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CORPORATE GOVERNANCE AT PONSSE OYJ

Group Structure

The Ponsse Group designs, manufactures, markets and services environmentally friendly and efficient forest machines based on the cut-to-length method and information technology related to wood harvesting. The Ponsse Group includes the parent company Ponsse Oyj and its wholly-owned subsidiaries Ponsse AB, Sweden; Ponsse AS, Norway; Ponssé S.A.S. France; Ponsse UK Ltd., Great Britain, Ponsse North America, Inc., the United States of America; Ponsse Latin America Ltda, Brazil; OOO Ponsse Russia;  Ponsse Asia Pacific Ltd, Hongkong; Ponsse China Ltd, China; Ponsse Uruguay S.A., Uruguay and Epec Oy, Seinäjoki, Finland. In addition, the Group includes Sunit Oy, located in Kajaani, Finland, which is Ponsse Oyj’s associated company with a holding of 34 per cent.

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Applicable legislation and other provisions

Ponsse Oyj (hereinafter “the Company”) is a Finnish public limited company. Its decision-making and administration are governed by the Finnish Companies Act, other provisions governing listed companies and Ponsse Oyj’s Articles of Association. In addition, the Company complies with the Recommendation for the corporate governance of listed companies issued in 2003.

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General Meeting


The highest decision-making body of the Company is the general meeting, whose duties and procedures are defined in the Finnish Companies Act and the Company’s Articles of Association. The general meeting is responsible for, e.g., making decisions on amending the Articles of Association, on increasing and decreasing share capital, on granting stock options and electing the Board of Directors and auditors.

The Annual General Meeting shall be held each year before the end of June on a date to be specified by the Board of Directors. At the Annual General Meeting, the Company’s financial statements and the consolidated financial statements shall be presented; the adoption of the profit and loss account, the balance sheet, the consolidated profit and loss account and the consolidated balance sheet, and dividends or actions warranted by the profit or loss shown in the adopted profit and loss account shall be decided on; and the discharge of liability of the Board of Directors and the President and CEO shall be decided on. In addition, the Annual General Meeting decides on the number of and the remuneration for Board members, the auditor’s fee and the compensation for travel expenses. The Annual General Meeting also elects the members of the Board of Directors and the auditor.

Shareholders are entitled to submit matters for consideration by the general meeting by notifying the Board of Directors thereof in writing well enough in advance so that the matter can be included in the notice of the meeting. Proposals on matters involving the election of Board members and auditors, and other proposals submitted by the Board to the general meeting may be countered at the meeting as each point on the agenda is being dealt with. Voting takes place in accordance with the voting procedure adopted by the meeting and all shareholders present at the meeting are entitled to vote.

In order to attend a general meeting, shareholders must inform the Company of their intention to do so by the date given in the notice. The given date may be no earlier than five (5) days prior to the meeting.

All shareholders who are entered as such in the Company’s shareholder register kept by the Finnish Central Securities Depository ten (10) days prior to the meeting are entitled to attend the general meeting.

Holders of nominee-registered shares may be temporarily entered in the shareholder register for the purpose of attending a general meeting. Shareholders may exercise their rights at the meeting either in person or through a representative, in addition to which they are entitled to avail themselves of counsel at the meeting.

Extraordinary meetings of shareholders shall be convened whenever the Board deems it necessary. Likewise, an extraordinary meeting of shareholders shall be convened for the purpose of dealing with a matter specified by them if the auditor or shareholders holding at least one-tenth of all shares issued so request in writing.

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Board of Directors

A Board of Directors consisting of no fewer than five and no more than eight members is responsible for the proper organisation of the Company’s administration and operations. The Annual General Meeting elects Board members for a term of office expiring at the end of the Annual General Meeting following their election. The Board elects a Chairman and a Deputy Chairman from among themselves. In 2007 the Company’s Board of Directors consisted of six members.

