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CORPORATE GOVERNANCE CODE- ESTONIA

INTRODUCTION:

In November 2004, The Tallinn Stock Exchange and Financial Supervision Authority conducted a round table of so called wise men, during which people associated with various economic sectors came together collectively as a group of experts. The purpose of the roundtable was to point out the principles of corporate governance necessary to be fixed as a matter of good practice from the vantage point of issuers, (minority) shareholders, managers, auditors and other interested parties. The purpose of this roundtable was also to formulate these principles of corporate governance into established Corporate Governance Recommendations.

Presently, the proper and appropriate principles are assembled in these Corporate Governance Recommendations. These Corporate Governance Recommendations are to be carried out primarily by companies whose shares have been admitted to trading on a regulated market operating in Estonia (“Issuers”), except for investment funds registered as public limited companies. Other companies may also choose to comply with these Corporate Governance Recommendations and shareholders and partners of such companies are encouraged to follow these principles upon organizing their management and management control of the company.

The principles described in these Corporate Governance Recommendations are recommended to be carried out by Issuers and each Issuer shall decide whether or not they will adopt these principles as a basis for organizing their management. Issuers shall describe, in accordance with the “Comply or Explain” principle, their management practices in a Corporate Governance Recommendations Report and confirm their compliance or not with the Corporate Governance Recommendations.

The Corporate Governance Recommendations describe conduct, which contributes to better and more transparent way of management and management control of companies:

  • From one side, the Corporate Governance Recommendations must be a model for Issuers to organize their management, above all taking into account the Issuer’s interests, and provide adequate opportunity for investors and other interested parties to supervise the management.
  • From the other side, adherence to Corporate Governance Recommendations contributes to harmonization of disclosure and management requirements of Issuers, which is directed towards equality of treatment of investors and shareholders.

Based on these objectives, the Corporate Governance Recommendations will help structure the work of the management board, supervisory board, general meeting and also the disclosure of information related to the management and management control.

These Corporate Governance Recommendations are prepared on the basis of Estonian legislation, structure of shareholders of Issuers acting in Estonia and taking into account the main problems that arise in company management.

GENERAL MEETING:

  1. Exercise of shareholders rights: Every shareholder shall be ensured the right to participate in the general meeting, to speak in the general meeting on themes presented in the agenda, and to present reasoned questions and make proposals.

    The exercise of shareholders’ rights shall be ensured in such a way that it is not hindered by unreasonable formalities or made inconvenient for shareholders in any other way, meaning above all the time and place of holding the General Meeting, data availability and conducting of the General Meeting.

    A controlling shareholder shall refrain from unreasonably harming the rights of other shareholders, both at the General Meeting and upon organizing the Issuers management, and shall not abuse his position.

    Under the articles of association of the Issuer, it shall not be allowed to grant different types of shares with rights which would result in unequal treatment of shareholders in voting.

    If an Issuer itself or by his employees/representatives organizes the representation of a shareholder at a General Meeting, it shall do so in such a manner that the orders given by the shareholder with regard to voting are executed.

  2. Calling of a General Meeting and information to be published: Notice calling the General Meeting shall be sent to shareholders and/or published in daily national newspaper concurrently with making it available on the Issuer’s website.

    The Issuer shall notify shareholders regarding the calling an Extraordinary General Meeting immediately after deciding to call the General Meeting. The notice shall indicate the reason for calling the Extraordinary Meeting and who made the proposal to call it. Information concerning the Extraordinary Meeting shall be immediately published on Issuer’s website.

    The Management Board and Supervisory Board shall deliver all information available to them or essential information provided to them necessary for passing a resolution at the General Meeting to shareholders concurrently with the notice of calling the General Meeting.

    Issuers shall provide the reasons for calling the General Meeting and explanations for items included on the agenda, determining changes essential to shareholder. If the General Meeting is called by shareholders, the Supervisory Board or auditor or if an item has been entered on the agenda at the request of the Management Board or a shareholder, the bodies or persons requesting the calling of General Meeting or entering an item on the agenda shall provide their reasons and explanations.

    The shareholders shall be permitted to examine information regarding questions shareholders have presented to the Issuer in connection with the holding of the General Meeting if this information is connected with an agenda item of the General Meeting. The Management Board or Supervisory Board has the right to withhold this information, if this is in contravention of the Issuers interests.

    The Management Board shall publish on the Issuer’s website the essential information connected with the agenda provided to it or otherwise available concurrently with compliance with the General Meeting calling requirements provided by law.

    Depending on the General Meeting agenda the essential information shall be deemed the profit distribution proposal, draft articles of association together with an indication of the proposed amendments; essential conditions and agreements or draft contracts issuance of securities or other transactions connected with the company, information regarding candidates for Supervisory Board members or auditors etc.

  3. Procedure of the General Meeting: The Chair of the General Meeting shall ensure that the General Meeting is conducted in a smooth manner. The General Meeting shall be conducted in the Estonian language.

