Terrafame’s Corporate Governance principles
The administration and decision-making of Terrafame Ltd. (“Terrafame” or “company”) are guided by the Articles of Association, the Limited Liability Companies Act and other legislation in force as well as the decision in principle concerning the State’s ownership policy, given on 13 May 2016. In 2016, Terrafame as an unlisted company complied, as applicable, with the Corporate Governance Code for listed companies approved by the Finnish Securities Market Association (2010). The Code is available at http://cgfinland.fi/en/.
The deviations from the Corporate Governance Code are related to the Annual General Meeting (recommendations 1−4), composition of the Board of Directors regarding representation of both genders (8), diversity of the Board of Directors (9), self-evaluation of the operations of the Board of Directors (13), and the rules of procedure and composition of the Environment and Safety Committee (recommendation 14). In addition, the company deviates partly from the Corporate Governance Code reporting requirements.
The deviations from the Governance Code recommendations are due to the fact that Terrafame Ltd. only had one shareholder in 2016, Terrafame Group Ltd., that in 2016 the company was still in the ramp-up phase and that the company’s securities are not publicly traded.
This report on Terrafame’s Corporate Governance in 2016 is issued separately from the Board of Directors’ review.
Terrafame’s administration and operations are governed by the Annual General Meeting, the Board of Directors and the Chief Executive Officer (as of 15 February 2016).
At the Annual General Meeting, the shareholder confirms the company’s financial statements and decides on the distribution of profits as well as on the election of board members and auditors and on their bonuses. The Annual General Meeting also elects the Chairman of the Board and a possible Vice-Chairman.
Board of Directors
Duties and responsibility
Terrafame’s Board of Directors is responsible, in accordance with the Limited Liability Companies Act, for the company’s governance and the appropriate organisation of its operations. The Board of Directors shall also ensure that the company’s accounting and financial management are appropriately supervised. The Board of Directors shall promote the interests of the company and its shareholder. One of the Board’s main duties is making significant decisions relating to the company’s operating principles, strategy, investments, organisation and finance.
According to the Articles of Association, the Board of Terrafame has three to seven members. The members are elected at the Annual General Meeting for a term ending at the close of the next Annual General Meeting. The proposal on the composition of the Board of Directors is prepared by the only shareholder of the company, Terrafame Group Ltd.
Key content of the Board of Directors’ Rules of Procedure
The Board of Directors has confirmed Rules of Procedure for itself, the key content of which is described below and which define the duties of the Board, its chairman and the Committees. The Rules of Procedure include the following issues: composition of the Board of Directors, election of Board members, responsibilities of the members and the Chairman, meetings and decision-making of the Board, disqualification of members, committees, self-assessment of operations, as well as remuneration of the members.
The Board’s responsibilities include:
- Preparing the annual operating plan, business plan and budget
- Approving financial reports, financial statements and annual report
- Approving the organisational structure and compensation system
- Appointing and dismissing the Chief Executive Officer
- Appointing the Management Team
- Deciding on the terms and conditions of employment and remuneration of the Chief Executive Officer and key personnel
- Appointing Committee members and confirming the Committees’ Rules of Procedure
- Directing and supervising the executive management
- Supervising the company’s operations with respect to compliance with laws and regulations
- Approving long-term objectives and strategies
- Approving the company’s values, principles and practices concerning the control and risk management system
- Convening the Annual General Meeting
The Board of Directors has quorum when more than half of its members are present in the meeting. The Board seeks to achieve consensus in its decision-making on all occasions. If this cannot be sensibly achieved, the decisions of the Board are made in accordance with the provisions of the Limited Liability Companies Act. According to the Limited Liability Companies Act, the decisions of the Board require a simple majority. In the event of a tie, the chairman casts the deciding vote. With regards to disqualification of Board Members, the provisions of the Limited Liability Companies Act are complied with.
The Board of Directors convenes about ten times a year in accordance with a previously agreed schedule. If necessary, the Board holds additional meetings.
In 2016, Terrafame’s Board of Directors had an Environmental and Health and Safety Committee. According to the Board’s rules of procedure, the Committee is responsible for ensuring that Terrafame complies with the principles of good corporate and social responsibility, taking into account the critical environmental issues related to mining operations as well as occupational health and safety perspectives in the mining area. In addition, the Committee is responsible for ensuring compliance with environmental laws and regulations as well as permits granted to operate the mine.
The Committee shall ensure that the health and safety processes and reporting systems introduced by the company are used in such a way that the mine can reach the level of its international competitors. The Committee also controls that stakeholder information is appropriately acquired and that the local community is kept informed of the events in the mining area and its surrounding areas.
Given the small size of the Board of Directors and the Committee, the duties of the Committee were carried out for practical reasons by the Board in 2016. The Board’s Environmental and Health and Safety Committee did not have confirmed rules of procedure in 2016 because the work of the Committee was combined with the work of the Board of Directors.
In 2015, the Board of Directors established a Steering Group for the mine’s ramp-up phase whose duty was to guide and supervise the development of operations. The work of the Steering Group has been combined with the work of the Board of Directors. The Project Management Office (PMO) was responsible for the accuracy of reporting and for the Steering Group having access to all relevant information at regular intervals until the spring of 2016. The Steering Group was dissolved in the end of April 2016.
The Board of Directors, at its discretion, may establish an Audit Committee and a joint Organisational Structure and Compensation Committee, and elect the chairmen for these committees. The Board did not set up such committees in 2016, and the Board was responsible for the duties of these committees.
Chairman of the Board
Until the appointment of a Chief Executive Officer in February 2016, the Executive Chairman of Terrafame Ltd.’s Board of Directors also participated in the management of the mine’s operations in addition to the duties of the Chairman of the Board.
