Corporate Governance, what is it?

Definition of Corporate Governance

There is no unambiguous definition for Corporate Governance. In general it means a corporate governance system which defines the corporate executive, that is, the role of the board of directors and hired directors, duties and their relations to the shareholders. Simply, Corporate Governance means a system which helps managing and controlling the enterprise.

The objective is to complement the legal procedures through Corporate Governance recommendations. In Finland the question is about self-regulation of business sector.

History in Finland

The first Corporate Governance Recommendation in Finland was issued in 1997 by the Central Chamber of Commerce of Finland and the then Confederation of Finnish Industry and Employers (nowadays the Confederation of Finnish Industries EK).

In the beginning of 2003 Hex Plc (nowadays NASDAQ OMX Helsinki Ltd), The Central Chamber of Commerce of Finland and the then Confederation of Finnish Industry and Employers (nowadays the Confederation of Finnish Industries EK) took note of the growing significance and international development of the Corporate Governance practices and they established a working group for amending the recommendations. Corporate Governance Recommendation for Listed Companies, was issued on the basis of this work in December 2003.

The Corporate Governance Recommendation for Listed Companies issued in 2003 has been seen to work well and to meet high standards internationally. However, new regulation and international developments have created a need to update the recommendation. The task of the corporate governance working group appointed by the Board of the Securities Market Association was to review the need to update the Corporate Governance Recommendation. The Board of the Securities Market Association approved this Finnish Corporate Governance Code in October 2008. The Code replaced the Corporate Governance Recommendation for Listed Companies issued in 2003. As a general rule The Code entered into force on 1 January 2009.

Objectives and scope of the Recommendation

The aim of the Code is that Finnish listed companies apply corporate governance practices that are of a high international standard. The Code will harmonise the practices of listed companies as well as the information given to shareholders and other investors. It will also improve the transparency of administrative bodies, management remuneration and remuneration systems. The Code also provides an overall picture of the central principles of the corporate governance system of Finnish listed companies. Good corporate governance will enhance the success of Finnish listed companies.

The Code is aimed at companies listed on the Exchange, provided that it is not in conflict with the compelling regulation applicable in the domicile of the company.

Most recommendations apply to the parent company of a group. It should, however, be noted that many recommendations on supervision, control, reporting and disclosure of information, including explanations, cover the entire group of a company. Some items of the Code mention the group or companies belonging to the group separately in order to clarify the recommendation.

Unlisted companies 

The Central Chamber of Commerce of Finland has given An Agenda for Improving Corporate Governance of Unlisted Companies to enhance Corporate Governance of Unlisted Companies. Implementation of this agenda is fully voluntary.

State-owned companies