Persons elected to the Board of Directors shall have the necessary competence for their duties. Members shall be elected to represent a diverse range of expertise as well as the viewpoint of the Company’s owners. Under the Articles of Association, no upper age limit applies to Board members.
The majority of Board members shall be independent of the Company, in addition to which no fewer than two of the Board members belonging to the above-mentioned majority shall be independent of any of the Company’s major shareholders. Board members shall submit sufficient information to assess their competence and independence, and report any changes in such information. Notice of independence is given in the Annual Report and on the Company’s website.
The Board of Directors considers Board members Maarit Aarni-Sirviö,  Nils Hagman, Ilkka Kylävainio and Seppo Remes to be independent of the Company and its major shareholders.
The Board members are presented in the Annual Report and on the Company’s website at www.ponsse.com.
The Annual General Meeting held on 12 April 2007 decided that the annual remuneration payable to members of the Board of Directors should be EUR 32,000. No remuneration is paid to members in the employment of the Company, with the exception of the Chairman of the Board. In 2007 the Board held eight meetings, four of which were telephone meetings. The average attendance rate of Board members was 95.8 per cent.
If shareholders controlling more than 10 per cent of the Company’s voting rights should notify the Company’s Board of Directors of their proposal on the number and identity of Board members and the identity of the auditor, which matters shall be decided on at the Annual General Meeting, this information shall be noted in the notice of the meeting. Any proposals on candidates made after the notice of the meeting has been published shall be made public separately.
In addition to the duties specified in the Companies Act and the Articles of Association, the Board is responsible for the Company’s operations, result and development, confirms the long-term strategy and the Group’s financial risk management policy, approves the budget and decides on corporate acquisitions and property deals, strategically important business expansions, equity-based investments, the development of investments and significant investments. The Board appoints the Company’s President and CEO and confirms the appointments of other Management Team members, decides on the grounds for remuneration payable to highest management and evaluates the activities of management on an annual basis.


The President and CEO or his/her nominee, who shall be a Company executive, shall present matters at meetings of the Board of Directors.

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Committees of the Board of Directors

Duties and responsibilities have not been specifically divided among members and the Chairman of the Board of Directors, nor has the Board appointed any specific working groups or committees.

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President and CEO and the management team

The President and CEO is appointed by the Board of Directors. The President and CEO manages the Company’s day-to-day business affairs in accordance with the guidelines and instructions issued by the Board of Directors. His duties include, e.g., operational management, informing the Board, presenting matters over which the Board has the power of decision, implementing the decisions of the Board and ensuring the legality of the business operations. The President and CEO is assisted by a Management Team consisting of the President and CEO as Chairman and the executives appointed to the Team by the Board of Directors. The Management Team meets approximately once a month and also convenes whenever necessary to address, e.g., business plans for the following year and strategy in the longer term.

Each member of the Management Team is responsible for a distinct sphere of operations based on focal Company functions. Management Team members report to the President and CEO. Each member’s areas of responsibility are noted in more detail in the Annual Report.

Under the agreement concluded between the Company and its President and CEO, both parties may terminate the agreement with six (6) months’ notice. Should the Company terminate the agreement, it shall pay the President and CEO a sum equal to 12 months’ salary in addition to salary and other benefits accruing during the period of notice.

The President’s and CEO’s retirement age is 65 years and pension is set in accordance with the legislation in force.

Arto Tiitinen, MBA, has acted as President and CEO from 1 April 2004 to 31 May 2008. In 2007 he was paid a salary and other benefits of EUR 226 671,60. Juho Nummela, Dr. Tech., has acted as President and CEO since 1 June 2008.

The Company’s Management Team consists of the following members: Juho Nummela, President and CEO, who is also Chairman; Pasi Arajärvi, Director of Purchasing and Logistics; Hannu Kivelä, Director for Strategy and Customer Co-operation; Jari Mononen, Communications Director; Juhani Mäkynen, Service Director;  Juha Haverinen, Factory Director; Paula Oksman, Director Human Resources and Principal of Ponsse Academy; Mikko Paananen, CFO; Seppo Taatila, Technology and R&D Director; and Jarmo Vidgrén, CEO’s deputy and Group Sales and Marketing Director. The Company management has regular directors’ and officers’ liability insurance.

The Group’s Management Team members are presented in the Annual Report and on the Company’s website at www.ponsse.com.
The Board of Directors of Ponsse Plc has approved a new share-based incentive plan for the Ponsse Group key personnel.
The earning period of the Plan commenced on 1 January 2008 and will end on 31 December 2010. The Board of Directors will decide on the commencement of a new earning period. The potential reward from the Plan for the earning period 2008—2010 will be based on the dividend adjusted price of the Company’s share, on the Group’s cash flow and on the turnover of the after-sale services.

