Our point of view

Nordic Market Newsletter 5/2012

19 June 2012


Trends of the Finnish AGM-season 2012

Spring is turning into summer and almost all Finnish listed companies have held their annual general meetings for 2012. The following data is based on the documentation from the AGM:s of the 42 largest companies (by market value) on the Nasdaq OMX Helsinki Stock Exchange.


According to the Finnish Corporate Governance Code, a public company shall disclose the remuneration and other financial benefits of each board member for board and committee work. The annual general meeting shall also resolve on the compensation for board members. The AGM:s of 11 of the 42 companies mentioned resolved on an increase in the remuneration of the board members. The increases were between 5 and 32 %, making the average compensation of a board member EUR 45.850 in 2012 (being EUR 44.750 in 2011). The average compensation of the chairmen likewise increased a bit, being EUR 99.000 in 2012 (EUR 97.400 in 2011). Some companies also pay separate compensation for meeting attendance; the average compensation among these companies is approximately EUR 600 for board members and approximately EUR 700 for chairmen. Many companies also pay higher meeting compensation to board members residing abroad, although travel expenses are often reimbursed according to company policy.

As shareholdings of board members are deemed to align the interests of the board and the shareholders, it has become common that a part of the remuneration of the board comprises shares of the company. In more the majority of the abovementioned companies, 10 to 50 percent (on average 40 percent) of a board member’s yearly remuneration is paid in shares. Some companies have set lock-ups for the shares obtained as compensation by board members, and it is quite common that the required period of ownership corresponds to the term of office of the board member.

Composition of the board of directors

The average composition of a board in a Finnish listed company looks as follows in 2012: The board consists of 8 members, of which 2 are women and 2 are non-Finnish citizens and it convenes 13 times per year to board meetings (including telephonic meetings). The board members also work in committees, of which there are 2 on average. These figures have seen no significant changes during the last three years, even though a slight increase in the figures may be seen in the number of women as board members and in the number of board meetings held.


The annual general meeting shall resolve on buy-backs of the companies own shares and on issuing new shares. The AGM may also grant authorisations to the board of directors to decide upon these matters.

A public limited company may not itself or through a subsidiary own more than 10 % of its own shares. This, as well as a statutory time limit of 18 months, limits the authorisation which may be granted by the AGM for share buy-backs. Nevertheless, these authorisations have been popular among listed companies, and out of the 2012 AGM:s of the 42 largest companies, 32 resolved on a buy-back authorisation, which on average concerned 7 % of the shares of the company.

Among the 42 largest companies, 24 resolved on share issue authorisations in 2012. There are no statutory limits on the maximum number of shares that the board may be authorized to issue, although the maximum duration for these authorisations is five years. On average, the authorisations concerned 12 % of the existing shares of the companies, and the authorisations were granted on average for 28 months.

Nomination boards and nomination committees

The Corporate Governance Code of 2010 recognizes the AGM’s authority to resolve on establishing a nomination board consisting of shareholders or representatives of shareholders in order to prepare the election of directors. Prior to the amendment to the governance code, the only recognized way to prepare the nominations to be put forward to the AGM was through a nomination committee, i.e. an internal committee of the board consisting of board members only.

Typically the external nomination board consists of representatives for the 3-4 biggest shareholders and the chairman of the board of directors as an expert member. A nomination board may be established for a certain period of time or until further notice, although one year periods have in the past been typical. This year a trend of establishing nomination boards until further notice could be seen, as 12 of the 42 companies resolved on establishing a nomination board and 7 of these were established for a one year period and 5 of these were established until further notice.


New market regulations

The Swedish Financial Supervisory Authority (FI) proposes amendments in order to clarify the situations when a prospectus may be made in a language other than Swedish. The proposal means that the practice of FI in matters concerning exemptions to the use of language will be governed in regulations, which will increase the predictability of when issuers may use English instead of Swedish. FI is also proposing that the rules governing languages for the publisher’s current information shall be amended so that similar rules apply to prospectuses and ongoing information. The amendments are proposed to become effective on 1 July 2012.

The Swedish Securities Council

The Swedish Securities Council has issued two statements, one concerning the interpretation of the takeover rules and another concerning the exemption from the mandatory bid obligation regarding shareholders domiciled outside the EEA.

  • In statement 2012:14 (Metro), Kinnevik’s follow up-offer for Metro International S.A was not considered to be a public takeover bid pursuant to the Swedish Stock Market Takeover Bids Act and the NASDAQ OMX Stockholm Takeover Rules. The Stock Market Act and the Takeover Rules were not applicable since Metro’s shares had been delisted from the NASDAQ OMX Stockholm market on 2 May 2012, on Metro’s request, and were therefore not tradable when the bid offer was made by Kinnevik. The delisting had been granted on the condition that Kinnevik would notify all Metro’s shareholders that they could transfer their holdings to Kinnevik.
  • In statement 2012:15 (Brinova), an exemption was granted from the mandatory bid obligation regarding shareholders domiciled outside the EEA. When a takeover bid is voluntary, the bidder may exclude to address the bid to shareholders domiciled outside the EEA, if certain conditions are fulfilled. Such conditions are that the shareholders only hold an insignificant amount of shares in the company (less than 3%) and that the shares are not traded on a local stock exchange market. An exemption was granted in this case since these conditions were fulfilled.

