Corporate Governance Statement 2017

Introduction

Honkarakenne Oyj complies with the Finnish Limited Liability Companies Act and the Corporate Governance Code 2015 for listed companies issued by the Finnish Securities Market Association (which came into force on 1 January 2016). The Corporate Governance Code is publicly available on the Finnish Securities Market Association’s website, www.cgfinland.fi.

The information stipulated by the Corporate Governance Code can be read on Honkarakenne’s website under https://honka.com/en/investors/corporation/corporate-governance.

The Corporate Governance Statement is issued separately from the Report by the Board of Directors.

Descriptions of corporate governance

1. Composition and activities of the Board of Directors

As of the Annual General Meeting of 7 April 2017:

Arimo Ristola

Chairman and member of the Board since 2017

Born in 1946
Sc. (Econ.)
Board professional
Holds 20,000 Honkarakenne Series A shares and 100 Honkarakenne Series B shares. AKR-Invest Oy, a company under his control, holds an additional 1,000,000 Honkarakenne Series B shares
Not independent of the company’s principal shareholders
Independent of the company

Timo Kohtamäki

Board member since 2017

Born in 1963
Sc. (civil engineering), Lic.Tech. (Geotechnical and Environmental)
Managing Director of Foudia Housing Oy
Does not hold any Honkarakenne shares
Independent of the company’s principal shareholders
Independent of the company

Anita Saarelainen

Board member since 2014

Born in 1954
Sc. (Econ.)
Non-fiction author, entrepreneur
Holds 3,252 Honkarakenne Series A shares and 30,375 Series B shares
Not independent of the company’s principal shareholders
Independent of the company

Kyösti Saarimäki

Board member since 2017

Born in 1950
Sc. (Tech.), M.Sc. (Econ.)
Board professional
Holds 10,000 Honkarakenne Series B shares
Independent of the company’s principal shareholders
Independent of the company

Members of the Board of Directors up until the Annual General Meeting of 7 April 2017:

Arto Tiitinen

Chairman and member of the Board, 2014–7 April 2017

Born in 1959
MBA
CEO of the Isku Group
Held 10,000 Honkarakenne Series B shares at the end of the Board’s term
Independent of the company’s principal shareholders
Independent of the company

Rainer Häggblom

Board member 2016–7 April 2017

Born in 1956
Sc. (Agriculture and Forestry), M.Sc. (Econ.)
Board professional
Did not own any company shares at the end of the Board’s term
Independent of the company’s principal shareholders
Independent of the company

Kati Rauhaniemi

Board member 2015 –7 April 2017

Born in 1975
BBA
Strategist and managing director
Did not own any company shares at the end of the Board’s term
Independent of the company’s principal shareholders
Independent of the company

Anita Saarelainen

Board member since 2014

Born in 1954
Sc. (Econ.)
Non-fiction author, entrepreneur
Holds 3,252 Honkarakenne Series A shares and 30,375 Series B shares
Not independent of the company’s principal shareholders
Independent of the company

Jukka Saarelainen

Board member 2015 –7 April 2017

Born in 1965
–
Entrepreneur
Held 3,853 Honkarakenne Series A shares at the end of the Board’s term
Not independent of the company’s principal shareholders
Independent of the company

Mauri Saarelainen

Board member 1994–7 April 2017 (Chairman 2004–2008)

Born in 1949
Vocational Qualification in Business and Administration, Engineer
Retired
Held 10,456 Honkarakenne Series A shares and 23,460 Honkarakenne Series B shares at the end of the Board’s term
Not independent of the company’s principal shareholders
Not independent of the company

Honkarakenne Oyj’s Annual General Meeting elects a minimum of three and a maximum of eight Board members. The Board of Directors elects a Chair from among its members. The Board decides whether to establish any Board committees and, if so, also decides on their composition. The term of Board members expires at the end of the first Annual General Meeting following their election.

The Board is in charge of corporate governance and the appropriate arrangement of the company’s operations, and is likewise responsible for ensuring that the company’s accounting and asset management is appropriately arranged. The Board decides on any far-reaching or fundamentally important matters concerning Honkarakenne.

The President & CEO attends Board meetings as the Presiding Officer, and the CFO as Secretary. Other members of Honkarakenne’s Executive Group may attend Board meetings as required.

In addition to corporate governance and the appropriate arrangement of operations, the Board’s tasks include:

deciding on the company’s strategy, objectives and targets
approving the Group’s action plan and budget
deciding on company policies
reviewing and approving financial statements and half-year reports
making decisions on business acquisitions and arrangements
making decisions on and approving the Group’s financial policies
making decisions on significant investments, property transactions and contingent liabilities
approving the Group’s reporting procedures and arrangements for the internal audit
making decisions on the Group’s structure and organisation
drafting the Group’s policy on the payment of dividends
appointing the CEO, Deputy CEO and a substitute for the CEO, and deciding on their compensation and other benefits
deciding on the Executive Group’s reward and incentive systems
assuming responsibility for the company’s value growth
assuming responsibility for all other duties prescribed for a Board in the Limited Liability Companies Act, Articles of Association or other applicable sources

The Board draws up written rules of procedure for its activities in advance of each annual term. According to these rules of procedure, the Board convenes at its scheduled meetings (8-10 per year) and at additional meetings as required. A total of 8–20 Board meetings are held per year. Scheduled meetings are meetings that have been agreed upon in advance in the rules of procedure. They will be held on a particular theme or themes, and will also examine the company’s current status and future outlook on the basis of information provided by the President & CEO. Internal or external experts can be invited to attend Board meetings as required.

