UPM annual report 2015

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UPM Annual Report 2015 UPM Annual Report 2015 65 66
contents
IN BRIEF STRATEGY BUSINESSES STAKEHOLDERS GOVERNANCE ACCOUNTS
Board of Directors
The basic responsibility of the directors in
discharging their duties as members of the
Board of Directors is to always act in good faith
and with due care and exercise their business
judgement on an informed basis in what they
reasonably believe to be in the best interests of
the company and its shareholders.
The Board is responsible for the oversight
and control of the entire UPMGroup and for
ensuring that the company’s administration
and operations as well as control of its accounts
and finances are duly in place. The Board has
prepared a written charter for its work includ-
ing the Board’s duties and operating principles.
The duties of the Board of Directors, as defined
in the charter, are presented in the Corporate
Governance Statement 2015. The entire char-
ter is available on the corporate website under
Board work in 2015
Like the year earlier, the Board continued
focusing on strategic considerations including
several strategic initiatives and monitored
closely the implementation of the company’s
strategy. The main elements of this strategy
are short term profitability programmes,
mid-term focused growth projects, develop-
ment of the business portfolio and value crea-
tion, and new business development for long
term growth. The Board was also regularly
reported on the progress of the strategic priori-
ties: the EUR 150 million profit improvement
programme and the targeted EUR 200 million
EBITDA contribution as a result of focused
growth projects in Finland, China, Poland and
Malaysia. The Board also reviewed and
approved updated group and business area
strategic plans in its strategy session inMay.
An essential part of the Board’s annual
strategy work is the review and consideration of
strategic and operational risks and opportuni-
ties. The company’s annual risk management
process ends up at reporting of strategic risks
and opportunities to the Board as described on
pages 8–9 of the Corporate Governance State-
ment 2015. The Board has recognised that the
company will face challenging strategic issues in
the coming years. These issues include the
declining demand of graphic papers in Europe
and North America and management of risks
related to the long term influence of China’s
economy on the business environment.
A good example of the development of new
businesses for long term growth is the Lappeen-
ranta biorefinery which produces renewable
diesel from crude tall oil. The Board originally
approved the investment in this project in Feb-
ruary 2012, and the refinery started commercial
production of renewable diesel called UPM
BioVerno in January 2015. UPMBioVerno is a
solid, although yet a minor part of the Biofore
strategy.
Evidencing the success of the company’s
Biofore strategy and good business perfor-
mance in 2014, the Board approved a new cash
flow based dividend policy for the company in
February. According to this policy, the company
aims to pay an attractive dividend amounting to
30–40% of the company’s annual operating
cash flow per share. The target of the new divi-
dend policy is to provide the shareholders with
a more transparent and uncomplicated indica-
tion on the dividend level. In line with the new
policy, the Board proposed a dividend of EUR
0.70 to the company’s AGM 2015. The dividend
represented 30% of the operating cash flow per
share in 2014 and was 17% higher than the divi-
dend of EUR 0.60 for 2013.
In 2015, the Board held eight meetings. The
directors’ average attendance at the meetings
was 96.4% (99.0%). There is no minimum attend-
ance requirement for the directors’ attendance
at the meetings as the general assumption is that
directors attend all meetings unless there is a
valid reason for the non-attendance. Directors’
personal attendance rates are presented in the
table on the following page.
Director independence
The Board of Directors evaluates the independ-
ence of its members annually and, in addition to
this, on a continuous basis with the assistance of
the Board’s Nomination and Governance Com-
mittee. The Board members shall provide ade-
quate information for the Board so that the
Board can assess the members’ independence,
and notify the Board of any changes in such
information. Board members shall also provide
the Board with their own assessment of their
independence. The directors’ independence is
assessed against the independence criteria of the
Finnish Corporate Governance Code 2015 which
is available on the Securities Market Associa-
tion’s website
Directors’ independence is assessed in rela-
tion to UPM and its group companies and the
company’s significant shareholders. A share-
holder is significant with a shareholding of at
least 10% of the company’s shares or votes
attached to them or with the right or obligation
to acquire the corresponding number of already
issued shares. Majority of directors shall be
independent of the company, and at least two
directors of this majority independent of signifi-
cant shareholders. In order to be considered
independent of the company, a director shall not
have any material relationship with the company
other than his/her service as a director. In the
overall assessment of a director’s independence,
any material relationships with a director’s
family members or closely related persons or
entities are also taken into account in addition to
other factors that may compromise the director’s
independence or ability to represent all share-
holders.
According to the evaluation carried out by
the Board, all Board members are independent
of the company’s significant shareholders as the
company has no controlling shareholder and
none of the company shareholders has
announced a holding of more than 10% of the
company’s shares or voting rights. The Board has
also assessed that all non-executive directors are
independent of the company including Berndt
Brunow andWendy E. Lane who according to
the overall evaluation carried out by the Board
continue to be independent of the company
although they have been non-executive directors
for more than 10 consecutive years.
