Wärtsilä Corporation applies the guidelines and provisions of its Articles of Association, the Finnish Companies Act and the Helsinki Exchanges. Wärtsilä also complies with the Corporate Governance recommendations for public listed companies published by the Helsinki Stock Exchange, the Central Chamber of Commerce of Finland, and the Confederation of Finnish Industries EK.
Tasks and responsibilities of governing bodies
Management of the Wärtsilä Group is the responsibility of the General Meeting of Shareholders, the Board of Directors, and the President and CEO. Their duties are for the most part defined by the Finnish Companies Act.
General meetings of shareholders
The ultimate decision making body in the company is the General Meeting of shareholders. It resolves issues as defined for General Meetings in the Finnish Companies Act and the company’s Articles of Association. These include approving the financial statements, deciding on the distribution of dividends, discharging the company’s Board of Directors and CEO from liability for the financial year, appointing the company’s Board of Directors and auditors, and deciding on their compensation.
A General Meeting of Wärtsilä Corporation shareholders is held at least once a year. The Annual General Meeting (AGM) must be held no later than the end of June. Under the Articles of Association, an invitation to a General Meeting must be published in at least two daily newspapers chosen by the Board of Directors and commonly distributed in Finland, no earlier than two months and no later than one week prior to the date specified in Chapter 3a, §11 of the Companies Act. Wärtsilä also publishes its invitations to General Meetings as stock exchange announcements and on its internet website. Shareholders are, according to the law, entitled to have any matter concerning the company’s business and falling within the scope of a General Meeting, considered by the Meeting if he or she submits such a request in writing to the Board of Directors early enough for the matter to be included in the notice of meeting.
The Board of Directors
Responsibility for the management of the company and the proper organization of its operations is invested in the company’s Board of Directors, which has between five and eight members. Board members serve for one year at a time and are elected by a General Meeting. The Board of Directors is responsible for ensuring that a proposal to be put before a General Meeting concerning the election of a new member to the Board, of which it is aware, is published in the notice of meeting provided that the proposal is supported by at least 10% of the votes carried by the company’s shares, and that the proposed individual has given his/her written consent. After publication of the notice of meeting, the names of the candidate members will be announced separately provided that the conditions mentioned above are met.
The Board elects a chairman and deputy chairman from among its members. The Board steers and supervises the company’s operations, and decides on policies, goals and strategies of major importance. The principles applied by the Board in its regular work are set out in the Rules of Procedure approved by the Board. The Board has also approved the rules of procedure applied by the Board’s committees setting out the main tasks of the committees and their working principles.
The Board considers all the matters stipulated to be the responsibility of a board of directors by legislation, other provisions, and the company’s Articles of Association. The most important of these are;
• the annual and interim financial statements,
• the matters to be put before General Meetings of shareholders,
• the appointment of the President and CEO,
• the appointment of the Executive Vice President and the CEO’s deputy,
• and the organization of financial supervision in the company.
The Board is also responsible for considering any matters that are so far reaching with respect to the area of the Group’s operations, that they cannot be considered to fall within the scope of the Group’s day-to-day administration. Examples of these matters are;
• approval of the Group’s strategic plan and long-term goals,
• approval of the Group’s annual business plan and budget,
• decisions concerning investments, acquisitions or divestments that are significant or that deviate from the Group’s strategy,
• decisions to raise loans and the granting of security or similar collateral commitments when their size is significant,
• risk management principles,
• the Group’s organizational structure,
• appointment of the company’s Board of Management and approval of their remuneration and pension benefits,
• monitoring and assessing the performance of the President and CEO,
• approval of the company’s management principles and steering systems,
• appointment of the Board of Directors’ committees,
• the granting of donations to good causes.
In addition to matters requiring its decision, the Board is also given updates at its meetings on the Group’s operations, financial position and risks.
The Board also conducts a self-assessment of its performance once a year. The purpose of this assessment is to establish how the Board has executed its tasks during the year and to act as a basis when assessing how the Board functions. The Board of Directors convenes 7–10 times a year following a predetermined schedule. In addition to these meetings the Board convenes as necessary.
The Board’s committees
The Board of Directors annually appoints an Audit Committee, a Nomination and Compensation Committee, and any other committees it considers necessary at its constitutive meeting following the Annual General Meeting. The Board appoints the members of these committees and their chairmen. The Board also has the right to remove a member from a committee. The members of each committee are appointed for the same term of office as the Board itself. The purpose of the Board’s committees is to prepare matters to be put before the Board for its decision. The committees have no decision-making authority of their own.
