UPM annual report 2015

IN BRIEF

STRATEGY

BUSINESSES

STAKEHOLDERS

GOVERNANCE

ACCOUNTS

Governance

Read more: www.upm.com/governance

UPM-Kymmene Corporation (UPM or the company) follows the Finnish Corporate Governance Code 2015 (Code) issued by the Securities Market Association which entered into force on 1 January 2016. The Code is available on the Securities Market Association’s website www.cgfinland.fi. UPM complies with all recommendations of the Code. UPM’s Corporate Governance Statement for the financial year 2015 and the Remuneration Statement dated 1 March 2016 have been prepared in accordance with the reporting section of the Code. The statements and this governance section complement each other, and this section contains references to the statements and also to the governance pages on the corporate website. The statements and the governance pages provide additional information on UPM’s governance practices and policies and they can be found on the corporate website under www.upm.com/governance.

Financial statements and dividend The AGM adopted the company’s financial statements for the period 1 January–31 Decem- ber 2014, decided to distribute dividends amounting to EUR 0.70 (EUR 0.60) per share, and discharged the President and CEO, and the members of the Board of Directors from liability for the financial year 2014. The divi- dends, totalling EUR 373 million, were paid on 23 April 2015. Board composition The AGM elected ten members to UPM’s Board of Directors for a termwhich will end upon closing of the AGM 2016. Berndt Brunow, Piia-Noora Kauppi, Wendy E. Lane, Jussi Pesonen, Ari Puheloinen, Veli-Matti Reinik- kala, KimWahl and BjörnWahlroos were re-elected to the Board and Henrik Ehrnrooth and Suzanne Thoma were elected as new directors. Matti Alahuhta, member since 2008, stepped down from the Board. All directors except President and CEO Jussi Pesonen are non-executive. The directors’ personal details, career histories and other significant positions are presented on pages 71–72 of this report and under www.upm.com/governance. Board remuneration As regards Board remuneration, the AGM resolved that the Chairman of the Board be paid an annual fee of EUR 175,000, the Board Deputy Chairman and Chairman of the Audit Commit- tee EUR 120,000, and other members of the Board EUR 95,000. The annual fee was decided to be paid in the company shares and cash so that 40% of the fee was to be paid in shares to be acquired on the Boardmembers’ behalf, and the rest in cash to cover withholding tax. The company was to pay any costs and transfer tax related to the acquisition of the company shares. No annual fee was paid to the President and CEO for his role as a member of the Board. The Board members’ annual fees, the num- ber of acquired shares and the number of UPM shares held by the members at the end of 2015 are presented in the table on the following page. The Board members do not receive any other financial benefits for their Board or committee membership in addition to the

grammes and trainings are provided for anti- corruption, competition law, confidentiality, insider matters, energy markets and trade sanctions. The Board of Directors, with the assistance of the Audit Committee, is responsible for monitoring the company’s compliance with the applicable legal and regulatory requirements and with the company’s Code of Conduct. In addition, the Audit Committee oversees proce- dures for treatment of complaints and con- cerns received anonymously or otherwise by the company regarding accounting, internal accounting controls or auditing matters, or potential violations of law. As a part of the committee’s compliance review, the committee is provided with a quarterly report by the com- pany’s Ethics Advisory Committee and a report of submissions under the company’s Report Misconduct channel by the Head of Internal Audit. This channel is available on UPM’s intranet for any UPM employee, and on the corporate website under www.upm.com/ governance for the company’s external stakeholders. Further information on the company’s governance policies, guidelines and practices is available under www.upm.com/governance. General meeting of shareholders The company’s supreme decision-making body is the general meeting of shareholders. Accord- ing to the Articles of Association, the general meeting shall be held annually by the end of June. Usually, the Annual General Meeting (AGM) takes place late March or early April. In 2015, the AGMwas held on 9 April in Helsinki. A total of 2,607 (in 2014: 1,984) shareholders attended the meeting either in person or through a legal or proxy representative, repre- senting a total of 51.4% (45.6%) of the com- pany’s registered share capital and voting rights at the time of the meeting. All decisions at the meeting were taken without voting. These decisions are summarized below.

