Good Corporate Governance Practice
Corporate Governance Report
The Corporate Governance (CG) is a set of guidelines and recommended rules prepared by Estonian Financial Supervision and Resolution Authority, which is intended to be observed mainly by publicly traded companies. Tallinna Kaubamaja Group follows largely the Corporate Governance Code despite their indicative nature. Below is a description of the management principles of Tallinna Kaubamaja Group and general meetings held in 2021 and justification is given in the events when some clauses of the Code are not followed.
Exercise of shareholders’ rights
The general meeting of shareholders is the highest governing body of Tallinna Kaubamaja Group. The annual general meeting is held once a year and extraordinary general meetings may be convened by the Management Board in the events prescribed by law. The general meeting is competent to change the articles of association and share capital, elect members of the Supervisory Board and decide on their remuneration, appoint an auditor, approve the annual report and allocate profit, as well as decide on other matters stipulated by the articles of association and laws.
Convening the general meeting and disclosures
Tallinna Kaubamaja Group published a notice convening the general meeting through information system of the Nasdaq Tallinn Stock Exchange as well as on its website on 22 February 2021 and through a daily newspaper Eesti Päevaleht on 23 February 2021. The Group enabled its shareholders to ask questions on the topics specified in the agenda by using the e-mail address and phone specified in the notice, and examines the annual report on its website and in its office at Kaubamaja 1, Tallinn, starting from 23 February 2021.
The general meeting of shareholders of Tallinna Kaubamaja Group was held in the conference centre of Radisson Blu Hotel Olümpia, Liivalaia tänav 33, Tallinn, on 19 March 2021 beginning at 11am. The resolutions made at the general meeting are published in the press releases on the website of NASDAQ Tallinn Stock Exchange and on the website of Tallinna Kaubamaja Group.
Holding of the general meeting
A general meeting can adopt resolutions if over one-half of the votes represented by shares are present. A resolution of general meeting is adopted if over one-half of the votes represented at the meeting are in favour unless a larger majority is required by law.
The general meeting of Tallinna Kaubamaja Group must take part in person and, in accordance with the articles of association, the general meeting may adopt resolutions if the general meeting is attended by shareholders who hold more than half of the votes represented by shares. At the general meeting held on 19 March 2021, shareholders were able, in order to exercise their shareholder’s rights, to forward their vote to the public limited company before the general meeting, at least in a format which could be reproduced in writing or with a digitally signed ballot delivered by e-mail.
The language of the general meeting held in 2021 was Estonian and the meeting was chaired by the general counsel of the Tallinna Kaubamaja Group Helen Tulve. The meeting could also be heard through a webinar. The meeting was attended by Management Board member Raul Puusepp and all members of the Supervisory Board took part in the meeting through the webinar (Jüri Käo, Enn Kunila, Andres Järving, Gunnar Kraft and Meelis Milder). Annemar Neiland and Rando Rand, auditors of the AS
PricewaterhouseCoopers, also participated. 71.36% of the votes represented by shares were present at the general meeting. At the general meeting, allocation of profit was discussed as a separate topic and a separate resolution was adopted with regard to it.
Considering the aforementioned descriptions of general meetings held in 2021, the Group has largely complied with the Corporate Governance Code in informing the shareholders, convening and holding the general meeting.
The Management Board is a governing body of Tallinna Kaubamaja Group that represents and directs the Group on a daily basis. In accordance with the articles of association, the Management Board may have one to six members. In accordance with the Commercial Code, members of the Management Board of Tallinna Kaubamaja Grupp AS are elected by the Supervisory Board. The member of the Management Board of Tallinna Kaubamaja Group is selected on the basis of gender neutrality and evaluating the actual competence of the persons. In order to elect a member of the Management Board, his or her consent is required. According to the articles of association, a member of the Management Board shall be elected for a specified term of up to three years. Extension of the term of office of a member of the Management Board shall not be decided earlier than one year before the planned date of expiry of the term of office, and not for a period longer than the maximum term of office prescribed by the articles of association. Currently, the Management Board of Tallinna Kaubamaja Grupp AS has one member. The term of office of the Management Board member Raul Puusepp was extended on 21 February 2020 and his term of office will expire on 6 March 2023.
