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Corporate Governance

Corporate governance statement

Martela Corporation is a Finnish limited liability company that is governed in its decision-making and management by Finnish legislation, especially the Limited Liability Companies Act, by other regulations concerning public listed companies, and by its Articles of Association.

The company complies with the NASDAQ OMX guidelines for insiders and the Finnish Corporate Governance Code 2010 published by the Securities Market Association. Martela comply with all Code’s guidelines.

ORGANISATION

Martela Group’s business area is the furnishing of offices and public premises, and the provision of related services. The Group is managed according to both its operational organisation and legal Group organisation. The Group’s management is based primarily on an operational matrix organisation. Its sales operations and customer service are organised by business segment as follows:

• Business Unit Finland
• Business Unit Sweden and Norway
• Business Unit Poland
• Business Unit International

Business Unit Finland is responsible for sales, marketing and service production in Finland. Martela has an extensive sales and service network covering the whole of Finland, with a total of 27 sales centres.

Sales in Business Unit Sweden and Norway is handled through dealers. In addition, the Business Unit has its own sales and showroom facilities at three locations: Stockholm and Bodafors in Sweden and Oslo in Norway. The Business Unit’s order handling are also located in Bodafors, Sweden. Sales office in Oslo acts as a support organisation of  reseller network in Norway.

Business Unit Poland is responsible for the sales and distribution of Martela products in Poland and Eastern Central Europe. Sales in Poland are organized via the sales network maintained by the Business Unit. The company has altogether 7 sales centres in Poland. Business Unit Poland is based in Warsaw, where it has its sales and administration.

The main market areas of Business Unit International are Russia, Denmark and Estonia, and it also exports products to the Netherlands, Germany and Japan. In addition, the unit is responsible for managing the Group's key international customer relationships. In Russia sales are organised through Martela subsidiaries, and in other markets through local authorised dealers.

The Business Units share Group-level processes:
• Research & Development, Product and Communication units are responsible for the competitiveness of the product portfolio and its visual consistency and for the development of innovative products and the Group’s marketing communications.
• Supply Chain Management (SCM) is responsible for all Business units’ production, the principles and technology of production management, Group procurement, quality and the environment. Group’s logistic centres are located in Finland, Sweden and Poland.
• Group HR is responsible for ensuring that Martela has the correct number of skilled, motivated and committed employees.
• Financial Administration and IT is responsible for Group financial planning and reporting and Group IT solutions.

Manufacturing takes place on an order-driven basis at Martela. Management of the supply chain and product assembly have been concentrated in the company’s logistics centres in Finland, Sweden and Poland which are part of the Supply Chain Management organization. The logistics centres rely on an extensive network of subcontractors when carrying out their acquisitions. The components and products needed by the centres are also produced at Group plant in Kitee. Kidex Oy is a contract manufacturer of wood-based components, and roughly 24 per cent of its production goes to customers outside the Group.

BOARD OF DIRECTORS

The Board of Directors, elected by the Annual General Meeting each year, is responsible for the management and proper arrangement of the operations of the company in compliance with the Limited Liability Companies Act and the Articles of Association. In accordance with the Articles of Association, the Board of Directors consists of no less than five and no more than nine members. There may be no more than two deputy members. The Board of Directors elects from among its members a Chairman and Vice Chairman to serve until the end of the next Annual General Meeting. More information on the composition of the Board and the background information concerning Board members can be found under Corporate Governance/Board of Directors . The Board has confirmed a Charter defining the duties of the Board, meeting practices, the matters to be dealt with at meetings, the targets set by the Board for its operations, a self-evaluation of these operations, and the Board’s committees.

In accordance with the Charter, the matters dealt with by the Board of Directors include:
• Group, business unit and process strategies
• Group structure
• Financial statements, interim financial statements and interim reports
• Group operating plans, budgets and investments
• business expansion and reduction, acquisitions and divestments
• risk management policy and principles of internal control
• treasury policy
• appointment and discharge of the Managing Director
• composition of the Group Management Team
• management’s bonus and incentive plans
• approval and regular review of the principles and systems of corporate governance
• appointment of committees and their reporting

The Board convened nine times during the financial year. The average attendance of Board members was 98 per cent.

