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   Finland Needs to Expand Local Bargaining – Here’s How to Do It

   This is an important issue. In order to get past just recognising the issue, it is important to understand what local bargaining is and what opportunities Finland's current employment legislation provides for it. Local Bargaining Often Blocked by Shop Steward Requirements in Collective Agreements Local bargaining ultimately encompasses all agreements made at the workplace. However, public debate surrounding local bargaining often revolves around what collective bargaining agreements say about local bargaining. This is understandable, as local bargaining is often blocked by the provisions of collective agreements. Many collective agreements provide that concluding a local agreement requires that the workplace have a shop steward. The selection of a shop steward is based on the provisions of the collective agreement that only obligate employers that are part of an employer organisation, i.e. organised employers. The shop steward represents an entire personnel group despite being elected by only those employees who are union members. This is true even if only a fraction of the employees at a workplace are union members. In practice, local bargaining is not possible if the collective agreement requires that a shop steward be a party in local bargaining, but the workplace has for some reason chosen to not appoint one. The current system does not provide sufficient support for an alternative in which employees could be represented by an elected representative (who pursuant to the Employment Contracts Act is the primary representative of employees of non-organised employers) or other representative chosen by the employees from amongst themselves. The selection of these kinds of representatives is supported by the fact that they more fully represent all of the employees at the workplace, because all of the employees can participate in electing them, regardless of union membership. Another odd feature of local bargaining in Finland relates to the fact that semi-mandatory provisions of employment legislation—such as sick pay, grounds for lay-off and the re-employment obligation—can only be agreed upon to the detriment of employees in national collective agreements between employer and employee organisations.  Current legislation does not recognise that an employer that has committed to a company-level collective agreement, or an employer that has no collective agreement at all, could conclude an agreement on these provisions with their personnel. Furthermore, non-organised employers are not permitted to apply collective agreement provisions concerning local bargaining at all if they concern semi-mandatory legislation. The Boundaries of Local Bargaining Need Reform The future of local bargaining will depend a great deal on reforming the boundaries set for it so that they meet the needs of modern working-life. Today, the fact that a labour organisation operates nation-wide does not automatically mean that it has the best understanding of the minimum level required by the employees at a given workplace or of what the best end result would be. There are no solid grounds for treating non-organised employers differently with respect to local bargaining. The legislative materials of the current Employment Contracts Act from the year 2000 justifies the unequal position of unorganised employers with the limited resources of occupational safety and health authorities. On the other hand, even back then the legislative materials stated that it is necessary to monitor the development of local bargaining and take legislative action as necessary. The provisions concerning local bargaining in collective agreements have, indeed, developed in the intervening years, which is a good thing. For example, few collective agreements from twenty years ago made it possible to swap holiday bonuses for extra leave based on local bargaining even when the employee wanted to do so. Expanding the use of local bargaining would require efficient and effective legal remedies in case one of the parties breaches the agreement. Nevertheless, what needs a shakeup is the idea that a national organisation or a person representing just some of the employees at a workplace is always the best party to assess whether local bargaining is necessary at the workplace and what is in the interests of the employees at a given workplace. Local bargaining should be expanded to be available to all employers. This in not just sensible, but also a more sustainable solution from the perspective of the freedom of association guaranteed by Finland’s constitution. Furthermore, it should be possible for a personnel representative other than a shop steward elected by the members of a particular union to be the party to local bargaining. The employees’ day-to-day need for protection at the workplace does not always align with what unions want to protect.

