UPM annual report 2015

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 www.upm.com/governance. 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

UPM Board diversity – gender %

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 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 www.cgfinland.fi. 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 table on the following page. Director independence

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

ATTENDANCE IN BOARD MEETINGS 2015 Director Director since

Attendance/ No of meetings

Attendance-%

100

80

Björn Wahlroos (Chairman)

2008

8/8

100

60

Berndt Brunow (Deputy Chairman) Matti Alahuhta (retired 9 April) Henrik Ehrnrooth (from 9 April) Piia-Noora Kauppi

2002

8/8

100

40

2008

1/1

100

20

2015

6/7

86

0 2015 2014 2013 2012

■ Female

■ Male

2013

8/8

100

Wendy E. Lane Jussi Pesonen Ari Puheloinen

2005 2007 2014 2007 2015

8/8 8/8 8/8 7/8 6/7

100 100 100

UPM Board diversity – age

Veli-Matti Reinikkala

88 86

20% 40-49

Suzanne Thoma (from 9 April)

40% 60-69

Kim Wahl

2012

8/8

100

40% 50-59

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-

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 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 tenure is available enclosed. Board self-evaluation

UPM Board diversity – nationality

10% US

70% Finnish

10% Swiss

10% Norwegian

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 *)

UPM Board diversity – tenure

Björn Wahlroos

Chairman

175,000

70,000

105,000

4,193

254,442

20% >10 years

30% < 2 years

Berndt Brunow Deputy

120,000

48,000

72,000

2,875

303,578

Chairman

Henrik Ehrnrooth Piia-Noora Kauppi

Member

95,000

38,000

57,000

2,276

2,276

20% >8 years

Member, Audit Committee Chairman

120,000

48,000

72,000

2,875

11,856

20% >2 years

10% > 6 years

Wendy E. Lane Member

95,000

38,000

57,000

2,276

32,925

–

–

–

–

Jussi Pesonen Member,

220,275

President and CEO

Ari Puheloinen Member

95,000

38,000

57,000

2,276

4,301

Veli-Matti Reinikkala Suzanne Thoma Kim Wahl

Member

95,000

38,000

57,000

2,276

36,097

Member

95,000

38,000

57,000

2,276

2,276

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.

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.

contents

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66

UPM Annual Report 2015

UPM Annual Report 2015