the Articles of Association, Kesko has one (1) auditor, which shall be an audit firm authorised by the Central Chamber of Commerce. The Board of Directors’ Audit Committee prepares the Board’s proposal concerning the company’s auditor for presentation at a General Meeting. The term of an auditor is the company’s financial period and an auditor’s duties terminate at the close of the Annual General Meeting following the election. A company belonging to the same chain as the audit firm represented by the auditor elected by Kesko’s General Meeting acts primarily as the auditor of the Group subsidiaries outside Finland.
The 2009 Annual General Meeting re-elected PricewaterhouseCoopers Oy, Authorised Public Accountants, as the company’s auditor, with APA Johan Kronberg as the auditor with principal responsibility. PricewaterhouseCoopers Oy acts primarily as the auditor of all subsidiaries, coordinates auditing and prepares a compilation report about its findings to the Audit Committee for all the auditors of Group companies. Auditors annually audit both individual legal companies and the consolidated financial statements.
The auditor presents the audit report required by law to Kesko’s shareholders in connection with the company’s financial statements. The auditor regularly participates in the meetings of the Audit Committee, and reports on his findings to it. The Audit Committee regularly assesses the independence of the audit firm and the auxiliary services provided by it.
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| € thousand | 2009 | 2008 | |||||||
| PwC | Other audit comp. |
Total | PwC | Other audit comp. |
Total | ||||
| Kesko Corporation |
Other Group companies |
Kesko Corporation |
Other Group companies |
||||||
| Auditing | 129 | 717 | 63 | 909 | 84 | 785 | 155 | 1,024 | |
| Tax counselling | 16 | 48 | 50 | 114 | 122 | 49 | 46 | 216 | |
| IFRS counselling | 6 | - | 2 | 8 | 24 | - | 4 | 28 | |
| Other services | 82 | 74 | 101 | 257 | 109 | 570 | 259 | 938 | |
| Total | 233 | 839 | 216 | 1,288 | 339 | 1,404 | 464 | 2,206 | |
Kesko complies with the insider guidelines of NASDAQ OMX Helsinki Ltd., effective as of 9 October 2009. Kesko’s Board of Directors has confirmed Kesko’s insider regulations for permanent and project-specific insiders. The contents of the regulations correspond with the insider rules of NASDAQ OMX Helsinki Ltd. Kesko’s insider regulations have been distributed to all insiders.
In accordance with the Securities Markets Act, Kesko’s permanent public insiders include Kesko’s Board members, the President and CEO (managing director), and the audit firm’s auditor with principal responsibility for Kesko. Kesko Corporation’s Board of Directors has also stipulated that, in addition to the President and CEO, other members of the Corporate Management Board are regarded as the company’s permanent public insiders. All permanent public insiders and the statutory information about them, their related persons and the corporations that are controlled by related persons or in which they exercise influence, have been entered in Kesko’s register of public insiders.
Other permanent insiders of Kesko include persons working in positions determined by the Board of Directors who, in their duties, receive insider information on a regular basis and who are thus entered in the company’s own, non-public insider register. Kesko’s company-specific insider register is divided into individual registers that consist of permanent insiders and of possible insider projects and persons participating in their preparation.
The Group’s Legal Affairs Unit monitors the compliance with insider regulations and maintains the company’s insider registers in cooperation with Euroclear Finland Ltd. At regular intervals, the Legal Affairs Unit sends an extract of the information in the insider register to permanent public insiders for checking and monitors the compliance with permanent insiders’ trading restrictions. Kesko’s permanent insiders may not acquire or transfer securities issued by the company, including securities or derivative financial instruments entitling to them, during 21 days prior to the publication of interim reports and during 28 days prior to the publication of annual financial statements. These publication dates are announced annually beforehand in a stock exchange release. Furthermore, people involved in possible insider projects may not trade in Kesko’s securities or derivative financial instruments during such a project.
Further information on the holdings of Kesko’s permanent public insiders is available on Board of Directors page and at www.kesko.fi.
The Group’s Senior Vice President, CFO is responsible for the financial content of stock exchange releases as well as for investor information. The Corporate Communications and Responsibility Unit produces Group-level communications material and is responsible for providing stock exchange releases and financial information. The Vice President, General Counsel is responsible for ensuring that the rules related to stock exchange releases are observed at Kesko.
In its investor communications, Kesko follows the principle of impartiality and publishes all investor information on its website in Finnish and English. Kesko observes a two (2) week period of silence before publishing information on its results.
