UPM Annual Report 2016

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Governance

In brief

Strategy

Businesses

Stakeholders

Accounts

Financial statements and dividend The AGM adopted the company’s financial statements for the period 1 January–31 December 2015, decided to distribute dividends amounting to EUR 0.75 (EUR 0.70) per share, and discharged the President and CEO, and the members of the Board of Directors from liability for the financial year 2015. The dividends, totalling EUR 400 million, were paid on 21 April 2016. Board composition The AGM elected ten members to Board of Directors for a term that will end upon closing of the AGM 2017. All incumbent directors, i.e. Berndt Brunow, Henrik Ehrnrooth, Piia-Noora Kauppi, Wendy E. Lane, Jussi Pesonen, Ari Puheloinen, Veli-Matti Reinikkala, Suzanne Thoma, KimWahl and BjörnWahlroos, were re-elected to 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 82-83 of this report and on the corporate website. Board remuneration With regard to 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 Committee EUR 120,000, and other members of the Board EUR 95,000. In accordance with

the AGM resolution, the annual fees were paid in the company shares and cash so that 40% of the fees were paid in shares and the rest in cash to cover withholding tax. The company paid the 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 number of acquired shares and the number of UPM shares held by the members at the end of 2016 are presented in the table below. In addition to the annual fees, the Board members did not receive any other financial benefits for their Board or committee membership. 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 re-elected PricewaterhouseCoopers Oy, a firm of Authorised Public Accountants, as the company’s statutory auditor for a one- year term, with Authorised Public Accountant Merja Lindh as the lead audit partner. Ms Lindh has held 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.

a compliance risk assessment (incl. corrup tion) was made with all of UPM’s business areas. The assessment led to agreeing certain risk mitigation actions including, among others, more thorough anti-bribery and anti- corruption reviews in certain specific operations. The UPMLegal Function manages legal compliance programmes and arranges related trainings to specific target groups, which have been defined based on risk assessments. So far, these 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 compliance with applicable legal and regulatory requirements and with the UPMCode of Conduct and other corporate policies. In addition, the Audit Committee oversees procedures for treatment of complaints and concerns received anony mously or otherwise by the company. As a part of the committee’s compliance review, the committee is provided with a quarterly report by the company’s Chief Compliance Officer 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 UPM employees, and also on the corporate website for the company’s external stakeholders.

Board authorisations The AGM granted four authorisations to the Board of Directors. These authorisations are listed in the table below. Excluding the authorisation to decide on charitable contributions, the Board has not exercised these authorisations. Under the authorisation for charitable contributions, EUR 100,000 has been donated for the “Words Matter” project, organised by the Finnish Reading Centre, and another EUR 100,000 to the project called “The Young Business Generations” organised by the Economic Information Office. The purposes

of these projects are to inspire students of technical vocational schools to read and improve their reading skills, and to develop international business online courses for high school students. Including other minor contributions to several parties, charitable contributions in 2016 totalled EUR 232,500.

value creation of UPM. In pursuing this goal, the directors have a duty to act on an informed basis with due care and in the best interests of the company, consistent with their other statutory duties. To fulfil its role effectively, the Board sets the company’s strategic objectives, reviews and approves financial and other plans relevant to the achievement of these objectives, and reviews the performance of the management in meeting these objectives. The Board’s other main responsibilities relate to the integrity of the company’s financial reporting, effectiveness of internal control and risk management systems, and the appointment, remuneration and succession planning of the senior management of the company. The Board has prepared a written charter for its work including the Board’s main duties and operating principles. The board and committee charters were amended during the year to reflect the changes in the regulatory framework. Several corporate policies were also amended or completely revised during the year. The updated charters and information on the corporate policies is available on the corporate website. Board work in 2016 In 2016, the Board held ten meetings. In April, one of the Board meetings was held in China, where the Board attended the inauguration ceremonies of the third paper machine in UPMChangshu mill, and was updated on the recent developments in the Chinese economy and business environment. More information on the UPMChangshu investment is on the next page. The directors’ average attendance at the Board meetings was 98% (96.4%). There is no minimum attendance 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 non-attendance. Directors’ personal attendance rates are presented in the table on the left.

Board of Directors The primary role of the Board is to be

responsible for the governance of the company with the focus on overseeing the long-term

Auditor’s remuneration

Board authorisations

General meeting of shareholders

Shareholder attendance at the AGM

AUTHORISATION

MAXIMUM AMOUNT

VALIDITY

EUR MILLION

2016 2015 2.3 2.3 0.1 0.0 0.7 0.8 0.5 0.5 3.6 3.6

No. of shareholders

% of shares

100

4,000

Audit fee

Issuance of shares and special rights entitling to shares Repurchase of the company's own shares Recognition of reversal entries of revaluations Contributions to charitable or corresponding purposes

25 million shares (4.7% of all shares) 50 million shares (9.4% of all shares)

3 years from the AGM 2016 18 months from the AGM 2016

The company’s supreme decision-making body is the general meeting of shareholders. In 2016, the Annual General Meeting (AGM) was held on 7 April in Helsinki. All decisions at the meeting were taken without voting. These decisions are summarised in the following:

Audit-related services

3,000

Tax services

2,000

Other services

1,000

EUR 158 million

Until the AGM 2017 Until the AGM 2017

Total

13 14 15 16

EUR 250,000