The Board reviews its own activities annually either self-assessment or assessment made by external consultant.  In both cases a summary of the evaluations is jointly discussed at a Board meeting.

The Board has evaluated the independence of its members and determined that Heikki Ala-Ilkka, Kirsi Komi, Pinja Metsäranta and Yrjö Närhinen are independent of the company. Of the company’s largest shareholders, Heikki Ala-Ilkka, Kirsi Komi and Yrjö Närhinen are independent members of the Board.

The Board has formed from among its members a Compensation Committee which also has a written Charter. According to the Charter, the key duties of the Compensation Committee include:
• deciding, with authorisation from the Board, the salaries and bonuses of the Managing Director and the Group Management Team
• preparing for the Board the criteria of the incentive plans for key personnel
• processing the appointments of Managing Director and Group Management Team members, deputy arrangements and successor issues

The Board’s Compensation Committee comprises Heikki Ala-Ilkka, Kirsi Komi, Pinja Metsäranta and Jaakko Palsanen.

The company has no separate audit committee. The Board of Directors sees to the audit committee duties specified in the Corporate Governance Code. The Board is of the view that its members have the necessary and sufficient information on the company’s operations, and the Board monitors the company’s reporting at each meeting. The Finance Director is present at meetings of the Board of Directors and functions as Board secretary. The chairman of the Board is in direct contact with the Finance Director as necessary. The Chairman of the Board is also regularly in contact with Company’s auditor.
 

ANNUAL GENERAL MEETING

The General Meeting is the company’s supreme decision-making body. The Annual General Meeting must be held within six months of the end of the financial year. The financial statements, Board of Directors’ report and the auditor’s report are presented at the Annual General Meeting. The Meeting decides on the approval of the financial statements, use of the profit shown on the balance sheet, discharging the members of the Board of Directors and the Managing Director from liability, the fees of the Board members and auditors and the number of members on the Board. The General Meeting also elects the Board of Directors and the auditor. Other matters on the agenda for the General Meeting are mentioned in the notice of meeting.

SHARES

Martela has two share series (‘K shares’ and ‘A shares’), with each K share entitling its holder to 20 votes at a General Meeting and each A share entitling its holder to one vote. The redeeming of K shares is referred to in the Articles of Association. Private owners of K shares have a valid shareholder agreement that restricts the sale of these shares to other than existing holders of K shares. The company’s total share capital on 31 December 2013 was EUR 7 million.

In January-December 2013, a total of 629,357  (422,271) of the company’s A shares were traded on the NASDAQ OMX Helsinki exchange, corresponding to 17.8 per cent (11.9) of the total number of A shares.

The value of trading was EUR 2.6 million (2.5); the share price was EUR 5.02 at the beginning of the year and EUR 3.35 at the end of the year. During January-December the share price was EUR 5.50 at its highest and EUR 3.30 at its lowest. At the end of December, equity per share was EUR 5.38 (6.51).
 

MANAGING DIRECTOR

The Board appoints Martela Corporation’s Managing Director and decides on the terms and conditions of his service relationship, which are defined in a written Managing Director’s service contract. The Managing Director is responsible for the operational management and supervision of the parent company and the Group according to the guidelines set by the Board.

GROUP MANAGEMENT TEAM

The Board of Directors and the Managing Director appoint the members of the Group Management Team. The Managing Director of Martela Corporation acts as the Chairman of the Group Management Team. The directors responsible for the main market areas and the Group’s processes are also represented in the Group Management Team. The Group Management Team drafts and reviews strategies, budgets and investment proposals, monitors the financial situation of the Group and its business units and processes, and the attainment of operational targets and plans. The Group Management Team meets once a month.

FINANCIAL REPORTING IN THE GROUP

Martela Corporation’s Board of Directors is provided with monthly reports on the financial performance and forecasts of the Group and its business units. The reports and forecasts are also presented by the Managing Director at Board meetings, where they are reviewed. For the purposes of reviewing the interim reports and annual financial statements, the Board of Directors receives the financial statement information and analyses in advance.

