Composition, term of office and selection process for the Board of Directors
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. All Board members are elected by the General Meeting. There is no special committee or board engaged in the nomination of Board member candidates or their election at the General Meeting, as the number of Board members is resolved and the members are elected by the General Meeting by majority vote based on shareholders' proposals. The Board elects the Chairman and the Deputy Chairman from among its members for the whole term of the Board.
According to the 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.
In the preparation of the proposal for the Board composition, Kesko applies a practice in which significant shareholders prepare for the General Meeting the proposals concerning the Board of Directors, including the proposal for the number of Board members, the proposal for the remuneration of the Board members, and when necessary, the proposal for the Board members. The proposal by significant shareholders is based on the Board's self-assessment, in which the performance and contribution of each Board member is also assessed, in addition to the competencies and experience needed in the Board composition. Conclusions based on the self-assessment are communicated to the significant shareholders, and external advisors are used as necessary in surveying potential members who meet the set criteria. The Chairman of the Board interviews potential members and provides an opinion to the significant shareholders. The proposal is published in a stock exchange release and included in the notice of General Meeting, provided that the proposal has been submitted to the Company sufficiently in advance to be included in the notice.
The Annual General Meeting held on 11 April 2018 resolved that the number of Board members is seven (7) and elected seven (7) members to the Board of Directors. The Annual General Meeting held on 8 April 2019 confirmed the number of Board members to be seven (7).
The composition of the Board of Directors is as follows as of 11 April 2018:
In accordance with the Articles of Association, the term of each Board member will expire at the close of the 2021 Annual General Meeting.
Board members' independence
All members of Kesko's Board of Directors are non-executive directors. The Board evaluates the independence of its members on a regular basis in accordance with Recommendation 10 of the Finnish Corporate Governance Code (effective as of 1 January 2016). The Board carried out an independence evaluation in its organisational meeting held after the General Meeting of 8 April 2019. Based on that independence evaluation, the Board considered Toni Pokela not to be independent of the Company's significant shareholder, the K-Retailers’ Association, of which Pokela is the Chairman of the Board.
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 result in 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 Directors of Finnair Plc.
A Board member is obliged to provide the Board with necessary information for the evaluation of independence.
Kesko's Board of Directors is responsible for the Company's corporate governance and for the proper organisation of its operations. The Board is responsible for the proper organisation of the Company's accounting and financial management controls. The Board of Directors has confirmed a written charter for the Board of Directors' duties, the matters it deals with, its meeting practice and its decision-making procedure. In accordance with the charter, the Board deals with and makes decisions on matters that are financially, operationally or fundamentally significant to the Group.
According to the charter, the Board of Directors’ main duties include:
Decision-making, operation and meetings
The duty of Kesko's Board of Directors is to promote the interests of Kesko and all of its shareholders. In the Company, the Board members do not represent the parties that have proposed their election as Board members. A Board member is disqualified from participating in the handling of any matter between him/her (including entities over which he/she exercises control) and the Company. When a vote is taken, the Board's decision will be the opinion of the majority and if a vote results in a tie, the decision will be the opinion supported by the Chair. If the votes taken at an election of a person end in a tie, the result will be decided by drawing lots.
In 2018, the Board held ten meetings. The Board members' attendance rate at the Board meetings was 100%. The Board meetings regularly discuss the review by the President and CEO on key topical issues, as well as the reports by the Chairmen of the Board's Audit Committee and Remuneration Committee on Committee meetings preceding the Board meetings. The Auditor presents its findings to the Board once a year in connection with the review of the financial statements. As in previous years, in 2018, the Board reviewed the financial reports and monitored the Group's financial situation, approved the most significant capital expenditure and divestments and new financing arrangements, monitored the progress of Group-level projects and approved the interim reports, the half year financial report and the financial statements before they were published.
In 2018 the Board, among other things, clarified and specified the Kesko Group strategy approved in spring 2015 and monitored its execution, and decided on acquisitions and divestments in line with the confirmed strategy, including the acquisitions of Kalatukku E. Eriksson Oy, Gipling AS, Skattum Handel AS, and the DIY retail business of Sørbø Trelast AS and Tau & Jørpeland Bygg AS. The Board monitored the financial performance of previously acquired companies and their integration into Kesko Group, the implementation of divestments decided, and progress in the Group's data protection project. The Board reviewed, for example, Kesko's Annual Report and goodwill impairment testing, and decided on mergers to simplify the Group structure, the establishment of a new share-based compensation plan, on using the authorisation granted by the General Meeting to acquire a maximum of 500,000 B shares in the Company, on new financing arrangements, and on the use of donation funds approved by the General Meeting.
The Board carried out a self-assessment. It was conducted via discussions between the Board, the Chairman and each Board member based on a predetermined discussion agenda. Topics covered in the assessment included Group strategy, reporting, risk management, efficiency of Board and Committee work, Group management and contingency planning for Group management, and individual Board member assessments. The Board reviewed a summary of the discussion results in its meeting. Focus areas included strategy-driven corporate leadership, the temporal aspect of strategy review, the scope of market and competitor information, the increased importance of cyber security in risk management, and an open and appreciative working atmosphere for the Board and its Committees. In addition to the summary, each Board member received personal feedback.
Kesko has the Board’s Audit Committee and Remuneration Committee, both of which are composed of three (3) Board members. At the close of the Annual General meeting, the Board elects from among its members the Committee Chairmen, Deputy Chairmen and members for one year at a time.
All members of the Audit Committee are independent of the Company and the Company’s significant shareholders. In the election of the Audit Committee members, the competence requirements for Audit Committee members have been taken into account.
All members of the Remuneration Committee are independent of the Company's significant shareholder and its majority is also independent of the Company. In the election of the Remuneration Committee members, the competence requirements for Remuneration Committee members have been taken into account.
The Committees regularly assess their operations and working methods and carry out a related self-assessment once a year. The Board has confirmed written charters for the Committees, which contain the main duties and operating principles of the Committees.
The Committees have no independent decision-making power. Instead, the Board makes decisions on matters based on the Committees’ preparatory work. The Committee Chairman reports on the Committee's work at the Board meeting following the Committee's meeting. Minutes of the Committee meetings are submitted for the information of the Board members.
Kesko's Board of Directors has not established any other committees in addition to the Audit and Remuneration Committees, nor has the General Meeting appointed any committees or boards.