NASDAQ OMX Stockholm Disciplinary Committee


Banking & Finance

The European parliament has adopted the regulation on central cleaning of OTC derivatives

On 29 March 2012, the regulation on OTC Derivatives, Central Counterparties and Trade Repositories – also known as the European Market Infrastructure Regulation (“EMIR”) – was adopted by the European Parliament. EMIR’s objectives are to increase transparency and reduce counterparty credit risk and operational risk in the OTC derivatives market.

In relation to transparency, EMIR entails that information on OTC derivative contracts entered into by financial institutions and certain non-financial institutions must be provided to trade repositories and supervisory authorities.

In relation to counterparty credit risk, EMIR introduces (i) an authorisation regime and prudential, organisational and conduct of business standards for central counterparties (“CCP”), (ii) mandatory CCP-clearing for standardised OTC derivative contracts and (iii) risk mitigation standards for OTC derivative contracts which are not cleared via a CCP.

In relation to operational risk, EMIR introduces systems for the handling and confirmation of OTC derivative contracts and their terms.

EMIR will therefore introduce significant changes to the OTC derivatives market, and the most significant change will probably be the obligation for financial and certain non-financial institutions to clear standardised OTC derivative contracts which (i) a CCP has been authorised to clear and which ESMA finds shall be cleared or (ii) ESMA has declared subject to the clearing obligation. The clearing process entails that the OTC derivative contract will be replaced with back-to-back contracts with the CCP as the central counterparty.

To fulfil the clearing obligation, parties must either (i) be direct members of a CCP, (ii) be customers of clearing members or (iii) enter into an indirect clearing arrangement through a clearing member. Direct membership will, due to the strict and significant member requirements, be limited to a few Danish institutions.

Currently, ESMA is drafting the technical standards for the implementation of EMIR.

EMIR is to be adopted by the Council which is expected to happen during the year of 2012.

A new reporting requirement for financial institutions engaging in cross-border activities in third countries

A new provision in the Danish Financial Business Act now requires Danish financial institutions to notify the Danish Financial Supervisory Authority (the “DFSA”) if they wish to carry out substantial activities in (i) countries outside the EU or in (ii) countries which the EU does not have agreements with within the financial field (collectively “Third Countries”).

The financial institutions will be obligated to disclose in which countries the activities will be carried out and what the activities consist of. The obligation only applies when the activity is substantial, and the financial institutions must notify the DFSA no later than one month prior to the beginning of the activities. Whether or not an activity is substantial will depend on an individual assessment. It does not entail an obligation to notify the DFSA regarding specific client relationships. However, active marketing in Third Countries will trigger the notification requirement.

The notification obligation also applies if the financial institution makes any subsequent changes in the activities.

Capital Markets

Danish public companies fail to comply with prospectus regulation

The Danish Financial Supervisory Authority (“DFSA”) has reported a number of Danish listed companies to the police due to a violation of the requirement in the Danish Securities Act to prepare and publish a prospectus when offering a public subscription of shares. All the companies that were reported had published the offer on their website, which the Danish FSA interpreted as an offer to an unlimited amount of people and consequently an offer to the public. Thus, if an offer to subscribe for shares is publish at the company website, and the value of the offer exceeds the limits under which a prospectus is required, the offer would, according to the Danish DFSA, require a publication of a prospectus.

New versions of the Danish Prospectus Orders are currently in a consultation process. The proposed version of the "Small Prospectus Order" allows issuance of shares of up to a total value of EUR 500,000 to 150 persons without publishing a prospectus which is a significant increase compared to the current EUR 100,000 and 100 persons limit. Further, it is proposed that an offer to subscribe for shares with a minimum value of EUR 100,000 per share, which is a twofold increase from the current EUR 50,000 limit, should be excluded from the prospectus duty. The consultation process ended in May and the Orders are scheduled to come into force on 1 July 2012.


Amendments to the Danish Holidays Act

On 28 April 2012 the Danish Parliament passed an act (The Act) amending the Danish Holidays Act. The Act introduces a right for employees to claim compensatory vacation in the event that the employee becomes ill for more than five days during his or her vacation. The employee has to provide a medical statement in order to obtain such a right. Further the employee is required to report the illness to the employer and the right to compensatory vacation is calculated from the date of notification. It is not a requirement that the five days of illness are continuous; separate days may be calculated provided that the employee has reported the illness to the employer on each occasion. The employee must assume his or her work when no-longer ill unless otherwise agreed with the employer regardless of the length of the agreed vacation.

