The Finish State opposes the proposal of its own representatives to increase director fees at Fortum

The shareholders of Fortum are surprised to discover that the Finnish State, “in deviation from the proposal made by the Shareholders' Nomination Board, will propose to the AGM that the yearly fees to be paid to the members of the Board of Directors remain at the current level for the following term of office”. A remarkable initiative supported by ECGS but which could however be seen as paradoxical considering the Finnish governance framework.

Finish “external” nomination committees are commonly composed of representatives of the three largest shareholders. In the case of Fortum, these representatives are Eero Heliövaara and Liisa Hyssälä. The third largest shareholder, the State Pension Fund, did not use its right to nominate. The Chairman of the Board of Directors, Sari Baldauf, was appointed as an expert member.

Eero Heliövaara, General Director at the Prime Minister’s Office, represents the Finish state and Liisa Hyssäl, former Minister of Social Affairs and Health, represents Fortum’s second largest shareholder, Kela, which is an independent social security institution with its own administration and finances but which is supervised by the Finnish Parliament. And if there are still doubts over her ties with the Finnish State, we can add that Liisa Hyssäl was appointed Director General of Kela on the proposal of Kela’s trustees (the Finnish parliament) by the President of the Republic. Only Sari Baldauf may be considered independent from the Finish State but, according to the company, Sari Baldauf did not take part in the decision-making for the Shareholders' Nomination Board's proposal related to the remuneration of Board members.

“The Shareholders’ Nomination Board conducted an extensive survey of board fees in Finland and international listed companies. The survey indicated that fees at Fortum are clearly below the global average. The company adjusted its fees payable to the Board of Directors for the last time in 2013, says Eero Heliövaara, Chairman of the Shareholder’s Nomination Board.

What’s really alarming is to witness a government trying to regulate a crucial sector for its well-being, energy, by owning the actors and supervising their actions through state representatives sitting on their boards and committees and then having to take direct action and undermine its own agents who decided it was fair to receive a bigger piece of the cake.

Does this not ring a bell? At ECGS, this reminds us of the French state which had publically opposed Board decisions in Safran or Air France.

ECGS considers that the proposed increase of the non-executive fees by somewhere between 12.5% and 20.0% was not sufficiently justified especially taking into account the size and complexity of Fortum which has substantially decreased over the past two years. Therefore, in its analysis ECGS recommended opposing the Board’s proposal and to support the Finnish State’s proposal.