The General Meeting decides on the fees paid to members of the Board of Directors. The Annual General Meeting of 7 April 2017 decided that the Chair shall be paid a monthly fee of EUR 2,000 and other Board members EUR 1,200. Before this Annual General Meeting, the fees were EUR 4,000 per month for the Chair, EUR 2,000 per month for the Vice-Chair, and EUR 1,500 for other members. In addition to these monthly fees, Board members are paid per diems and their travel costs are reimbursed against an invoice. The General Meeting decided that, if the Board decides to appoint a committee from among its members, then members of the Board committee will be paid an attendance fee of EUR 500 per meeting. The Board elected at the Annual General Meeting of 7 April 2017 did not establish any committees.

The Board held a total of 11 Board meetings in 2017. Board members’ attendance at these meetings was as follows:

The Board elected at the Annual General Meeting of 7 April 2017 (in office as of that date) held a total of seven meetings in 2017:

Arimo Ristola 7/7
Timo Kohtamäki 7/7
Anita Saarelainen 7/7
Kyösti Saarimäki 7/7

The Board elected at the previous Annual General Meeting (in office until 7 April 2017) held a total of four meetings in 2017:

Arto Tiitinen 4/4
Rainer Häggblom 3/4
Kati Rauhaniemi 3/4
Anita Saarelainen 4/4
Jukka Saarelainen 3/4
Mauri Saarelainen 4/4

Board Diversity

In Honkarakenne’s opinion, a diverse Board enables decision-making based on a variety of perspectives and information. Board members are chosen to ensure that the size and composition of the Board meets both current and future requirements. Education, work experience, age, gender, independence and availability are all taken into account when examining members’ expertise.

In accordance with our principle of diversity, we aim to have both genders represented on the Board, and this goal was achieved in 2017. Since the Annual General Meeting of 7 April 2017, the Board has consisted of four members: three men and one woman. In early 2017, up until the Annual General Meeting, the Board consisted of six members: four men and two women.

2. Board Committees

The Board elected by the Annual General Meeting of 7 April 2017 did not establish any separate committees during its organisational meeting. The Board as a whole currently handles the tasks specified for the Audit Committee.

Up until the Annual General Meeting of 7 April 2017, Honkarakenne’s Board of Directors had appointed a Nomination and Remuneration Committee from among its then members: Arto Tiitinen (Chairman) and members Anita Saarelainen and Mauri Saarelainen.

3. President & CEO

President & CEO Marko Saarelainen

Born in 1967
Hokusei Gakuen University, Sapporo, 1987; Sapporo Int’l Language Institute, Sapporo, 1991
CEO, Honkarakenne Oyj, 2015–; Honka Japan Inc, CEO, 1996–
Holds 6,970 Honkarakenne Oyj Series A shares and 159,810 Series B shares

The Board of Directors appoints a CEO who runs the company’s operations and administration in accordance the instructions and specifications given by the Board. The CEO is responsible for the practical management and planning of the Group’s business operations. The CEO handles preparatory work for strategically significant measures and executes the decisions made by the Board of Directors. The CEO also ensures that the Group’s corporate governance functions as it should, that the company’s accounting complies with legislation, and that asset management is reliably arranged.

4. Executive Group

Honkarakenne Oyj’s CEO chairs the Executive Group, which includes directors from different operational departments.

The Executive Group’s task is to assist the CEO in the operative management of the company. The Board of Directors appoints the members of the Executive Group on the basis of a proposal made by the CEO. The Executive Group convenes regularly (at least once a month) and holds additional meetings as required. Executive Group meetings may also be held as video or telephone conferences.

The Executive Group’s tasks include preparing monthly reports, investments, Group guidelines and policies, long-term plans,12-month action plans and the financial statements for approval by the Board.

In addition to CEO Marko Saarelainen, the Executive Group has the following members:

Leena Aalto

Vice President, Finance, CFO; Executive Group member since 6 April 2017

Born in 1966
MBA 2013, BBA 2003
Holds 300 Honkarakenne Oyj B shares
Responsible for financial and HR management

Jari Fröberg

Vice President, Production; Executive Group member since 6 April 2017

Born in 1969
Sc. (Mechanical Engineering) 1994
Does not hold any Honkarakenne Oyj shares
Responsible for production, purchasing, logistics and planning

Jari Noppa

Vice President, Consumer Business Finland; Executive Group member since 6 April 2017

Born in 1959
BBA 2001, Certified Business Coach
Holds 1,200 Honkarakenne Oyj Series B shares
Responsible for consumer business in Finland

Tanja Rytkönen

Vice President, Design; Executive Group member until 6 November 2017

Born in 1972
Master of Laws 2007, MSc (Architecture) 2000, Thesis for DSc (Architecture) 2002–
Held 10,000 Honkarakenne Oyj Series B shares at the end of her term in the Executive Group
Was responsible for design, collections, planning, production development, and public and care home construction

5. Internal supervision procedures and the main principles of risk management

The Board of Directors is responsible for ensuring that internal supervision and risk management are adequate for the extent of the company’s operations and appropriately supervised.

