Shareholder value through board elections
According to the current operating model, Solidium does not propose members of its management or Board of Directors to the boards of its portfolio companies. Therefore, active ownership emphasises selecting the best possible board compositions through the nomination boards and requiring effectiveness from the board’s work, as well as challenging and supporting the board in a sufficient manner.
The board elections in our portfolio companies are among our most central influencing channels. Solidium actively participates in the work of nomination boards that are responsible for preparing board elections and also developing their ways of working. In our experience, participation in board elections through the nomination boards as a chairperson or a member is an effective way to exercise influence over a company’s strategic direction and to increase shareholder value.
Preparing the election of board members and establishing well-functioning board compositions are demanding, significant processes and essential to successful shareholder value creation. The ability to elect a board that best meets the needs of a portfolio company is central to an active owner looking to create value. We systematically analyse the board compositions of our portfolio companies and the work of the boards, and use these analyses to ensure that each company has a optimal board from the company’s perspective.
Solidium’s objective is to establish boards which function as well as possible in terms of shareholder value creation, meet the companies’ needs and where individual members complement each other in competence, experience and personal characteristics. The aim of board elections is to find the right kind of competence to address the strategic challenges the board will be facing in the coming years. This requires that those responsible for preparing a board election possess profound understanding and continuously monitor the development of the company and its industry. In addition, it is important in terms of the internal functioning of the board to elect members whose personal characteristics support the board’s work and ensure its high quality and efficiency.
Diversity is an asset in the boardroom
The selection criteria for board members include professional skills, competence and experience, commitment as well as time available for attending to their duties as board members. Decisions about board composition are made to ensure that the boards have sufficient diversity, sector, economic and technological competence, and insight into the relevant geographical markets at their disposal.
The personal characteristics of individual board members play a key role in the dynamics of the board’s work. The election of the chairman of the board calls for particularly careful consideration. The chairman organises and schedules the activities of the board.
Dialogue concerning the company’s strategic issues with the largest owners is also part of the chairman’s role. The preparedness of the chairmen to engage in dialogue with the shareholders is a vital prerequisite of active ownership. Effective cooperation in shareholder value creation secures the best interests of all shareholders and the company.
The role of a board member is demanding, and requires appropriate and competitive compensation. The responsibilities and obligations of board members have increased considerably in the recent years. Therefore, the time spent on board duties has also increased significantly. In most companies, the nomination board prepares a proposal on board remuneration to the Annual General Meeting. Solidium’s principle is to base all decisions concerning remuneration on company-specific assessment and comparison. This assessment covers corresponding listed companies in Finland and also internationally, especially in the Nordic countries.
Active and professional development of nomination board work
In most of Solidium’s portfolio companies, the nomination board prepares the proposal on board member election to the Annual General Meeting. The nomination board usually consists of the company’s largest shareholders and the chairman of the board. It is suitable in companies with large and active shareholders who want to participate in the preparation of board elections in the long term.
Solidium is an active and diligent participant in the work of the nomination boards and the development of nomination board work. In the 2015–2016 financial year, our representatives held the chairman position in seven and were members in four nomination boards. During the financial year, special focus in the nomination board work was placed on assessing the principles concerning diversity in the boards. Our holdings in two Swedish companies provide us with valuable experience in the nomination board work practised in Sweden as well.
Measures have been taken to ensure that the work of the nomination boards is as professional as possible and transparent to all shareholders and other stakeholders. Nomination boards have a charter primarily approved by the Annual General Meeting, and they present the objectives and results of their activities extensively to all shareholders at the Annual General Meeting. When needed, the nomination boards may enlist the help of advisors to map and assess board members. The chairperson and members of nomination boards do not receive compensation.
In companies where no nomination board has been elected, the proposal concerning board member election is usually prepared by a nomination committee composed of board members. Among the companies owned by Solidium, only Sampo currently has a nomination committee for board nominations. Whenever this is the case, Solidium finds it important that the nomination committee takes into account the views of the major shareholders during the preparation and presents its work extensively to all shareholders at the Annual General Meeting.