    The Chairman of the Supervisory Board and members of the Management Board cannot be elected as Chair of the General Meeting. Members of the Management Board, the Chairman of the Supervisory Board and if possible, the members of the Supervisory Board and at least one of the auditors shall participate in the General Meeting.

    Issuers shall make participation in the General Meeting possible by means of communication equipment (Internet) if the technical equipment is available and where doing so is not too cost prohibitive for the Issuer. Profit distribution shall be considered in General Meeting as a separate agenda item and a separate resolution shall be passed regarding it.

MANAGEMENT BOARD:

  1. Duties: The Management Board shall make independent day-to-day decision without favoring personal and/or controlling shareholder’s interests. The Management Board shall make decisions based on the best interests of the Issuer and all shareholders and it obliges to ensure reasonable development of the Issuer according to goals and strategy set.

    The Management Board shall use its best efforts to ensure that the Issuer and all companies belonging to Issuer’s group shall comply in their activities with current legislation in force and it undertakes proper risk management and internal audit controls.

    To guarantee proper risk management and internal audit the Management Board shall:

    • analyze risks connected with the purpose of the activities and financial objectives of the Issuer;
    • prepare adequate internal control provisions;
    • elaborate forms for drawing up financial reports and instructions for drawing up these reports;
    • organize the system of control and reporting.
  2. Composition and charge: The Management Board shall have more than one member and a Chairman elected by its members. The Management Board or Supervisory Board shall establish an area of responsibility for each member of the Management Board, defining as clearly as possible the duties and powers of each board member.

    The member of the Management Board shall not be at the same time a member of more than two management boards of an Issuer and shall not be the Chairman of the Supervisory Board of another Issuer. A member of the Management Board can be the Chairman of the Supervisory Board in company belonging to same group as the Issuer.

    Basic wages, performance pay, severance packages, other payable benefits and bonus schemes of a Management Board member as well as their essential features shall be published in clear and unambiguous form on website of the Issuer and in the Corporate Governance Recommendations Report.

  3. Conflict of interests: Members of the Management Board shall avoid conflicts of interests in their activity. Member of the Management Board shall not make decisions on the basis of their own interests or use business offers addressed to Issuer in their own interests. Members of the Management Board shall inform the Supervisory Board and other members of the Management Board regarding the existence of a conflict of interests before the conclusion of a contract of service and immediately upon arising of it later. Members of the Management Board shall promptly inform other Management Board members and the Chairman of the Supervisory Board of any business offer related to business activity of the Issuer made to them, a person close to them or a person connected with them.

    A member of the Management Board shall strictly adhere to the prohibitions of competition prescribed by the Commercial Code and shall promptly inform the Supervisory Board of their intention to engage directly or indirectly in an enterprise in the same field of activity as the Issuer.

    A member of the Management Board or employee of the Issuer shall not demand or take money or other benefits from third parties in connection with their work and shall not provide unlawful or ungrounded advantages to third parties in name of the Issuer.

SUPERVISORY BOARD:

  1. Duties: The duty of the Supervisory Board is to manage internal control of the Management Board activities. The Supervisory Board shall participate in making important decisions relating to the activities of the Issuer. The Supervisory Board shall act independently and in the best interests of the Issuer and all shareholders.

    The Supervisory Board shall determine and regularly review the Issuers strategy, general plan of action, principles of risk management and annual budget. The Supervisory Board shall together with the Management Board ensure long-term planning of the Issuer’s activity. The Chairman of the Management Board shall promptly inform the Chairman of the Supervisory Board of any significant event, which may affect the Issuers development and management.

    The Supervisory Board shall regularly assess the activities of the Management Board and its implementation of the Issuer’s strategy, financial condition, risk management system, the lawfulness of the Management Board activities and whether essential information concerning the Issuer has been communicated to the Supervisory Board and the public as required. Upon the establishment of committees by the Supervisory Board, the Issuer shall publish on its website their existence, duties, membership and position in the organization.

    The Chairman of the Supervisory Board manages the work of the Supervisory Board, determines the agenda of the Supervisory Board meeting, chair meetings, monitor the efficiency of the Supervisory Board’s work, organize the transmission of information to the members of the Supervisory Board, ensure that the Supervisory Board has enough time to prepare for decisions and examine information and represent the Supervisory Board in communications with the Management Board.

  2. Composition and charge: The members of the Supervisory Board shall be elected from persons having sufficient knowledge and experience for participation in the work of the Supervisory Board. Upon the election of a member of the Supervisory Board, the nature of the Supervisory Board’s and the Issuer’s activities, the risks of conflict of interests and if necessary the age of the potential member shall be taken into account.

    At least half of the members of the Supervisory Board of the Issuer shall be independent. If the Supervisory Board has an odd number of members, then there may be one independent member less than the number dependent members. An independent member is a person, who has no such business, family or other ties with the Issuer, a company controlled by the Issuer, a controlling shareholder of the Issuer, a company belonging to the Issuer’s group or a member of a directing body of these companies, that can affect their decisions by the existence of conflict of interests.

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