Organisation and governing bodies of the group
The decision-making bodies managing and overseeing the group’s administration and operations are the Annual General Meeting of Shareholders, the Board of Directors with its two Committees and the President and Chief Executive Officer (CEO) assisted by the Fortum Management Team. The Board of Directors supervises the performance of the company, its management and organisation. The Board of Directors and the Fortum Management Team are separate bodies, and no person serves as a member of more than one of them.
Day-to-day operational responsibility at the group level rests with the President and CEO assisted by the Fortum Management Team, and at division level with each division head assisted by a management team.
In Fortum’s Annual General Meeting 2011, the State of Finland and the Finnish Shareholders Association (Osakesäästäjien keskusliitto) proposed to dissolve the Supervisory Board and accordingly to amend the Articles of Association of Fortum. The proposal was accepted and the changes to the Articles of Association entered into force on 4 April 2011.
In 2011 Fortum’s Board of Directors invited representatives of Fortum’s stakeholder groups to an informal Advisory Council for the company in order to facilitate dialogue and exchange of views between Fortum and its stakeholders.
General Meeting of Shareholders
The right of shareholders to make decisions over company matters is exercised at an appropriately convened General Meeting of Shareholders by those shareholders present, or by their authorised representatives. In accordance with the Articles of Association and Finnish Corporate Governance Code, a notice to convene the General Meeting of Shareholders is issued by the Board of Directors. The notice is delivered no more than three months and no less than three weeks before the General Meeting of Shareholders by publishing the notice in two newspapers chosen by the Board of Directors. However, the notice shall be delivered at least nine days before the record date of the General Meeting of Shareholders, as referred to in the Section 2, Sub-section 2 Chapter 4, of the Companies Act.
The Annual General Meeting is held once a year, at the latest in June. An Extraordinary General Meeting of Shareholders shall be held whenever the Board of Directors finds cause for such a meeting or when provisions of the law rule that such a meeting must be held.
Shareholders’ Nomination Board
By decision of Fortum’s Annual General Meeting 2011, a Shareholders’ Nomination Board was appointed to prepare proposals concerning Board members and their remuneration for the following Annual General Meeting. The Nomination Board consists of the representatives of the three main shareholders and, in addition, as expert member the chairman of the Board of Directors.
The three shareholders whose shares represent the largest number of the votes of all shares in the company on the 1st day of November preceding the Annual General Meeting will have the right to appoint the members representing the shareholders. Should a shareholder not wish to use its right to nominate, this right will be passed on to the next biggest shareholder. The largest shareholders will be determined on the basis of the ownership information registered in the book-entry system. In case an owner is required under the Securities Markets Act to report certain changes in ownership (when flagging by shareholder is required), for example when the ownership is distributed among various funds, the ownership will be counted as one holding if the owner so requests by notifying the Board of Directors in writing no later than on 28 October.
The Nomination Board will be convened by the Chairman of the Board of Directors, and the Nomination Board will choose a Chairman among its own members. The Nomination Board shall give its proposal to the Board of Directors of the company at the latest by 1 February preceding the Annual General Meeting.
In November 2011, the following persons have been appointed to Fortum Shareholders’ Nomination Board: Pekka Timonen, Director General, Prime Minister’s Office, Ownership Steering Department; Mikko Koivusalo, Investments Director, Varma Mutual Pension Insurance Company and Harri Sailas, CEO, Ilmarinen Mutual Pension Insurance Company. The Chairman of Fortum’s Board of Directors, Sari Baldauf, serves as the Board’s expert member.
In its meeting on 31 January 2012 the Shareholders’ Nomination Board decided to propose to the Annual General Meeting, which will be held 11 April 2012, that the following persons be re-elected to the Board of Directors: Sari Baldauf as Chairman, Christian Ramm-Schmidt as Deputy Chairman, and as members Minoo Akhtarzand, Heinz-Werner Binzel, Ilona Ervasti-Vaintola and Joshua Larson. The Shareholders’ Nomination Board proposes that Kim Ignatius and Veli Sundbäck be elected as new members of the Board of Directors.
The Board of Directors
The Board of Directors is responsible for the administration of the Group and for ensuring that the business complies with relevant laws and regulations, including the Finnish Companies Act, Fortum’s Articles of Association and any instructions given by the General Meeting of Shareholders. The Board of Directors comprises five to eight members who are elected at the Annual General Meeting for a one-year term of office, which expires at the end of the first Annual General Meeting following the election. More than half of the members must be present to constitute a quorum. A person who has reached the age of 68 cannot be elected to the Board of Directors. In 2011, the Board of Directors comprised seven members; three including the Chairman are women.
In 2011, the Board of Directors met ten times. In addition to steering and supervising the Group’s operational and financial development, the main items during the year were Fortum’s strategy, annual business plan, performance target setting and assessment, risk policy and financial reporting. Main items also included nuclear power, major investments and divestments, Russian operations and research and development activities. The Board also dealt with issues relating to sustainable business development, management performance and remuneration.
The members of the Board of Directors are all independent of the company and its significant shareholders. Ilona Ervasti-Vaintola has been dependent on the company (interlocking control relationship until 31 October 2011). The President and CEO, the Chief Financial Officer and the General Counsel (being the secretary to the Board) attend the Board meetings. Other Fortum Management Team members attend as required to provide information to the Board or upon invitation by the Board.
The Chairman of the Board, together with the President and CEO, prepares the items for discussion and to be decided upon at the Board of Directors’ meetings. The Board of Directors has approved a working order to govern its work.
The Board of Directors conducts an annual self-assessment in order to further develop the work of the Board. The assessment process analyses the efficiency of the work, the size and composition of the Board, the preparation of the agenda, and the level and openness of discussions, as well as the members’ ability to contribute to an independent judgement.