Chief Executive Officer
The CEO is responsible for the day-to-day management of the company in accordance with the guidelines and regulations given by the Board of Directors (general authority). The CEO is responsible for ensuring the legal compliance of accounting practices and the reliable organisation of asset management.
The CEO is responsible for the operational management of the business in accordance with the strategic plans, budgets, action plans, guidelines and regulations approved by the Board of Directors. The CEO presents operational issues to the Board and is responsible for the implementation of the decisions made by the Board.
Terrafame Ltd.’s Management Team manages the attainment of the company’s operational and financial objectives. The Management Team reports to Terrafame Ltd.’s CEO and convenes on a regular basis every week.
The Board of Directors is responsible for organising internal control, risk management and internal audit processes. Terrafame Ltd.’s Board of Directors has confirmed the company’s principles concerning internal control and risk management.
The aim of Terrafame’s internal control is to ensure that the company’s operations are efficient and results will be achieved, that business risks are adequately and appropriately managed and that the information produced is reliable. The internal control system is also used to monitor compliance with the company’s policies and guidelines.
Terrafame evaluates risks and opportunities as part of business planning and decision-making processes. In order to limit unnecessary and excessive risk-taking, risks related to the company’s operating environment, operational activities, environment and financial position are assessed regularly when planning and managing the business operations. The Board of Directors regularly reviews the risk information collected by the operative management.
Main features of the internal control and risk management systems related to the financial reporting process
Terrafame Ltd. seeks to ensure that the company’s financial reporting complies with the requirements in force in such a way that the company’s financial statements provide a true and fair view of the company’s activities and financial position. The system for monitoring compliance with the requirements is based on the reporting process constructed during the mine’s ramp-up phase, on the company’s values and on its business culture emphasising honest and transparent activities. In 2016, financial reporting was further developed as the company’s operations became more established.
The task of the statutory external audit is to verify that the financial statements and the Board of Directors’ report provide accurate and adequate information on the company’s result and financial position. In addition, auditing includes the audit of the company’s accounting and administration.
The auditor has issued a statutory auditor’s report to the shareholder of Terrafame Ltd. in connection with the company’s financial statements and has reported on his findings to the company’s Board of Directors.
According to the Articles of Association, the auditor of Terrafame Ltd. shall be an audit firm authorised by the Audit Board of Finland Chamber of Commerce. The auditor’s term of office expires at the close of the next Annual General Meeting following the auditor’s election.
Corporate Governance in 2016
In 2016, the Annual General Meeting was held on 3 May 2016. Five extraordinary General Meetings were held in 2016.
Board of Directors and Committees
As of 14 August 2015, the Board of Directors consists of Lauri Ratia (Chairman), Esa Lager and Tuomo Mäkelä.
The Board of Terrafame has assessed the independency of its members. Of the members, Ratia, Lager and Mäkelä are independent of the Company and its only shareholder, Terrafame Group Ltd. At the end of the financial period 2016, Terrafame Ltd. was fully owned by Terrafame Group Ltd., and the Board members or the corporations over which the Board members exercise control did not have shares nor share-based rights in Terrafame.
In 2016, the Board of Terrafame convened eleven times, including one telephone conference. Each Board member had 100% attendance rate at all Board meetings. In 2016, the Board’s work continued to focus on controlled ramp-up of the mine according to plan, building on the premise of ensuring occupational and environmental safety and the company’s core values of safety, efficiency and commitment.
The Environmental and Health and Safety Committee of the Board comprised Tuomo Mäkelä and Lauri Ratia. For practical reasons, the Committee’s duties were carried out by the entire Board of Directors.
Executive Chairman of the Board
Chairman of the Board of Directors of Terrafame Ltd. Lauri Ratia acted as the Executive Chairman of the Board in addition to his duties as the Chairman of the Board until February 2016, participating in the management of the mine operations as well as acting as the Chairman of the Management Team.
The meetings of Terrafame Ltd.’s Steering Group were combined with the meetings of Terrafame’s Board of Directors. The Steering Group consisted of Terrafame Ltd.’s Board members as well as Terrafame Group Ltd.’s Chairman of the Board Janne Känkänen and Chief Executive Officer Matti Hietanen. In 2016, Mr. Känkänen participated in eight and Mr. Hietanen in ten Steering Group meetings of Terrafame Ltd.
In 2016, Terrafame’s Management Team consisted of Joni Lukkaroinen (Chief Executive Officer since 15 February 2016), Harri Natunen (Chief Production Officer until October 2016, Chief Technology Officer since October 2016), Reijo Uusitalo (Chief Mining Officer), Janne Palosaari (Chief Commercial Officer), Veli-Matti Hilla (Chief Sustainability Officer), Matti Rautiainen (Chief Maintenance Officer), Ville Sirviö (Chief Financial Officer since February 2016), Petri Parjanen (Chief HR Officer since March 2016), Katri Kauppila (Chief Communications Officer since October 2016) and Antti Arpalahti (Chief Production Officer since October 2016). Pertti Pekkala as Chief Technology Officer was a member of the Management Team until May 2016.
In 2016, the Management Team continued to focus particularly on safe and efficient ramp-up of the mine.
The Board members or the corporations over which the Board members exercise control did not have shares nor share-based rights in Terrafame at the end of the financial period 2016.
Terrafame’s Annual General Meeting elected KPMG Oy Ab as the company’s auditor with Antti Kääriäinen, APA, as the principal auditor. Until the 2016 Annual General Meeting, Ernst & Young Oy, a company of Authorised Public Accountants, acted as the auditor with Ulla Nykky, APA, as the principal auditor.
The auditor’s fee and possible expenses are reimbursed according to invoice approved by the company. In 2016, the fees paid to the auditor were EUR 83,646 for auditing and EUR 38,172 for services unrelated to the audit.