All questions

Corporate leadership

i Board structure and practicesStructure alternatives

A company can choose between having both a board of directors and a supervisory board, or just a board of directors. If the company has a supervisory board, this organ supervises the administration of the company, which in turn is the responsibility of the board of directors and the managing director. In early 2019, less than 4 per cent of Finnish listed companies featured supervisory boards. Boards of listed companies typically consist of five to 10 members.

Legal responsibilities of the board

The board is responsible for the overall management of a company's affairs and the appropriate organisation of its operations. The board is also responsible for ensuring adequate surveillance of the company's accounts and finances, as well as for several administrative decisions specified in the Companies Act. A key task of the board is the appointment and dismissal of the managing director (the chief executive), who in turn is responsible for the executive management of the day-to-day operations and financial matters. Board members and the managing director have a general duty to act with due care and in the interest of the company in all matters.

The chair of the board is responsible for convening the board, but does not otherwise have specific statutory duties beyond those of ordinary board members.

Decision-making and representation

The board shall take all the major decisions affecting the company. The specific limits of the board's general competence in relation to the authority of the managing director can depend on the size of the company and its established governance practices. In addition, the board has certain administrative responsibilities that cannot be delegated, such as in relation to the registration of new shares.

In individual cases, the board may make a decision in a matter falling under the competence of the managing director. The board may also submit a matter falling under its general competence to the general meeting to decide. In listed companies, the latter option has at times been used when approving significant acquisitions or divestments.

The board takes all its decisions as a whole, and its decision-making power may not be delegated to the managing director or board subcommittees. The board can, however, authorise the executive management or another party to, for example, negotiate, finalise and execute within set parameters the final decision concerning a particular matter. Typically, such authorisations are in force only for a limited period.

A distinction is made in the Companies Act between decision-making authority and the right to represent a company. By law, the board as a whole is entitled to represent the company in all matters. In practice, the articles typically provide that, for example, the managing director or the chair, each alone, as well as two board members or other designated representatives together, can represent the company.

Board committees

Efficient organisation of the board's work may require the establishment of board committees to handle certain matters. The Code includes a description and division of tasks for audit, compensation and nomination committees. Following the implementation of the Audit Directive and Regulation, the Companies Act explicitly recognises the preparatory role of the audit committee in listed companies. However, the board as a whole is responsible for the eventual decisions even when the board has delegated preparatory responsibilities to committees.

The board of a listed company is required to monitor the company's financial reporting process as well as the effectiveness of its internal control, audit and risk management systems. The board is also responsible for the proposal of the selection of a statutory auditor and adequate rotation of audit firms and responsible auditors. In addition, the board must review and monitor the independence of the auditor and, particularly, the provision of non-audit services to the audited entity. The preparatory work for discharging these responsibilities can be delegated to the board's audit committee. The Companies Act requires that the audit committee of a listed company consists of non-executive board members, and that at least one member of the audit committee has competence in accounting or auditing. Another board committee may be tasked with the aforementioned duties provided that its composition meets the qualification requirements set for the audit committee.

Remuneration of directors and executive management

The remuneration of board members and the basis for its determination are set by the annual general meeting. The Code recommends that non-executive directors should not participate in share-based incentive schemes. The remuneration for the executive management is set by the board. The board may establish a remuneration committee to prepare matters pertaining to management and employee remuneration.

According to the Code, a company shall issue on its website a regularly updated remuneration statement containing a description of remuneration within the company. The statement describes the financial benefits granted to the board and the managing director, and contains information on the decision-making process and key principles for determining remuneration.

Board and company practice in takeovers (takeover defences, share issuance and repurchase, etc.)

As in all other matters, the board has a general duty in takeover situations to act with due care in the interest of the shareholders. According to the Securities Markets Act, a listed company must directly or indirectly belong to a body that has issued a recommendation on takeover situations. For this purpose, the Finnish Securities Market Association has issued the Helsinki Takeover Code, which is based on the comply or explain principle and contains recommendations on the actions of the target board and the bidder. With regard to defensive measures adopted in relation to a proposed takeover, the Securities Markets Act requires that a share issue or any other measure by the target company that may prevent or materially hamper the completion of the bid must, as a general rule, be resolved upon by the general meeting.