   Published: 25.2.2021

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   Artificial Intelligence: Don’t Let a Biased Algorithm Ruin Your Business

   AI is Biased and Can Lead to Discrimination AI is biased by default, as its functioning is based on data and rules that are input and defined by people. This bias can arise for a number of reasons. The data used to train AI could be factually incorrect, incomplete or otherwise prone to cause algorithmic bias. The algorithm used by the AI could also have been developed to give weight to certain grounds for discrimination, such as gender or language. Biases are significant particularly when people are subject to an automated decision made by an AI application. If the bias is not corrected in time, such decisions can lead to discrimination. A discriminatory AI could be created, for example, because the application has been trained primarily using data from men, and therefore, does not produce optimal results for women. Some of the specific features of many AI applications, such as opacity, complexity, unpredictability and partially autonomous behaviour, can be problematic from the perspective of the protection of fundamental rights. Automated decision making and the risk of discrimination related to it have given rise to a great deal of debate. Decisions made by AI have even been appealed to the Non-Discrimination Ombudsman. One case was brought before the National Non-Discrimination and Equality Tribunal, which issued a decision and a conditional fine in 2018 prohibiting the use of the AI in question.  The case concerned a credit institution, which had used a fully automated decision-making system. The system scored consumer credit applicants by comparing the applicant’s data to corresponding statistics to determine creditworthiness. The system was found to discriminate against applicants, among other things, based on gender and native language. It is worth noting that even small choices made by AI can be deemed decisions, such as the choice to direct a certain type of applicant to customer service. AI Needs Supervision and Good Agreements Are Key In order to prevent biases, the functioning of AI applications must be regularly monitored and evaluated, whether the application has been developed in-house or acquired from an outside provider. Because AI reflects the views and values or the people who developed it, acquiring AI applications from abroad involves its own risks that require caution. It is possible that the AI will display a bias that is based on the cultural norms of the developers. As there is still little to no legislation specifically concerning AI, the rights and obligations of parties agreeing on AI applications are based on the agreements between the parties. Among other things, the contractual terms should provide for liability for defects and audits.  Agreeing on liability for defects is important, for example, in case the data used to train the AI is deficient or the algorithm used functions incorrectly. An auditing clause should provide for how the correct functioning of the AI is ensured if the decision logic of the AI is not sufficiently transparent. Though the field lacks actual legislation, the EU’s ethical guidelines for AI provide a framework for the responsible use of AI.

   Published: 14.1.2021

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   Is Finland Facing a Bankruptcy Pandemic This Spring?

   When the second wave of the pandemic hit, the validity of the temporary amendment was extended to the end of January 2021. According to Statistics Finland, the number of bankruptcy filings during January–November decreased nearly 17% compared to last year. We may be facing a record number of bankruptcies in the early spring. Many of the efforts to mitigate the financial impacts of the pandemic have mainly delayed acute cash shortages without actually lightening companies liabilities. It may well be that the cash reserves of companies facing bankruptcy are completely empty and that their debt burden has grown too large. Courts Facing Logjam The courts in Finland are already overburdened due to having to deal with a backlog of delayed matters. There may not be enough skilled estate administrators to handle the number of bottled up bankruptcies. This may in turn lead to cases of abuse being left unsolved, which will ultimately be to the detriment of the honest majority of companies and society at large. Even in the midst of the pandemic, it is important for boards of directors to remain alert and act diligently. It is not permitted to favour certain creditors over others, and a loss of equity must be notified to the Trade Register. Help is available to companies with a healthy business even in this crisis, provided that they have the courage to seek out that help in time. This article was first published in Finnish in Kauppakamari magazine (4/2020).

   Published: 7.1.2021

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   Sustainable Business Requires Compliance Organisations to Evolve