The Group Management Team meets once a month to evaluate the financial performance, outlook and risks of the Group and its business units.
 

AUDITING

The auditing of Group companies is carried out in accordance with the valid laws in each country and each company’s articles of association. The principally responsible auditor of the parent company co-ordinates the auditing of the Group’s subsidiaries together with the Group’s Managing Director and Finance Director. The auditors of Martela Corporation and the Group are the authorised public accountants KPMG, with Ari Eskelinen, Authorised Public Accountant, as the principally responsible auditor. All the auditors of the Group’s companies are in the KPMG chain. In 2013, a total of EUR 137,000 (117,000) was paid in fees for the Group’s auditing, while EUR 9,000 (151,000)  was paid for other services.

RISK MANAGEMENT AND INTERNAL AUDIT

MaMartela’s Board of Directors has confirmed the principles of risk management. The purpose of risk management is to identify, monitor and manage risks that could pose a threat to business and to the achievement of business objectives. Group management has supreme operational responsibility for risk management policy.

In the Group, risks are analysed and decisions are made to manage these risks as a part of the regular monitoring carried out by the Board and the management teams as described above. Risks are also evaluated when planning and making decisions on significant projects and investments. Risk management is integrated with the strategy process as a separate stage of analysis. There is no separate risk management organisation, but the associated responsibilities are assigned in line with the rest of the business operations and organisation. The company’s Board of Directors has included an annual review of risk management in its schedule of work.

The forming of a separate internal audit function has not been deemed appropriate. The fact that the company does not have an internal audit function has been taken into account in the audit plans of the company’s auditors.
 

RISKS

It is estimated that the greatest risks to the improvement of profit performance relate to the continuation of general economic development and the consequent overall demand for office furniture. In accordance with Martela’s risk management model, risks are classified and reduced in different ways. The manufacture of Martela’s products is largely based on the company performing the final assembly and using subcontractors for components. Production control is based on orders placed by customers, which means that there is no need for any large-scale warehousing. Risks of damage are covered by appropriate insurance policies, and these provide comprehensive coverage for property, business interruption, supplier interruption loss and loss liability risks. Martela uses the services of an external insurance broker to manage insurance matters. The services of an external partner are also used in legal matters.

Financial risks are discussed in the notes to the financial statements.
 

INTERNAL CONTROL

The reliability of financial reporting is one of the principal objectives of Martela Corporation’s internal control.

The Managing Director is responsible for the operational management and supervision of the Group according to the guidelines set by the Board. The Managing Director heads the Group Management Team, the members of which comprise the directors responsible for the business units and processes. The Group Management Team drafts and reviews strategies, annual operating plans and investment proposals, monitors the financial situation of the Group and its business units and processes, and the attainment of operational targets and plans. The Group Management Team meets once a month.

Martela’s strategy is updated and its targets defined on an annual basis. Strategic planning forms the basis of all planning at Martela and is carried out on a rolling basis for the forthcoming period of 2-3 years. Target setting is an internal control prerequisite because the targets of the companies, business units, functions and supervisors are derived from Group-level targets. For each business area, specific financial and non-financial targets are set in accordance with the business plan, and their attainment is monitored regularly through comprehensive reporting to executive management, for example.

The Finance Director has overall responsibility for financial reporting in the Group. Reporting to executive management is carried out separately and independently of business operations. For the purpose of monitoring and controlling business operations, the Group has appropriate and reliable enterprise resource planning (ERP) systems and other information systems based on these, as well as the systems of the subsidiaries. Controllers and financial managers (controller function) are responsible for financial reporting at the Group, company and business unit levels. At Martela, financial reporting is carried out in compliance with guidelines, laws and regulations in a consistent manner throughout the Group. The reliability of financial reporting depends on the appropriateness and reliability of financial and reporting processes and on the control measures taken to ensure these. In 2013, a key area of focus in internal control has still been the implementation of the Group’s ERP system as well as in production processes and in inventory management.