The articles of association of some listed Finnish companies feature provisions that may act as a priori takeover defences, such as differentiated shares classes or vote cutters that limit the number of votes that any one shareholder can cast. Some listed companies also feature in their articles a Finnish version of a poison pill, which provides for a mandatory redemption by the bidder of the other shares upon exceeding a set threshold (typically one-third or half of all shares or votes) at a price determined as specified in the articles.

ii DirectorsAppointment, nomination and term of office

The annual general meeting typically elects all the directors. However, fewer than half of the board members can be appointed in some other manner if so specified in the articles. In listed companies, the term of a director generally ends with the conclusion of the next annual general meeting following appointment. The party eligible to appoint a director also has the power to dismiss that director during his or her term of office. The prevailing practice, as recommended by the Code, is to have all board seats up for election each year. The number of a director's terms has not been limited by legislation or in the Code.

The nomination of director candidates is often handled by the board, with the board's nomination committee undertaking the preparatory work. However, in recent years the establishment of an external nomination board has become more commonplace. A nomination board typically consists of representatives of the largest shareholders and often includes the chair of the board as an expert member. In early 2019, around 37 per cent of listed companies had established a nomination board.

In addition to the above-mentioned formalised nomination procedures, any shareholder can present a competing proposal on director nomination in the general meeting.

Competency and diversity

The Companies Act provides the minimum requirements that all board members must fulfil: a director must be an adult natural person who is not bankrupt or under guardianship and whose legal competency has not been restricted. The Code recommends that a majority of the directors shall be independent of the company, and that out of this majority at least two directors shall be independent of significant shareholders. The Code recommends that the managing director should not be elected the chair of the board. There is no statutory duty to include employee representatives in the board, and such representatives are very rare in listed companies.

The Code recommends that both genders should be represented on the board. According to a survey published in 2018, 98 per cent of the boards of Finnish listed companies featured both genders, with women constituting 29 per cent of all directors.

Legal duties and right to information

The boards of Finnish listed companies are typically composed of non-executive directors. In some companies the managing director is also a board member, but other executive directors are rare. Finnish corporate law does not generally make a distinction between executive and non-executive directors in terms of their rights, duties or liability.

According to the Code, the company shall provide the board with sufficient information for the board to discharge its duties. The board has generally broad authority to require executive management to compile and prepare information to form a basis for the board's decision-making and the discharging of its supervisory duties. Executive and non-executive directors have the same right to information. It is considered good practice to ensure that in particular the chair of the board is always kept well informed of any new developments, as the chair is responsible for convening the board when necessary.

Although the board has the authority to request information from the management and employees in relation to its supervisory role, it is considered good practice to organise such information gathering in a formalised and coordinated fashion.

Conflicts of interest

The Companies Act prohibits a director from participating in the consideration pertaining to a contract, a transaction or legal proceedings between that director and the company. Such participation is also prohibited in a matter between the company and a third party if the director is to derive a material benefit therefrom that may be contrary to the interests of the company. The fact that a director may derive benefit from a decision as a shareholder of the company does not, by itself, result in a conflict of interest.

Each director must in all matters independently evaluate whether a conflict of interests is at hand. Directors should also provide the board with the relevant information to assess the situation if the director in question ultimately deems himself or herself as not conflicted despite factors that can generally indicate a possible conflict of interest. In practice, directors sometimes excuse themselves from participating in relation to matters where an outside influence or interest could be perceived to exist regardless of whether it would meet the statutory definition of a conflict.


The Companies Act provides for remedies when a board member has failed to fulfil his or her duties or tasks, including the general duty of care. A director is liable for damages for any loss that he or she has negligently caused to a company in violation of the general duty of care. A director is also liable to a company, a shareholder or a third party for damage caused either deliberately or negligently in violation of the provisions of the Companies Act (other than just the duty of care) or the company's articles of association.

Generally, the burden of proof lies on the person claiming a breach and loss. However, there is a presumption of negligence in cases of a violation of a detailed provision of the Companies Act (i.e., other than the general principles) or of the articles of association, as well as in relation to an act to the benefit of a related party, in which case the director in question must prove that he or she acted with due care.

The provision of directors and officers (D&O) insurance paid by a company to cover non-criminal liability of board members or executive officers is allowed. D&O insurance is commonly used in listed companies.

The Companies Act also provides criminal sanctions for the violation of certain of its provisions, such as concerning the distribution of funds and with regard to voting limitations. Actions of directors in this capacity may also result in criminal liability under, for example, the Finnish Penal Code.