   Sustainable companies are expected to not just comply with national legislation, but to exceed the minimum requirements in their business. The responsibility of commercial operations is regulated, among other things, through soft law instruments, such as recommendations. Though not legally binding norms, companies that break such rules risk their legitimacy and their social licence to operate. The question is whether certain practices have the approval of the community. Without such approval, a project could run into trouble and a company could suffer significant reputational damage. Management could have to resign, even if no laws or binding regulations have been breached. An Independent Compliance Organisation Supports Sustainability Goals The company’s board of directors is responsible for the management of the company and for the appropriate arrangement of the company’s operations.  The board must also ensure that the company has sufficient internal control ensuring that the company operates in accordance with binding laws and regulations. Corporate management should have up-to-date information on any deficiencies in compliance, and companies should have a compliance organisation to carry out this function. In order to support sustainable business practices, management needs a credible compliance department that is independent of business operations and reports directly to the board of directors. Sustainability Requires Assessing the Impacts of Operations The design of compliance functions, programmes and processes requires a strategic approach and a solid understanding of what norms are most key to the company in question. In some sectors, such as the financial and insurance sectors, compliance functions are required by law. Some binding legislation is central to all companies: For some companies, compliance with and knowledge of anti-money-laundering laws and trade sanctions are a basic requirement for doing business. For other companies, environmental legislation and legislation concerning waste and chemicals are paramount. The obligation to prevent corruption in its various forms is a duty that all companies share. Even this could prove to be a pitfall, including in Finland. For example, are old boy networks and the conflicts of interest of a small country recognised as problematic from the perspective of corruption? From the perspective of sustainability, a duty of care is imposed on companies. Companies are required to carry out human rights due diligence. The assessment of due diligence is influenced by the company’s field of operation, geographical reach, size and other risk factors. Supervising Your Own Group or Securing Sustainability Throughout Your Supply Chain? While compliance work is usually focused on the compliance of your own operations or those of your group companies, sustainability turns attention  towards supply chains and subcontracting. There is currently a debate concerning whether there is a need for binding corporate responsibility legislation in the EU or nationally in Finland. The debate is particularly focused on international supply chains: These questions become particularly pronounced, for example, if the local legislation in the country in which a subsidiary operates does not meet the requirements of human rights conventions or the western understanding of responsible business. Why Should Compliance Also Sustainability into Account? Economic downturns and difficult financial situations highlight the importance of functioning compliance. The pressure to develop sustainable business practices is constantly growing, which also puts pressure to develop internal compliance functions. Today, the verdict for unethical or irresponsible actions is often given by the press or the general public. It typically takes years for the courts to render a decision, and by then the damage to the company’s reputation has already been done. Incorporating wider responsibility and sustainability perspectives into compliance work will help companies see the full picture of their risks. This article was first published on the website of DIF – Directors’ Institute Finland on 26 November 2020.

   Published: 3.12.2020

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   Sustainable Development through Statutes or Self-Regulation?

   It is clear that legislation and good governance have to be developed at pace with the rest of the world. The needs of companies and their owners, investors, customers and other stakeholders are changing, and requirements are tightening. This in turn is accelerating the reform cycle for legislation. However, every detail does not need its own section is the Limited Liability Companies Act. Our corporate legislation has been developed to be flexible and serve many different kinds of companies. The act itself is supplemented by self-regulation, which allows companies to choose their own ways to respond to changes in their environment. Self-regulation has a good track record in Finland. Companies understand that sustainability requires them to do more than just meet the minimum requirements of law. Does it really make sense to fix something that isn't broken by making the Limited Liability Companies Act less flexible? It has been proposed that sustainable development should be incorporated into the purpose of companies and the duties of management, i.e. be expressly included in the Limited Liability Companies Act. However, sustainable development is already on the agenda of many boards of directors, with customers, society and other stakeholders are encouraging companies to make sustainable choices. Careful management teams that have their company’s best interest at heart cannot afford to ignore these matters. Careful thought should be given to whether sustainable development should be folded into corporate legislation or whether it would be better to use special legislation and self-regulation to steer companies towards better choices. The end does not always justify the means.

   Published: 1.12.2020

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   What Options Do Companies Have for This Spring’s General Meetings?