As the President and CEO of the company, Jussi
Pesonen is not independent of the company.
Board diversity
The Board of Directors’ Nomination and Gov-
ernance Committee prepares the proposal for
the composition of the Board to the Annual
General Meeting. The committee’s director
nomination process is discussed in further
detail on page 68 of this report.
Currently, UPMBoard of Directors comprises
10members and both genders are represented in
the Board. In 2015, two new directors, Mr Ehrn-
ATTENDANCE IN BOARD MEETINGS 2015
Director Director since Attendance/
No of meetings
Attendance-%
Björn Wahlroos
(Chairman)
2008 8/8 100
Berndt Brunow
(Deputy Chairman)
2002 8/8 100
Matti Alahuhta
(retired 9 April)
2008 1/1 100
Henrik Ehrnrooth
(from 9 April)
2015 6/7 86
Piia-Noora Kauppi 2013 8/8 100
Wendy E. Lane 2005 8/8 100
Jussi Pesonen 2007 8/8 100
Ari Puheloinen 2014 8/8 100
Veli-Matti Reinikkala 2007 7/8 88
Suzanne Thoma
(from 9 April)
2015 6/7 86
Kim Wahl 2012 8/8 100
rooth and Dr Thoma, were appointed to the
Board, and now female directors count for
33.3% of the non-executive directors and 30%
of all directors. Mr Ehrnrooth’s and Dr Thoma’s
election to the Board also widened the Board’s
diversity in terms of educational background,
age and nationality, and enriched the Board’s
broad competence base with their CEO-level
experience in international business in various
industries.
Further information on the Board’s diver-
sity in respect of gender, age, nationality and
tenure is available enclosed.
Board self-evaluation
The Board of Directors reviews its performance
and working methods annually. The Board has
used the same self-evaluation questionnaire
with some additions for several years to main-
tain comparability of the results. As assessed by
the Board, the Board culture is candid and
open, and new improvement areas to enhance
the Board work even further are identified each
year. The Nomination and Governance Com-
mittee also takes the survey results into consid-
eration when preparing its proposal for the
composition of the Board to the Annual General
Meeting.
In 2015, the evaluation was conducted as a
self-assessment and its results were reviewed
and discussed at the Board meeting in Decem-
ber. Directors evaluated the Board’s perfor-
mance of its duties and responsibilities, Board
composition and structure, Board culture,
effectiveness of Board meetings, and, for the
first time, individual director contribution.
During the past three years, the directors have
also assessed the performance of the Chairman
of the Board.
The results of the 2015 self-evaluation
survey indicated that the Board is functioning
effectively, focusing on key issues and keeping
a good balance between risks and opportuni-
ties. The current Board composition including
the number of directors, variety of director
backgrounds, and skills and experience
reflected in the Board was also considered
apposite to the company’s needs and strategic
agenda. In 2016, the Board will pay more
attention to the review of the company’s
succession planning process.
BOARD REMUNERATION AND SHAREHOLDINGS IN 2015
Board
member
Position Annual fee
(EUR)
40% for
shares (EUR)
60% in cash
(EUR)
No of acquired
shares
Shareholdings on
31 Dec. 2015 *)
Björn
Wahlroos
Chairman 175,000 70,000 105,000 4,193 254,442
Berndt Brunow Deputy
Chairman
120,000 48,000 72,000 2,875 303,578
Henrik
Ehrnrooth
Member 95,000 38,000 57,000 2,276 2,276
Piia-Noora
Kauppi
Member, Audit
Committee
Chairman
120,000 48,000 72,000 2,875 11,856
Wendy E. Lane Member 95,000 38,000 57,000 2,276 32,925
Jussi Pesonen Member,
President and
CEO
– – – – 220,275
Ari Puheloinen Member 95,000 38,000 57,000 2,276 4,301
Veli-Matti
Reinikkala
Member 95,000 38,000 57,000 2,276 36,097
Suzanne
Thoma
Member 95,000 38,000 57,000 2,276 2,276
Kim Wahl Member 95,000 38,000 57,000 2,276 14,075
Total 985,000 394,000 591,000 23,599 882,101
*) Including shareholdings of director’s closely associated persons and controlled entities, if any.
100
80
60
40
20
0
2015 2014 2013 2012
UPM Board diversity – gender
%
■ Female ■ Male
UPM Board diversity – age
20% 40-49
40% 60-69
40% 50-59
UPM Board diversity – nationality
70% Finnish
10% Swiss
10%
Norwegian
10% US
UPM Board diversity – tenure
20% >10 years
10% > 6 years 20% >2 years
20%
>8 years
30%
< 2 years