Secondly the Act stipulates that highly compensated employees subject to the favorable taxation scheme under sections 48 E and 48 F of the Danish Source Tax Act can enter into an agreement with their employer to the effect that holidays are held within the same year as the holidays are accrued, the so-called concurrent holidays. This implies that such employees are not subject to the general principles of the Holidays Act according to which holidays are accrued during the calendar year to be taken during the forthcoming period from 1 May to 30 April (the holiday year).

The Act entered into force on 1 May 2012 and the amendments thus apply to any vacation taken during the holiday year 1 May 2012 to 30 April 2013.


The Nordic Consumer Ombudsmen publish standpoint on social media marketing

On 3 May 2012, the Consumer Ombudsmen of Sweden, Denmark, Norway, Finland, Iceland and the Faroe Island published a collective position paper on social media marketing, offering traders insight into the Nordic Consumer Ombudsmen’s interpretation of the law in relation to social media marketing.

The Nordic Consumer Ombudsmen have agreed upon a joint position on the interpretation of the marketing rules that applies to all social media, including Facebook, Twitter and LinkedIn with special emphasis on the lack of opportunities for users to avoid the advertisement that other users are encouraged to share.

For some social media messages prior consent from the user is required, for others users must be allowed to opt out of receiving the unsolicited messages based on different criteria. Furthermore, the Ombudsmen stress that users must at all times be able to easily identify whether they are being exposed to marketing material. If a trader is paying a private person to promote the traders products, this must be made clear in the marketing material. In addition all banner advertisements must comply with ordinary legislative requirements and thus not be misleading.

Furthermore, the Ombudsmen have stressed that that the rules regarding marketing towards children are in effect on the social media, and that traders are not allowed to directly exhort children to buy their products. Business should be very aware hereof and the businesses using Facebook as a trade platform are at all times liable for ensuring that all national marketing rules are complied with.


Proposal for 2012 Tax Reform

On 29 May 2012 Danish Prime Minister Helle Thorning Schmidt presented the Tax Reform 2012. According to the Danish Government, the purpose of the tax reform is to boost economic growth and to create more jobs. The reform aims to achieve a quicker recovery from the financial crisis and aims at solving the long-term challenges for the Danish economy.

The main effects of the tax reform for the corporate sector:

The main effects of tax reform for individuals:

The Government, a minority centre left coalition, will now proceed to negotiations with the other parties to adopt the tax reform. Based on indication from the other parties, it is uncertain whether the reform will receive support from parties representing a majority.

  • In decision 2012:3 (Transcom), the NASDAQ OMX Stockholm Disciplinary Committee ruled that Transcom had violated the rules on information disclosure in the Exchange’s Rule Book for Issuers. On 6 July 2011, in a case regarding tax, an Italian court ruled against Transcom. Transcom appealed the ruling but did not disclose information about the court’s decision until 12 October 2011. The Disciplinary Committee stated that Transcom had violated section 3.1.1 of the Rule Book by not informing the market about the decision in due time. The Disciplinary Committee required Transcom to pay a fine equivalent to three times its annual fee to the exchange.
  • In decision 2012:4 (Morgan Stanley), the NASDAQ OMX Stockholm Disciplinary Committee ruled that Morgan Stanley had violated the NASDAQ OMX Nordic Member Rules, and ordered the company to pay a fine of SEK 400.000. On 30 November 2011, Morgan Stanley submitted large numbers of orders and executed substantial numbers of trades in shares. The trading pattern was unusual and was immediately observed by the exchange’s Trading Surveillance, which unsuccessfully tried to get in touch with the person in charge at Morgan Stanley. The Disciplinary Committee stated that Morgan Stanley had violated the Member Rules by not meeting the requirements regarding Direct Market Access. Although Morgan Stanley was able to discover and abort the trading, they did not have the technical and administrative arrangements in place to prevent the incident.
    • Increased tax depreciations for companies investing in the remainder of 2012 and 2013. The tax reform provides for a so-called investment window for business enterprises for the remainder of 2012 and 2013. During this period, Danish companies will be able to write off 115 percent of their investments.
    • The Government proposes to increase taxes on the financial sector, affecting banks, pension funds and insurance companies, among others. More specifically, it is proposed to increase the payroll tax (a levy on companies exempted from paying VAT), from 10.5 percent to 12.3 percent.
    • Improvement of the participation exemption. It is proposed to abolish the taxation of capital gains on non-listed shareholdings below 10 percent which are held by individuals engaged in running the business of the company. There are no plans to reduce the dividend taxation of such shares.
    • The Government will lower the interest relief starting in 2017. The proposal will affect home-owners with high mortgages.
    • The working tax credit will be increased gradually to 10.65 percent in 2020. Single parents will receive the triple of the amount.
    • The threshold for top bracket tax will be raised from DKK 389,000 to DKK 467,000. The top bracket tax results in an unchanged marginal tax rate of 56 percent.
    • The ceiling for travel allowance will be reduced from DKK 50,000 to DKK 25,000. This will make it less attractive for individuals residing abroad to take low-paid work in Denmark for shorter periods.
    • Taxation of free company car will be increased.