   Preparations for this spring’s general meetings are already well under way in many listed companies. The fact that no one knows for sure what the COVID-19 situation will be in the spring adds an additional twist to preparations this time around. However, it doesn’t take a fortune teller to make a prediction: the larger the company and the earlier in the spring the general meeting is planned to be held, the more likely it is that the company will have to make some kind of remote participation arrangements. This time around, the situation is not catching companies by surprise like last year, and it is reasonable to expect both companies and shareholders to be better prepared. For companies this means that shareholders must be provided with up-to-date means of participation. Shareholders in turn can be expected to actively make use of these means. Like last spring, this spring will be a good opportunity to gather experiences of different meeting arrangements. It is likely that the Limited Liability Companies Act will be amended at some point to permanently provide companies with more options for arranging their general meetings. However, it is too early to say when that will happen and what the final contents of such a reform would look like. Three Alternatives Companies have three main alternatives for arranging their general meetings this spring. The key difference is the extent to which the meeting is held remotely: In this connection, it is worth noting that in the case of general meetings, remote participation does not necessarily mean that all attendees would participate in the meeting using their own computers from wherever they happen to be. While it would be possible to organise this kind of real-time participation, no listed company has done so to our knowledge. In most cases, remote participation has been organised through advance voting. Is Dialogue Possible Remotely? Listed companies should not count on all of their shareholders being able to participate in person this spring – at least not if the general meeting is being planned for the beginning of the general meeting season. Most companies will probably choose between a hybrid meeting and a fully remote meeting. The temporary legislation allowing stock exchange listed companies and First North companies to hold remote meetings will likely only be in force until the end of next June. A key part of traditional general meetings is the dialogue between shareholders and the company’s management. It is important to give some thought to how to enable this dialogue when planning a remote meeting, particularly if the general meeting is being organised as a ‘paper meeting’, i.e. solely based on advance voting. One option worth considering is holding an entirely separate event for dialogue. Keep Your Options Open Depending on how the meeting is being organised, it is clear that planning a general meeting in the middle of a pandemic is a balancing act between shareholder rights on the one hand and the health and safety of shareholders and other stakeholders on the other. This year has made it clear that the COVID-19 situation and the related restrictions and recommendations can change very quickly. Companies would be wise to monitor the situation closely and keep their options open for as long as possible. When it comes time to send out the notices convening the general meeting, it is important to clearly communicate the different ways of participating and what they mean in practice to the shareholders.

   Published: 26.11.2020

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   Dividends ― When Are Solvency Tests Required?