The duties and remuneration of the Chairman of the Management Board Raul Puusepp are specified in the board member contract concluded with the Chairman. In accordance with the contract, the Chairman of the Management Board is paid a membership fee and he may receive performance pay once in a year accordance with the specific, comparable and predefined objectives of the Group’s economic results for the previous year. The Management Board member of the Group has no additional bonuses or benefits. In 2021, the total remuneration of the Chairman of the Board (gross fee, on accrual basis) amounted to 271 thousand euros (in 2020 223 thousand euros), including calculated performance fees (gross fee, on accrual basis) of 163 thousand euros (in 2020 122 thousand euros). The issuer’s costs include, in addition to accrual-based charges, the social tax costs according to the rate established by law. A more detailed overview of the remuneration paid in accordance with the remuneration principles of the issuer’s manager is available in the remuneration report.
Unlike clause 2.2.1 of the Corporate Governance Code, the Management Board of Group consists of one member. It is a historical tradition, but besides to the member of the Management board, the management team of the Group includes, a CFO, Legal Director, IT Director and Marketing Director. All the important resolutions are adopted by the Management Board and the management team in collaboration with the Supervisory Board of the company. Under the direction of the Tallinna Kaubamaja Grupp, close cooperation is carried out with the leaders of subsidiaries and the people responsible for respective areas. The Group believes that such a division protects the best the interests of all shareholders and ensures sustainability of the Group.
Significant transactions with the Group that are concluded with a member of the Management Board, or a person close to or related to him or her are decided and determined by the Group’s Supervisory Board. No such transactions occurred in 2021 and 2020. There were also no conflicts of interest during these periods.
The Supervisory Board plans the activities of Group, organises its management and supervises the activities of the Management Board in the period between the meetings of shareholders. The Supervisory Board notifies the general meeting of the result of such supervision. The Supervisory Board decides on the development strategy and investment policy of the Group, conclusion of real estate transactions, adoption of the investment budget and annual budget prepared by the Management Board. The meetings of the Supervisory Board are regularly held and additionally extraordinary if necessary, but not less than once every three months.
In 2021, 12 scheduled meetings and 2 extraordinary meetings of the Supervisory Board were held and in 2020, 12 scheduled meetings and 1 extraordinary meeting was held. In 2021, all members of the Supervisory Board attended all meetings of the Supervisory Board.
The Supervisory Board has three to six members according to the resolution of the general meeting and the member is elected for up to three years. The work of the Supervisory Board is organised by the Chairman of the Supervisory Board.
By the resolution of the general meeting held on 19 March 2021, Andres Järving, Jüri Käo, Enn Kunila, Meelis Milder (an independent Supervisory Board Member) and Gunnar Kraft (an independent Supervisory Board Member) were elected as the members of the Supervisory Board. Authorities of the current members of the Supervisory Board will expire on 19 May 2024. By the decision of the Supervisory Board, Jüri Käo continued as the Chairman of the Supervisory Board, he has been a member of the Supervisory Board of Tallinna Kaubamaja Group from 1997 and has been a Chairman of the Supervisory Board continuously since 2009. He has also been a Chairman of the Supervisory Board in 2000-2001.