The Audit Committee
The Board of Directors appoints an Audit Committee to assist it in the execution of its task of supervising the company’s financial management. The Board appoints from among its members at least three members to the Committee who are independent of the company, and who have sufficient experience of accounting procedures and the financial statements.
The Audit Committee considers Wärtsilä’s annual and interim financial statements, the accounting principles and the company’s financial reporting in general. The Committee assesses the company’s compliance with the relevant legal and other provisions, the adequacy of financial supervision and risk management in the company, and the effectiveness of its internal audit function. The Audit Committee may also, via the Board of Directors, submit recommendations to the General Meeting on matters related to the appointment of the company’s auditors. The chairman convenes the Committee at regular intervals and reports to the Board on the Committee’s meetings.
The Nomination Committee
The Board of Directors appoints a Nomination Committee to assist it in its work. The Board appoints at least three of its members to sit on the Committee.
The Nomination Committee prepares, as necessary, the nomination of the President and CEO, the Executive Vice President and the CEO’s deputy. The Committee communicates, as necessary, with major shareholders in matters concerning the appointment of the Board of Directors.
The Chairman of the Nomination Committee convenes the Committee as required. He also reports the Committee’s proposals to the Board of Directors and, when necessary, on the Committee’s meetings to the Board.
The Compensation Committee
The Board appoints a Compensation Committee to assist it in its work. The Board appoints at least three of its members to sit on the Committee.
The Committee prepares proposals to be put before the Board of Directors concerning the incentive schemes and compensation that apply to the President and CEO and the company’s other senior executives. The chairman of the Committee convenes the Committee as required. He also reports the Committee’s proposals to the Board of Directors and, when necessary, on the Committee’s meetings to the Board.
The President and CEO and the Executive Vice President
The Board of Directors appoints a President for the Group who is also its chief executive officer. The President and CEO is in charge of the day-to-day management of the company and its administration, in accordance with the company’s Articles of Association, the Finnish Companies Act, and the instructions of the Board of Directors. He is assisted in this work by the Board of Management. The President and CEO of the company is Mr Ole Johansson. The Board of Directors appoints, if necessary, one or several executive vice presidents. The company’s executive vice president is its chief financial officer Raimo Lind. Mr Lind is also the deputy to President and CEO Ole Johansson.
The Board of Management
The company’s Board of Management comprises the President and CEO, the Group Vice Presidents heading the Ship Power, Power Plants, Services businesses and the Industrial Operations Division, the Chief Financial Officer, the Group Vice President, Legal Affairs & Human Resources and as of 1 March 2008 the Communications Director. Board of Management members are appointed by the company’s Board of Directors, which also approves their remuneration and other terms of employment.
The Board of Management is chaired by the President and CEO. It considers strategic issues related to the Group and its businesses, as well as investments, product policy, the Group’s structure and corporate steering systems, and it supervises the company’s operations.
The heads of the businesses on the Board of Management are each responsible for the sales volumes and profitability of their respective global businesses, employing the services of the Group’s worldwide subsidiaries. Information on the members of the Board of Management, their areas of responsibility and holdings are given here.
The Corporate Management
The company’s Corporate Management includes, in addition to the members of the Board of Management, the directors in charge of corporate functions. Information on the members of Corporate Management and their areas of responsibility is given here.
Business Boards
Each business head is supported by a Business Board to consider issues, including the business’s strategy and business operations. Information on the members of the Business Boards is given on page 39 in the Annual Report.
Managing Directors of the subsidiaries
The Managing Directors of the Group’s subsidiaries are responsible for ensuring that the local service, sales and manufacturing resources are correctly dimensioned to meet the needs of the businesses; that the subsidiary’s personnel development needs are met; that the subsidiary’s operations fulfil the requirements stipulated in the Group’s quality system; that these operations comply with the respective country’s legal requirements and with good business practice; and that communication in the subsidiary is conducted according to the targets of the Group.
Remuneration
Fees paid to the Board of Directors
The Annual General Meeting decides annually on the fees to be paid to the members of the Board of Directors for one term of office at a time.