annual fees. The annual fees have remained the same since 2007. According to the Board charter, Board members are encouraged to own company shares on a long term basis. Auditor and auditor remuneration The AGM also resolved on the company’s auditor, and re-elected Pricewaterhouse­ Coopers Oy, a firm of Authorized Public Accountants, as the company’s statutory auditor for a one-year term, with Authorized Public Accountant Merja Lindh as the lead audit partner. Ms Lindh holds this position since 8 April 2014. The AGM further resolved that the audit fee would be paid against invoices approved by the Board of Directors’ Audit Committee. The fees paid to the auditor, as approved by the Audit Committee, are shown in the following table.

UPM’s governance structure UPM-Kymmene Corporation is a Finnish limited liability company with headquarters in Helsinki, Finland. The parent company UPM and its subsidiaries form the UPMGroup having approximately 19,600 employees in 45 countries. The group’s business operations are divided into six business areas supported by global functions. UPM shares are listed on the Nasdaq Helsinki exchange. UPMuses a one-tier governance model, which, in addition to the general meeting of shareholders, comprises the Board of Directors and the President and CEO as presented in the illustration below. In the operative manage- ment of the company, the President and CEO is assisted by the Group Executive Team, the Business Area Boards and the Strategy Team. The general meeting elects the members of the Board of Directors annually, and the Board of Directors appoints the President and CEO and the members of the Group Executive Team.

The members of the Group Executive Team report directly to the President and CEO. Governance guidelines and monitoring of compliance UPM’s decision-making and management are guided by UPM values and the Code of Con- duct. The Code of Conduct has been approved by the Board of Directors and it is available in all company languages on UPM intranet and under www.upm.com/governance. The Code of Conduct is complemented by more detailed rules and guidelines approved by the Group Executive Team, business areas and global functions. These rules and guidelines cover, among others, such topics as anti-bribery, competition law, confidentiality, contract management, taxation, human resources, environment, information security, safety, and equality. UPM is committed to observing

applicable laws and its Code of Conduct wher- ever it operates and strives to ensure compli- ance with the Code of Conduct and related rules by training employees and by developing the company’s auditing, monitoring and reporting processes. More than 90% of UPM employees had participated in the Code of Conduct training by the end 2015. The Code of Conduct was renewed during the year and the Board of Directors approved the new Code of Conduct in February 2016. The implementation of the new Code of Con- duct has started and will include a comprehen- sive training programme, which is mandatory to all employees. UPMLegal Function manages legal compli- ance programmes and arranges related train- ings. The compliance programmes have spe- cific target audiences which have been defined based on risk assessments. Persons belonging to a specific target group receive separate invitations to participate in trainings arranged in a form of either a face-to-face training or e-learning. So far, legal compliance pro-

AUDITOR’S REMUNERATION EUR million

2015 2014

Audit fee

2.3 2.0 0.8 0.6 0.5 0.5 3.6 3.1

Tax consulting Other services

Total

Board authorizations Further resolutions taken at the AGM include authorizations to the Board of Directors to decide on the repurchase of the company’s own shares and to decide on donations for charita- ble or corresponding purposes. The maximum number of shares that may be repurchased amounts to 50 million shares, and the total amount of donations may not exceed EUR 250,000. From before, the Board of Directors has the authorization to issue 25 million shares or special rights entitling to shares. The Board has not exercised the repurchase or the share issue authorizations but donations totalling EUR 60,000 have been made to the Depart- ment of Neurosurgery at the Helsinki University Hospital and to the Stiftung Lesen, a German foundation helping refugee children to integrate through improved reading skills.

GOVERNANCE STRUCTURE OF UPM-KYMMENE CORPORATION

General Meeting of Shareholders

Issues Auditor’s Report

Elects

Elects

Remuneration Committee

Report

Board of Directors

Auditor

Nomination and Governance Committee

Assist

Appoints, steers, monitors

Audit Committee

Reports

President and CEO

Reports

Appoints

Internal Audit

Strategy Team

Chairs

Chairs

Reports

Reports

Group Executive Team

business area boards

contents

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UPM Annual Report 2015

UPM Annual Report 2015