Members of the Group’s Supervisory Board Andres Järving, Jüri Käo and Enn Kunila are members of the Management Board of the shareholder OÜ NG Investeeringud, which holds a significant stake in the Group. The independent members of the Supervisory Board are Meelis Milder and Gunnar Kraft, which do not have any commercial, family or other links with the Group, the company controlled by it, the controlling shareholder of the Group, the company belonging to its Group or the members of the management bodies of those companies which could influence their decisions due to a conflict of interest. Meelis Milder is a member of the Group’s Supervisory Board since 1997 and Gunnar Kraft since 2004, so these persons do not fully meet the independence characteristics set out in the Estonian Financial Supervision and Resolution Authority’s guide, but the Group highly values the contribution and knowledge of both Supervisory Board members. According to the Group, the long-term participation of the members of the Supervisory Board as a member of the Supervisory Board does not affect their independence but, on the contrary, their competence is enhanced.
According to the decision of the annual general meeting held on 19 March 2021, the monthly remuneration of the Supervisory Board member of Tallinna Kaubamaja Grupp AS is 2,000 euros; the Chairman of the Supervisory Board receives 2,400 euros monthly. In 2021, the remuneration of the members of the Supervisory Board of Tallinna Kaubamaja Group in the total amount of 125 thousand euros has been calculated, including 29 thousand euros for the Chairman of the Supervisory Board (121 thousand euros in 2020, including 28 thousand euros for the Chairman of the Supervisory Board). The issuer’s costs include, in addition to accrual-based charges, the social tax costs according to the rate established by law.
Cooperation between the Management Board and Supervisory Board
The Management Board and Supervisory Board closely collaborate to achieve the purpose of better protection of the interests of Tallinna Kaubamaja Group. The Management Board, the management team and the Supervisory Board jointly participate in development of the strategy of the Group. In making management decisions, the Management Board and the management team are guided by the strategic instructions supplied by the Supervisory Board.
The Management Board regularly notifies the Supervisory Board of any important circumstances concerning the planning and business activities of the Group’s activities, and separately draws attention to any important changes in the business activities of Tallinna Kaubamaja Group. The Management Board submits the information, including financial statements to the Supervisory Board, in advance before the holding of a meeting of the Supervisory Board. Management of the Group shall be based on the legislation, articles of association, resolutions of meetings of shareholders and Supervisory Board, and the set objectives.
As far as the Group is aware, there are no shareholder arrangements for the coordinated accomplishment of shareholder rights.
Changes in Articles of Association
Amendments to the articles of association shall be made in accordance with the Commercial Code, under which a resolution on amending the articles of association is adopted if at least 2/3 of the votes represented at a general meeting of shareholders are in favour, unless a larger majority is required by articles of association. The articles of association of Tallinna Kaubamaja Grupp AS do not provide for a larger majority requirement. A resolution on amending the articles of association shall enter into force as of the making of a respective entry in the commercial register.
Shareholders with a significant shareholding
As of 31.12.2021 the share capital of Tallinna Kaubamaja Group in amount of 16,292 thousand euros consists of 40,729,200 registered shares, each with the nominal value of 0.40 euros. All issued shares have been paid.
The shareholder with a significant shareholding is OÜ NG Investeeringud owning 67.0% of the Group’s shares.
Shares granting special rights to their owners and would lead to unequal treatment of shareholders in voting, have not been issued.
Disclosure of information
Group treats all shareholders equally and notifies all shareholders of important circumstances equally, by using its own website as well as the information system of the Nasdaq Baltic Stock Exchange.
Group’s website www.tkmgroup.ee contains contact information of the Group and key employees, press releases and reports. The annual and interim reports include information on the strategy and financial results of the Group as well as the Corporate Governance Report. Along with the annual report, the Supervisory Board’s written report on the annual report referred to in § 333 (1) of the Commercial Code shall be made available to shareholders on the Group’s website. In the subsection of Market News, information is disclosed with regard to the membership of the Supervisory Board and auditor, resolutions of the general meeting, and other important information.
Financial reporting and auditing
It is the duty of the Executive Board of Tallinna Kaubamaja Grupp to organise the internal control and risk management of the Group in a manner that ensures the accuracy of the published financial reports. Each year, the Group publishes the consolidated audited annual reports and quarterly interim reports consolidated during the financial year, which have been disclosed through the NASDAQ Tallinn Stock Exchange information system and are publicly available on the Group’s website. In addition to the disclosed financial reports, management information is gathered in symbiosis with high-quality and accurate financial indicators, and management reports are prepared to ensure adequate governance of the Group’s companies.