Salaries and bonuses paid to the President and CEO and the Board of Management
The remuneration paid to the President and CEO and other members of the Board of Management, and the principles underlying it, are determined by the Board of Directors. The remuneration paid to the President and CEO and the other members of the Board of Management consists of a monthly salary and a bonus. The Board of Directors determines the terms for the bonus payment. More information about the salaries and bonuses can be found in the Financial Review in the Annual Report on page 111. The bonus payments for the President and CEO and the Board of Management are paid according to the achievement of the company’s profit targets. Information on shares and possible options from previous option-schemes held by the President and CEO and the other members of the Board of Management, is given on page 36 in the Annual Report and here.
The President and CEO is eligible to take retirement on reaching the age of sixty and his retirement pension is 60% of his statutory (TEL) earnings. Compensation paid to the President and CEO if dismissed by the company, corresponds to 24 month’s salary plus six months’ period of notice salary. The retirement age of some of the members of the Board of Management is sixty years.
Management incentive schemes
The Board of Directors determines the incentive schemes for the President and CEO and other members of the Board of Management, and the principles underlying them. The Board of Directors also decides on other possible long-term incentive schemes for senior management, unless they are by law determined by the Annual General Meeting. The Board of Management decides on bonus schemes for other directors and managers.
The Group also operates a bonus scheme, which is implemented globally in all businesses. The bonus is based on the Group’s profitability and agreed personal targets. Approximately 1,400 directors and managers are covered by this bonus scheme.
The Board of Directors has decided on a long-term bonus scheme for senior management tied to the stock development of the company’s B-share. The bonus scheme applies to approximately 40 directors. More information about the bonus scheme can be found in the notes to the Consolidated Financial Statements on page 100 in the Annual Report.
The company has two stock option schemes for senior managers during the review period. The 2001 options, the subscription period of which ended 31 March 2007, covered 78 key personnel, and the 2002 options, the subscription period of which will end 31 March 2008, applied to 39 key personnel. More information on these schemes is provided on pages 108 and 126 of the Financial Review in the Annual Report.
The Group’s white- and blue-collar employees are covered by various bonus or profit-based incentive schemes. These are applied in each country according to that country’s legislation, or to agreements concerning profit-sharing schemes. All in all, some 60% of the company’s employees are covered by the Group’s bonus scheme and various other profit-based incentive schemes.
Control systems
Responsibility for the management of the company and its proper organization lies with the Board of Directors. In practice it is the task of the President and CEO, assisted by the Board of Management, to ensure the proper organization of the company’s internal supervision, risk management, internal audit and accounting supervision mechanisms. The instructions and guidelines apply to the entire Group or to individual businesses.
The company’s financial progress is reviewed monthly through a Group-wide reporting system. This includes an income statement, balance sheet information, key performance indicators, and events of importance to the company’s operations.
Risk management
The purpose of risk management is to ensure that the company’s business objectives are reached and that the company remains a going concern. The risk management function analyses the risks faced by the company’s various businesses and units. It also defines the risk management principles applied throughout the Group, and develops risk management methods and insurance schemes. Areas of responsibility have been defined in the organization to cover different risks.
The internal audit
The Group’s internal audit is handled by the company’s Internal Audit unit, which reports to the President and CEO. The purpose of the Internal Audit is to analyse the company’s operations and processes, and the effectiveness and quality of its supervision mechanisms. The internal auditor also participates, if necessary, in audits undertaken in conjunction with acquisitions, and carries out special tasks assigned by the Board of Management.
The internal audit function covers all of the company’s organizational levels and subsidiaries. An internal audit is undertaken in the main subsidiaries on an annual basis and in network companies with 3 year intervals. The internal auditors prepare an annual plan under which they independently audits different parts of the company, but he is also empowered to carry out special audits. The annual plan is approved by the Audit Committee, to which the internal audit also reports at regular intervals. If required, the auditors also have the possibility to take direct contact with the Audit Committee or members of the Board of Directors.
Insider management
Wärtsilä applies the legal provisions applying to the management of insiders, as well as the Guidelines for Insiders approved by the Helsinki Stock Exchange for public listed companies, and the stipulations and guidelines of the Finnish Financial Supervision Authority.
Wärtsilä’s permanent insiders comprise the statutory insiders, i.e. the Board of Directors, the President and CEO, the Executive Vice President and the Principal Auditor, as well as the members of the Board of Management.
Certain members of the Corporate Management and other employees, as required by their duties, also belong to the company’s own non-public insider register. When significant projects are at the preparation stage, the company also draws up insider registers for the projects concerned. Insiders are given written notification of their status as insiders as well as instructions on the obligations that apply to insiders.