   An increasing number of listed companies have begun paying out dividends in several instalments. This means that the management has to assess their company’s solvency more frequently. Chapter 13, section 2 of the Limited Liability Companies Act provides for a solvency test. According to the test, assets cannot be distributed if, at the time of the resolution, it is known or should be known that the company is insolvent or that the distribution would lead to the company becoming insolvent. This provision makes it clear that solvency must be assessed when resolving to distribute funds. However, opinions differ as to whether a solvency test also needs to be carried out when the resolution is being implemented. If a solvency test is failed at the time of payment, should the management refuse to implement the general meeting’s resolution? Solvency Tests at the Time of Payment Several months may pass between the general meeting’s resolution to distribute assets and the implementation of that resolution, i.e. the payment of assets. This could be the case, for example, if the annual general meeting decides to distribute dividends in several instalments: dividends resolved on in March may not be payable until September. The company’s financial condition may change significantly between the time when the resolution was made and the time when it is meant to be implemented. Many companies came face to face with this fact this past year when the COVID-19 pandemic turned their operating environment upside down. The prevailing opinion that seems to have formed is that the management also has to assess their company's solvency at the time they are implementing the resolution to distribute assets—and they must refrain from implementing the general meeting’s resolution if the situation requires. The assessment of solvency has also been examined in a joint research project of Tampere University and the University of Lapland that focused on the clarification of the protection of creditors and the easing of the related procedures. The final report of the study states that the time when solvency must be assessed should be provided for in more detail than it currently is. Whether or not the legislator takes up the report’s recommendations remains to be seen.  Taxable Income from Unpaid Assets? If a company’s management refrains from distributing assets due to a solvency test, shareholders could potentially incur taxable income from assets that they never actually received. In taxation, the distribution of assets is normally considered income of the tax year during which the assets are available to be withdrawn. Dividends are considered available immediately after the general meeting, unless the meeting resolves otherwise with respect to the withdrawal time. Finnish tax law contains no express provisions concerning the cancellation of a distribution resolution. In tax practice, cancellation has generally been considered possible up to the time when the assets become available to the shareholders for withdrawal. The Finnish Tax Administration has also deemed that cancellation is possible if the general meeting’s resolution was made in violation of the Limited Liability Companies Act or other act. Distributing assets despite a failed solvency test is a violation of the Limited Liability Companies Act. As described above, the Limited Liability Companies Act leaves open to interpretation whether a solvency test must also be carried out when implementing the distribution of assets. However, a reduction in the company’s results and solvency following the resolution alone has not been enough to effectively cancel the distribution resolution from the perspective of taxation. A General Meeting Can Cancel Its Own Distribution Resolution If between the time of the resolution and the time of the implementation of the resolution it seems that it may be necessary to refrain from implementing the resolution based on a solvency test, it is worth considering whether the resolution should be cancelled by a general meeting before the assets can be withdrawn. If it is not possible to convene a general meeting to cancel the resolution, it is a good idea to contact the Finnish Tax Administration in advance to discuss whether shareholders will be deemed to have accrued taxable income despite the fact that the distribution of assets could not be carried out due to a failed solvency test. Flexibility through Board Authorisation In uncertain times, companies can give themselves the necessary flexibility by authorising their boards to decide on the distribution of dividends or assets from the unrestricted equity reserve. In taxation, assets distributed based on such an authorisation are only deemed to be available for withdrawal by the recipients based on a board decision. When considering such an authorisation, it must be kept in mind that shareholders with at least one-tenth of all of the shares in the company are entitled to demand minority dividend in accordance with chapter 13, section 7 of the Limited Liability Companies Act in the annual general meeting prior to the resolution on the use of profits. Naturally, minority dividends cannot be distributed either if doing so would endanger the solvency of the company.

   Published: 26.11.2020

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   Responsible Marketing or Misleading Greenwashing?

   Corporate marketing is full of these kinds of claims, which is a good thing. Companies are paying more attention to the sustainability of their businesses—particularly to their environmental impacts—and are communicating about them more openly. The use of sustainability and environmental claims in marketing can impact consumers’ purchasing decisions and bring companies a competitive edge. This being the case, the kinds of claims being made is important. For example, you may come across a sweater in a clothing store with a label stating not just the price, but also announcing, I am sustainable . What does it mean that a product is sustainable? A Finnish clothing brand launched a ‘100% sustainable clothing line’ in September. The line didn’t include a single piece of clothing and the webstore and store were empty. The company wanted to make the point that it is impossible to make completely sustainable clothing. In August, a Finnish marketing magazine wrote that companies find it difficult to communicate sustainability and are afraid of being accused of greenwashing. One reason for this is a challenge of scale: companies measure their sustainability in many different ways. There is no reason to be afraid of sustainability marketing as long as it is based on facts and takes into account the entire lifecycle of the product or service, from the procurement of raw materials to the disposal of waste. Marketing Cannot be False or Misleading Sustainability and environmental claims—just like any other factual claims in marketing—must be provable. Your own subjective opinion is not enough, but you have to have research or other credible data (verified by third parties, if necessary) to back up your claims. The overall impression created by marketing cannot be misleading. For example, it would be misleading to say, ‘we have doubled the amount of recycled material’, if the original amount of recycled material in the product was negligible. Marketing should not abuse consumers’ concern for the environment or seek to exploit consumers’ lack of environmental knowledge. Marketing should also indicate whether an environmental claim concerns the entire lifecycle of the product or just one part or production phase of it or, for example, the company’s overall environmental efficiency. It should also be noted that environmental claims can be more than just verbal expressions. A symbol or other graphic presentation referring to an environmental feature of a product or package could also be considered an environmental claim. This being the case, companies should not add symbols of their own devising to, for example, product packaging if they could give the misleading impression that the product has an official environmental certificate. Don’t Highlight Meaningless or Irrelevant Features Marketing should not highlight a feature that has no meaning or relevance to the product or service in question. The meaningfulness and relevance of sustainability and environmental claims are assessed based on other products in the same group of products or services. For example, claiming that a product does not contain a particular substance would be considered misleading if no other corresponding products on the market contain the substance in question. Any environmental claims must be relevant to the product. Claims can only concern matters that already exist or that will at least likely arise during the product’s lifecycle. Avoid Greenwashing: Use Truthful, Up-to-Date and Relevant Environmental Claims With green claims having become more common, the ICC’s new marketing rules published in 2019 contain more detailed rules applicable to marketing with environmental claims, for example, environmental marks, product packaging, product descriptions, as well as marketing materials and digital media containing environmental claims. The ICC has also published guidance on frequently used environmental claims. According to the ICC’s guidance, marketing should not make unconditional use of expressions such as ‘environmentally friendly’, ‘eco-safe’, ‘green’, ‘sustainable’, ‘climate-friendly’ or similar statements that communicate that the product or service has no negative environmental impacts or that the impacts would be positive. Using such statements always requires sound evidence. Furthermore, claims referring to sustainable development should not be used until there are ways to measure or confirm sustainable development. To sum up, a good environmental claim is honest, truthful, relevant, up-to-date and specific and the text explaining it is clear, relevant and easy to understand.