Risk management

Risk management seeks to comprehensively identify business-related risks and ensure that these risks are appropriately managed in business-related decision-making. Risk management safeguards business continuity. Risk management also safeguards the company’s brand and ensures compliance with legislation and regulations. No separate organisation has been established to handle risk management – these tasks are handled according to the company’s division of responsibilities.

The Board of Directors supervises that the CEO runs the company’s operations and administration in accordance with the Board’s instructions and specifications. In order to ensure adequate risk management, the Board discusses the Group’s financial reports and any material changes in its business.

Internal supervision

Internal supervision seeks to ensure efficient and profitable operations, the production of reliable information, and compliance with regulations and operating principles. Internal supervision is the responsibility of the Board of Directors and operative management. Honkarakenne has not established a separate organisation for internal supervision. Internal supervision is carried out with the aid of the company’s reporting system. Reliable financial reporting is one of the primary objectives of internal supervision.

The CEO is responsible for organising internal supervision. For instance, the CEO ensures that the company’s accounting complies with legislation and that asset management is reliably arranged. The Executive Group and other managers are responsible for internal supervision within their own areas of responsibility.

The Board of Directors approves Honkarakenne’s objectives, annual action plans and budgets. Internal supervision requires Group-level targets to be set, as these targets are used to derive individual targets for the Group’s various companies, units, functions and managers. Honkarakenne’s business plan sets quantitative and qualitative targets for different business operations, and progress towards these targets is regularly monitored.

The Chief Financial Officer (CFO) is responsible for setting, maintaining and developing financial steering and reporting requirements and processes. The CFO is also responsible for setting up and mobilising a supervision system that includes guidance, defining limits of authority, balancing the accounts, Executive Group reports, and non-conformance reports. The CFO supervises compliance with all specified processes and controls, and also monitors the reliability of financial reporting.

Auditors and other external assessors evaluate the supervisory measures used to ensure the reliability of financial reporting.

The Executive Group produces reports separately and independently from the rest of the company’s business operations. For monitoring and controlling its business activities, Honkarakenne uses an appropriate and reliable Enterprise Resource Planning (ERP) system, on which its other information systems and its subsidiaries’ systems are based. Honkarakenne has a valid, up-to-date data security policy and supporting data security guidelines.

6. Insiders

Honkarakenne handles inside information and insiders in accordance with all laws and regulations applicable to inside information and trading. The most important statutory regulations are included in the European Union’s Market Abuse Regulation (EU/596/2014). Honkarakenne also complies with its own insider policy and the insider guidelines for listed companies approved by Nasdaq Helsinki.

Insider lists are also drafted on a project-by-project basis as necessary. Insiders are notified in writing of their insider status and provided with instructions of the obligations of insiders. The CFO acts as the Insiders’ representative.

According to Honkarakenne’s guidelines, Board and Executive Group members and other specified employees may not trade in Honkarakenne shares during the 30-day period prior to the publication of half-year reports and financial statement bulletins.

In accordance with the Market Abuse Regulation, Honkarakenne issues a a stock exchange release to disclose the securities transactions of those in executive positions and their related parties. Here, ‘executive positions’ refers only to the CEO and members of Honkarakenne’s Board of Directors.

7. Auditors

Under the provisions of the Articles of Association, Honkarakenne Oyj must appoint one regular auditor and one deputy auditor. If the regular auditor is an auditing firm, no deputy auditor need be appointed. The elected auditors’ term covers the remainder of the accounting period during which they were elected and expires at the end of the following Annual General Meeting. The audit covers the Group’s accounting, financial statements and corporate governance for the financial year in question.

The auditor reports to the Board of Directors and gives an Auditor’s Report to the Annual General Meeting. The Auditor’s Report includes a statement on whether the financial statements give a true and fair view, as defined in the rules governing financial reporting, of the Group’s operating result and financial position, and whether the information provided in the Directors’ Report and Financial Statements is consistent. The Auditor’s Report also contains a statement on other key audit matters. The auditor’s fee is set by the Annual General Meeting.

The firm of authorised public accountants PricewaterhouseCoopers Oy were the company’s auditor, with Authorised Public Accountant Maria Grönroos as the principal auditor.

The auditor was paid TEUR 103 in audit fees for 2017 and TEUR 86 in 2016. The auditor also received TEUR 22 in fees for other services in 2017 and TEUR 12 in 2016.