The company’s insiders are not permitted to trade in the company’s shares for 14 (recommendation 30) days prior to publication of the interim reports or the annual financial statements bulletin. The company’s insider register is maintained by the parent company’s legal affairs department, which is responsible for keeping the information updated. Information on the interests and holdings of the company’s permanent insiders and related parties is available from the SIRE system of the Finnish Central Securities Depository Ltd. The same information is also available here.
The external audit
The company has at least one, and at most three, public accountants authorized by the Central Chamber of Commerce, at least one being an auditing firm. The auditors are elected by the Annual General Meeting to audit the accounts for the ongoing financial year and their duties cease at the close of the subsequent Annual General Meeting. The auditors are responsible for auditing the consolidated and parent company’s financial statements and accounting records, and the administration of the parent company.
On closing of the annual accounts, the external auditors submit the statutory auditor’s report to the company’s shareholders, and they also regularly report their findings to the Board of Directors’ Audit Committee. An auditor, in addition to fulfilling general competency requirements, must also comply with certain legal impartiality requirements guaranteeing the execution of an independent and reliable audit.
Communications
The principal information on Wärtsilä’s administration and management is published on the company’s website. All stock exchange releases and press releases, as well as significant presentation materials used by senior executives, are likewise published on the company’s website as soon as they are made public.
Corporate Governance in 2007
The Annual General Meeting was held on the 14 March. The decisions of the AGM can be found here.
The Board of Directors
In 2007 the Board of Directors consisted of 6 members; Ms Maarit Aarni-Sirviö, Mr Heikki Allonen, Mr Göran J. Ehrnrooth, Mr Antti Lagerroos, Mr Bertel Langenskiöld and Mr Matti Vuoria. The chairman of the Board of Directors was Antti Lagerroos and Göran J. Ehrnrooth was the deputy chairman. The Board established an Audit Committee, a Nomination Committee and a Compensation Committee. The Board appointed from among its members the following members to the Committees:
Audit Committee:
Chairman Antti Lagerroos; Members Maarit Aarni-Sirviö, Heikki Allonen and Matti Vuoria. All the members are independent of the company and two are independent of significant shareholders. The Audit Committee met 4 times in 2007.
Nomination Committee:
Chairman Antti Lagerroos; Members Göran J. Ehrnrooth and Matti Vuoria. All the members are independent of the company and two are independent of significant shareholders. The Nomination Committee met 1 time in 2007.
Compensation Committee:
Chairman Antti Lagerroos; Members Heikki Allonen and Matti Vuoria. All the members are independent of the company and one is independent of significant shareholders. The Compensation Committee met 1 time in 2007.
Fees paid to the Board of Directors
In 2007 the members of the Board of Directors were paid the following fees:
•the chairman 100,000 euros
•the deputy chairman 75,000 euros
•each member 50,000 euros
The Board members were also paid fees for attending meetings as follows: the chairman 800 euros per meeting and the other members 400 euros per meeting. 40% of the annual fees are paid in the form of Wärtsilä shares. The fee for attendance at meetings is paid in money.
The six members of Wärtsilä’s Board of Directors, none of whom are employees of the company, were paid altogether 433,000 euros for the financial period that ended 31 December 2007. The Board’s members are not covered by the company’s stock option scheme or bonus scheme.
The Board of Management
In 2007 the Board of Management met 14 times. The principal issues addressed by the Board of Management were related to market development, company growth and profitability, personnel growth, business strategy as well as issues relating to development of competitiveness. The further development of production volumes and capacity as well as and key supplier relationships in an environment of growing demand, as well as increasing production flexibility were also vital concerns addressed by the Board of Management. Other important matters considered by the Board of Management included the quantitative and qualitative development of the company’s personnel and management resources world-wide as well as developing internal global processes and working practices.
Information on the salaries and remuneration to the Board of Management and the president and CEO can be found in the Financial Review in the Annual Report on page 111.
Auditors
In 2007 the AGM appointed the firm of public accountants KPMG Oy Ab as Wärtsilä Corporation’s auditors. Auditing fees paid to all the auditors of the Group companies amounted to EUR 1.8 million in 2007. Consultancy fees unrelated to auditing duties paid to the auditors totalled EUR 3.4 million. These latter fees concerned acquisitions and consultation on taxation matters.