   Published: 24.11.2020

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   Lawyers Supporting the Impact Revolution

   What does this mean for the legal profession? The rapid changes in business require a new mindset from lawyers.  The legal profession traditionally tends to look inwards, focusing on the problems and risks inherent in a business, but by shifting our perspective outwards and forwards, lawyers are ideally placed to find new legal solutions that can create genuine impact.  For example, impact investing and impact funds are already gaining a foothold, using private capital to not only pursue a profit, but also measurable benefits for society. In the energy sector, decarbonisation projects need new contractual structures.  As lawyers, we can make the biggest difference by helping our clients develop their own sustainability. To do that most effectively, we have to understand the demands that sustainability put on our clients inside and out. To us, that means that we can’t just talk the talk, we have to  walk the walk .  At the beginning of 2020, Castrén & Snellman became the first Finnish law firm to  join the UN Global Compact . We have also calculated our carbon footprint as the foundation for a significant reduction in our emissions. Our key sustainability goals are to promote equality, fight climate change and promote the rule of law.

   Published: 28.10.2020

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    Intangible Assets are the Most Important Capital Companies Have

    The COVID-19 pandemic has pushed companies to seek growth through digitalisation projects and has also created a need to protect these investments. This is one reason why the number of patent and trademark applications has grown significantly in Finland this year. The same trend can be seen in the European Patent Office, where the growth has been highest in the telecommunications and technology sectors. The creation of intangible value brings success to society as a whole. Indeed, renewing the national strategy for intangible rights has been included in Finland’s Government Programme. Finland’s Ministry of Economic Affairs and Employment has already begun this work, and when complete, the new strategy will support companies’ competitiveness in an increasingly digital and global operating environment and further boost Finland’s position as an internationally attractive location for innovation. It is past time for responsible corporate management to map out what their company’s significant intellectual property rights are and to make sure that these rights are protected on the relevant markets and have been incorporated in their company’s strategy. To do otherwise is to expose the company to a serious business risk: the company could lose the rights to its own innovations, or at worst, even have to cease selling its products. At the same time, it is important for management to ensure that the company’s brands and services are marketed responsibly in line with the brand and its value. We are living in a highly digital but ever more vulnerable world. Intangible assets are targets for industrial espionage and cybercrime and must be protected by every means. There is much work to be done, as a great deal of these assets remain unregistered and unprotected.

    Published: 27.10.2020