The purpose of the internal control and risk management systems connected with the financial reporting process is to ensure harmonised and trustworthy reporting of the Group’s financial performance in conformity with the applicable laws, regulations, adopted accounting policies and the reporting principles approved by the Group. The principles of risk management have been defined in the Group’s risk management framework, which describes the more important activities for risk management relating to identification, assessment, prioritisation and mitigation of risks and the definitions, roles and areas of responsibility related to the field. In addition, the risk management and internal control activities are organised with the work organisation rules of the Group and its subsidiaries, which describe the functioning of various processes.
The Group’s financial area together with accounting and management reporting is the area of responsibility of the Group’s chief financial officer (CFO) being responsible for the identification and assessment of risks in financial reporting, arranging the principles in relation to financial reporting, organises the tools that are required for accounting and reporting and prepares the officially published financial reports of the Group. The financial reporting processes and systems are developed on a continuous basis. Risk analysis is conducted annually. This risk analysis serves as a basis for the further development of supervision and control measures and checkpoints in reporting to prevent the realisation of risks. The Group’s internal audit supervises the operation of the internal control system, including, among other things, financial reporting processes. The Group’s accounting, funding, IT administration and insuring have been centralised.
On 18 June 2019, the European Commission Delegated Regulation (EU) 2018/8151 entered into force, in accordance with which issuers whose securities are admitted to trading on a regulated market in a Member State of the European Union shall publish consolidated financial statements in the European Single Electronic Format (ESEF) as from 1 January 2021.
The Group’s financial processes and reports are subject to an annual financial audit, conducted generally by an auditor selected by the Supervisory Board as a result of a competition and approved by the general meeting. Auditors are appointed to perform a single audit or for a specific term. The procedure for remuneration of auditors shall be determined by the Management Board. Along with the resolution of the general meeting from 2019, the financial auditor of the financial year 2021 was AS PricewaterhouseCoopers (PwC). The agreement entered into with the auditor complies with the requirements of the CGR. The total amount of fees paid or payable for auditing services performed by the auditor in 2021 is 83 thousand euros.
During 2021, the auditor of the Group has provided to the Group a limited assurance engagement in respect of packaging report, tax advice. In our opinion, the financial audit conducted in 2021 has been in conformity with the regulatory provisions, international standards and the set expectations. PwC has introduced the results of the work during the interim audit and for the final audit before issuing the auditor’s report. The independent auditor’s report is presented on pages 96-104.
The Audit Committee is an advisory body established by the Supervisory Board. Task of the Audit Committee is to counsel the Supervisory Board in matters involving accounting, auditing, risk management, internal control and audit, exercising an oversight and budgeting process and legality of the activities.
In order to perform these tasks, the audit committee monitors and analyses the processing of financial information and the process of auditing of annual accounts or consolidated accounts, supervises risk management and evaluates the effectiveness of the internal control system. The audit committee shall make proposals for the appointment and removal of the financial auditors and assess theirs independence and compliance.
In performing its tasks, the Audit Committee collaborates with the Supervisory Board, the Management Board, internal and external auditors and if necessary, external experts.
The Audit Committee has five members, who are appointed by the Supervisory Board for three years. In 2021, the members of the audit committee were Andres Järving (the Chairman), Gunnar Kraft, Jüri Käo, Kaia Salumets and Kristo Anton.
The Audit Committee prepares an annual summary report about meeting the goals sets in the statutes and presents it to the Supervisory Board.
Based on its duties, the Audit Committee provides ongoing evaluations and makes proposals to the Supervisory Board, the Management Board, the internal audit and/or an external audit provider.
Ten planned Audit Committee meetings were held during the accounting period.