The Finance Director is responsible for the maintenance and development of reporting processes and defining and implementing control measures. Control measures include guidelines, matching, management reviews and reporting on deviations. The Finance Director monitors compliance with defined processes and controls. He also monitors the reliability of financial reporting.

The Board of Directors approves Martela’s strategy and annual operating plans. It also approves the principles and rules of risk management and risk limits, and monitors on a regular basis the effectiveness and sufficiency of internal control and risk management. Furthermore, the Board is responsible for the internal control of the financial reporting process.

Auditors and other external controllers assess the control measures in terms of the reliability of financial reporting.
 

MANAGEMENT REMUNERATION, BENEFITS AND INCENTIVE PLANS

 

The fees paid to the Chairman and to the members of the Board in 2013 totalled EUR 35,000 and EUR 86,000, respectively. However, no fees are paid to Board members employed by the company.

The total salaries and other benefits paid to Martela Corporation’s Managing Director in 2013 were EUR 332,000 (299,000). In addition, the Managing Director received EUR 0 (42,000) as bonuses and share-based incentives. The Managing Director is entitled to retire on a full pension at the age of 60. The period of notice of termination of contract is six months for both the Managing Director and the company. If the company gives notice of termination of contract, the Managing Director is entitled to one-off compensation equivalent to 18 months’ salary.

Bonus and incentive plans based on annual or shorter term performance are in place in the Group to promote the achievement of short-term objectives. The amount of the incentive is influenced mainly by performance indicators.

The remuneration of the Managing Director and the Group Management Team consists of a fixed basic salary, annual performance pay and a long-term share-based incentive plan. The Board of Directors decides the annual performance pay of the Managing Director and other key personnel of the Group as well as the terms and conditions of the long-term share-based incentive plan on the basis of a proposal by the Compensation Committee. The amount of performance pay for the Managing Director and the Group Management Team members is based not only on personal results but also on the financial performance of the entire Group and the unit. The annual performance pay of the Managing Director and the Group Management Team may be no more than 30-45 per cent of their annual taxable earnings excluding performance pay. The principal of one-over-one approval is observed within the Group, which means that all pay-related terms and conditions require approval from the supervisor or manager who appointed the person in question.

The Managing Director and Group management participate in a long-term share-based incentive plan. The plan offers Martela Corporation A shares when the targets set for the specified earnings period are attained. The Earning period is the calendar year 2013. Any incentives paid on the basis of the above scheme will be paid as a combination of shares and cash at the end of each earnings period. The maximum bonus for the entire scheme is 39,000 Martela Corporation A shares and an amount of cash that will cover taxes and similar charges, estimated at approximately the value of the shares to be paid. The extent to which the targets set for an earnings period are attained will determine how great a proportion of the maximum bonus will be paid to a key person. In 2013 the targets there not fulfilled and therefor no shares were distributed. See the notes to the financial statements for information on the share-based incentive plan’s effect on the result for the year.

No other compensation is paid on the basis of membership of the Management Team or a subsidiary.
 

INSIDER ADMINISTRATION

Martela observes the Guidelines for Insiders issued by NASDAQ OMX. In addition, the Board has adopted Group insider rules, which in some cases establish stricter requirements on processing insider information than the Guidelines for Insiders. For instance, the duration of the so-called closed window is 21 days at Martela, which is longer than the NASDAQ OMX minimum.

The following are considered as insiders subject to disclosure requirements: the members of the Board of Directors of the parent company, the Managing Director, the auditor, and the members of the Group Management Team. Company-specific permanent insiders are defined as people working in the Group in supervisory or expert duties, the execution of which requires regular access to information regarding the financial situation and outlook of the Group and its business units. Project-specific insider registers can be drawn up if necessary.

Martela Corporation has joined the SIRE system maintained by Euroclear Finland Ltd, and up-to-date information on the holdings of the insiders subject to the disclosure requirement is available on the Martela website.
 

Corporate Governance, approved on 3rd January 2014