Corporate governance principles



Kesko's compliance with regulations and the Corporate Governance Code

Kesko Corporation (Kesko or the Company) is a Finnish limited liability company in which the duties and responsibilities of the executive bodies are determined in accordance with the laws of Finland. The parent company, Kesko, and its subsidiaries form Kesko Group. The Company is domiciled in Helsinki.

The highest decision-making power in Kesko is exercised by the Company's shareholders at the Company's General Meeting. The Company's shareholders elect the Company's Board of Directors and Auditor at the General Meeting. Kesko Group is managed by the Board of Directors and the Managing Director, who is the President and CEO. The President and CEO is appointed by the Board of Directors. The Company uses a so-called one-tier governance model.

Kesko's decision-making and corporate governance are guided by Kesko's values and the K Code of Conduct guidelines. Decision-making and corporate governance are in compliance with the Finnish Limited Liability Companies Act, the regulations concerning publicly listed companies, Kesko's Articles of Association, the charters of Kesko's Board of Directors and its Committees and the rules and guidelines of Nasdaq Helsinki Ltd. Kesko complies with the Finnish Corporate Governance Code for listed companies (the Finnish Corporate Governance Code) effective as of 1 January 2016. The Corporate Governance Code can be read in full at www.cgfinland.fi/en/corporate-governance-code/

As provided by the comply or explain principle of the Corporate Governance Code, the Company departs from the Corporate Governance Code's recommendation concerning a Board member's term of office as described below.

Departure from a Corporate Governance Code Recommendation

The term of office of Kesko's Board members departs from the one-year term of office pursuant to Recommendation 6 – Term of Office of the Board of Directors – of the Corporate Governance Code. The term of office of the Company's Board of Directors is determined in accordance with the Company's Articles of Association. The General Meeting decides on amendments to the Articles of Association. According to the Company's Articles of Association, the term of office of a Board member is three (3) years, 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 who, together with related entities, represents over 10% of votes attached to all Kesko shares, has informed the Company's Board of Directors that it considers the term of office of three (3) years good for the Company's long-term development and has not seen any need to shorten the term stated in the Articles of Association.

The independence of Kesko’s Board members deviates from Recommendation 10 - Independence of Directors - of the Finnish Corporate Governance Code, according to which the majority of the members of the board of directors shall be independent of the company. Based on an independence evaluation conducted by Kesko’s Board, of the seven Board members, three are considered to be independent of the Company and four are considered not to be.

Previously, three Kesko Board members were considered not to be independent of the company. However, the election of Kesko Group’s CFO Jukka Erlund to the Board of Directors of Finnair Plc on 20 March 2019 resulted in an interlocking control relationship, as Piia Karhu, Finnair Plc’s Senior Vice President, Customer Experience and a member of the Executive Board, is a member of Kesko Corporation’s Board of Directors. As a result of the interlocking control relationship, the majority of the members of Kesko’s Board are considered not to be independent of the Company. Kesko Corporation and Finnair Plc have a normal business relationship and the companies are not financially dependent on each other. The interlocking control relationship was not considered as a whole to give rise to conflicts of interest or to jeopardise the ability of the Board members to act in the interests of the Company and all its shareholders. The Company’s Board of Directors has given consent to Erlund being a member of the Board of Finnair Plc.

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