The Board Committees
The Board of Directors appoints an Audit and Risk Committee and a Nomination and Remuneration Committee, both with at least three members. The members of these committees are all members of the Board of Directors. Members are appointed for a one-year term of office, which expires at the end of the first Annual General Meeting following the election. All the members of the Board of Directors have the right to participate in the committee meetings. The secretary to the Board of Directors acts as the secretary to the committees. The Board has approved written charters for the committees.
The Audit and Risk Committee
The Audit and Risk Committee assists the Board of Directors in fulfilling its supervisory responsibilities in accordance with the tasks specified for audit committees in the Finnish Corporate Governance Code.
The Audit and Risk Committee annually reviews its charter, approves the internal audit charter and the internal audit plan and carries out a selfassessment of its work. Furthermore, the Committee meets the external auditors regularly to discuss the audit plan, audit reports and findings.
The Audit and Risk Committee reports on its work to the Board of Directors regularly after each meeting.
After the Annual General Meeting in March 2011, the Board elected among itself Christian Ramm-Schmidt as the Chairman and Joshua Larson and Heinz-Werner Binzel as members to the Audit and Risk Committee. The former Board member Birgitta Johansson-Hedberg acted as the Chairman and Christian Ramm-Schmidt as a member until the Annual General Meeting 2011.
The Committee met five times in 2011. Also regularly participating in the Committee’s meetings were external auditors, Chief Financial Officer (CFO), Head of Internal Audit, Corporate Controller, General Counsel as the secretary to the Committee and other parties invited by the Committee.
The main items during the year included reviewing the interim reports, the financial statements, external audit reports, internal audit reports, risk management reports and policies, the Corporate Governance Statement as well as monitoring of certain important projects and issues and preparing a recommendation for the election of the external auditor.
The Nomination and Remuneration Committee
After the Annual General Meeting in March 2011, the Board elected among itself Sari Baldauf as the Chairman and Esko Aho, Minoo Akhtarzand and Ilona Ervasti-Vaintola as members to the Nomination and Remuneration Committee. The former Chairman of the Board, Matti Lehti, acted as the Chairman and Sari Baldauf as a member until the Annual General Meeting 2011. The Committee met three times during 2011. Other regular participants at the Committee meetings were the President and CEO, Senior Vice President, Corporate Human Resources and General Counsel as the secretary to the Committee.
The Nomination and Remuneration Committee reports on its work to the Board of Directors regularly after each meeting.
The main items during the year included the top management performance evaluations and compensation including incentive programme matters and performance target-setting for the management.
President and CEO
The role of the President and CEO is to manage the Group’s business and administration in accordance with the Finnish Companies Act and related legislation and the instructions from the Board of Directors. MSc (Eng), MSc (Econ) Tapio Kuula, (born 1957) has acted as the President and CEO since May 2009.
The President and CEO is supported by the Fortum Management Team. The performance of the President and CEO is evaluated annually by the Board of Directors. The evaluation is based on objective criteria that include the performance of the company and the achievement of goals set for the President and CEO by the Board’s Nomination and Remuneration Committee.
Fortum Management Team and operational organisation
The Fortum Management Team consists of nine members, including the President and CEO to whom the members of the Management Team report. Two members of the Fortum Management Team are women. The General Counsel acts as the secretary to the Management Team. The Management Team meets on a monthly basis. Additional meetings are held dealing with strategy and business planning, performance reviews and people issues such as management reviews.
The Fortum Management Team sets the strategic targets, prepares the Group’s annual business plans, follows up the results, plans and decides on investments, mergers, acquisitions and divestments within their authorisation. Each member of the Management Team is responsible for the key day-to-day operations and the implementation of operational decisions in their respective organisations.
The divisions of Fortum are Power, Heat, Russia, and Electricity Solutions and Distribution. Power Division consists of Fortum’s power generation, physical operation and trading, maintenance and development of power plants and expert services for power producers. Heat Division consists of combined heat and power generation, district heating and cooling activities and business-to-business heating solutions. Russia Division consists of power and heat generation and sales in Russia. It includes OAO Fortum and Fortum’s 25% holding in TGC-1. Electricity Solutions and Distribution Division is responsible for Fortum’s electricity sales and distribution activities and consists of two business areas: Distribution and Electricity Sales. The staff functions are Corporate Finance, Corporate Relations and Sustainability, Corporate Human Resources, Corporate Strategy and R&D. From 1 Jan 2012 onwards the staff functions are: Corporate Finance, Corporate Relations and Strategy, Corporate Human Resources and Corporate R&D and Innovation.
Fortum’s Corporate Internal audit is responsible for assessing and assuring the adequacy and effectiveness of internal controls in the company. Furthermore, it evaluates the effectiveness and efficiency of the business processes, the adequacy of risk management, compliance with laws, regulations and internal rules and instructions.
The Standards for the Professional Practice of Internal Audit form the basis for the work of Internal audit.
Corporate Internal audit is independent of the divisions and other units at Fortum. It reports to the Audit and Risk Committee of the Board of Directors and administratively to the CFO. The purpose, authority and responsibility of Corporate Internal audit are formally defined in its charter. The charter and the annual audit plan are approved by the Audit and Risk Committee.
The company has one auditor, which shall be an audit firm certified by the Central Chamber of Commerce. The auditor is elected by the Annual General Meeting for a term of office that expires at the end of the first Annual General Meeting following the election. Fortum Corporation’s Annual General Meeting on 31 March 2011 elected Authorised Public Accountant Deloitte & Touche Oy as auditor, with Authorised Public Accountant Jukka Vattulainen having the principal responsibility.