The potential reward from the earning period 2008—2010 will be paid partly as the Company’s shares and partly in cash in 2011. The proportion to be paid in cash will cover taxes and tax-related costs arising from the reward. It is prohibited to transfer the shares within a two year restriction period. If a key person’s employment or service ends during the restriction period, he/she must gratuitously return the shares paid as reward to the Company.
The Plan is directed to approximately 20 people. The rewards to be paid on the basis of the Plan will correspond to the value of a maximum total of 120,000 Ponsse Plc shares (including also the proportion to be paid in cash).
The Company has no option schemes or other share-based incentive systems in place. The Company management is covered by a bonus system based on the Company’s operational targets. In 2007 bonuses paid to the management and other staff were EUR 0.8 million in the parent company and EUR 1,1 million in the group.

As necessary, the Management Team monitors and revises the Company’s internal principles and procedures,  which involve, e.g., reporting, financial administration, investments, risk management, insurance policies, information systems, general procurement, industrial property rights, management of contractual risks, human resources administration, quality management issues, environmental issues, occupational safety and health, insider guidelines and communications.

Insiders and insider management

The Board of Directors has adopted insider guidelines that comply with the insider regulations of the OMX Nordic Exchange Helsinki that entered into force on 1 January 2006. Pursuant to the Securities Markets Act, Board members, the President and CEO, and his/her deputy, as well as the auditors, are considered permanent insiders due to their position in the Company. In addition to these, pursuant to a decision taken by the Company, the members of the Management Team and specifically named persons, who, by virtue of their duties, regularly deal with non-public information having an impact on the value of the Company’s share are also considered permanent insiders. Even though a person is not an insider, he/she may be temporarily entered in a project-specific insider register, which the Company may employ in extensive or otherwise significant projects. Insiders may not trade in the Company’s shares during a period of two (2) weeks prior to the publication of the Company’s Annual Report or interim report. A stock exchange bulletin is issued annually to notify the publication dates of these reports in advance.

The shareholding of insiders is available for inspection at the insider register maintained by the Finnish Central Securities Depository. Information on the shareholding of permanent insiders may be viewed on the Company’s website and the office of the Finnish Central Securities Depository at Urho Kekkosen katu 5 C, Helsinki, Finland. Insiders are obliged to inform the person in charge of managing insider matters within the Company of any changes in the information entered in the insider register without delay.



Alkuun

Audits and internal supervision

The primary purpose of statutory audits is to verify that the financial statements give a true and fair view of the Group’s result and financial position for the financial period. Ponsse Oyj’s financial period is the calendar year.
The auditor is responsible for auditing the Company’s accounts and financial statement to verify that they are free of material misstatement. The auditor shall also submit a report on the audit performed to the general meeting. In addition, under Finnish law, the auditor also audits the company’s corporate governance for compliance with relevant legislation. Normally, the auditor reports to the Board of Directors once a year.
The Company has one auditor, which shall be a public accounting firm authorised by the Central Chamber of Commerce. The auditor is elected by the Annual General Meeting  for a term of office that expires at the end of the Annual General Meeting following election.
The auditing procedures of the foreign subsidiaries within the Ponsse Group have been organised in the manner required by each country’s legislation and other regulations. In 2007, Ernst & Young Oy acted as the Company’s auditor, with Eero Huusko, Authorised Public Accountant, as the principal auditor.
In 2007 the Group’s auditing costs amounted to EUR 155,641.

Internal supervision

The methods of internal supervision include internal guidelines, reporting and various technical systems related to activities. An internal auditor is responsible for the company's internal supervision in practice, and he/she reports to the Board of Directors.

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Shareholder agreements

The Company is not aware of its shareholders having entered into shareholder agreements.

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Dividend policy

The Company has adopted a dividend policy whereby dividends are paid in accordance with the Company’s long-term performance and capital requirements.

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Redemption obligation clause

Under Article 14 of the Company’s Articles of Association, a shareholder who, either alone or jointly with other shareholders, acquires a holding that is equal to or exceeds either 33 1/3 per cent or 50 per cent of all the Company’s shares or the votes conferred by the shares, is, on request, obliged to redeem the shares of other shareholders and other securities entitling thereto under the Companies Act, subject to the more detailed terms and conditions provided in Article 14 of the Articles of Association.

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Risk management

The Group’s risk management policy seeks to maintain and further develop a practical and comprehensive system for the management and reporting of risks. This entails systematic risk assessment for each function and unit, heightening risk management awareness and quality, disseminating information on best practices and supporting risk management projects involving more than one Company function.

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