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   Coronavirus – Secure Your Business-Critical Issues

   You might also be interested in:   Coronavirus Epidemic: FAQ for Finnish Employers . Duty of Care Obligates Managers to Act The principles enacted in the Finnish Limited Liability Companies Act state that the management of a company—i.e. the board of directors and managing director—are guided by a duty of care towards the company and its shareholders. The duty of care requires active measures. It requires the management to secure the company's interests and ensure that the company is in compliance with the law and authority requirements, and the coronavirus outbreak provides no exception to this. In practice, this means that the management must continually monitor the situation, analyse the impacts of the epidemic and attempt to mitigate risks. Identify Critical Agreements and Supply Chains Authorities across the globe have imposed restrictions in order to stem the spread of the virus, and many companies have taken voluntary precautions. These include quarantines, travel bans or, for example, temporary closures of factories and offices. These restrictions have caused resource shortages, disruptions in international supply and distribution chains, and other business challenges. As a result, many companies have had to delay their performance of their contractual obligations or have been completely unable to fulfil them. It is up to management to assess what business-critical contracts and supply chains could be disrupted due to the coronavirus. In the case of contract chains, it is important to ask your contracting parties to carry out a similar analysis in order to be able to manage the risks of the entire chain. Assess Force Majeure Separately for Each Contract If a company is unable to fulfil its contracts, the question becomes whether the disruptions caused by the coronavirus could constitute a force majeure event. A force majeure would exceptionally release the contracting party from its contractual performance obligations. The existence of a force majeure has to be assessed based on the wording of each individual contract. Here are a few rules of thumb: –  The force majeure clause may limit force majeure to only the examples explicitly stated in the clause, and these kinds of lists cannot generally be interpreted expansively. –  The threshold for a force majeure is usually high. As a result, companies need to give careful consideration to whether a contract can be fulfilled in a timely fashion in some alternative way despite disruptions caused by the coronavirus. –  Invoking force majeure often requires that the obstacle could not be foreseen. If entering into a contract after the start of the outbreak, it is best to mention disruptions caused by the coronavirus as an example of force majeure circumstances, otherwise it may not be possible to invoke the clause. –  Force majeure clauses also may set forth a procedure for invoking force majeure. For example, a party must often give the other party written notice within a certain amount of time from the occurrence of the force majeure. Depending on the circumstances and the applicable law, a contracting party may be released from liability for damage caused by non-performance even without an express clause if the damage was caused, for example, due to an event beyond the control of that party or the party can prove they acted with care. Continue Fulfilling Your Contractual Obligations as Best You Can An event that disrupts the fulfilment of a contract will only exceptionally release a company from its contractual obligations completely. If a company is able to fulfil some of its contractual obligations despite a force majeure, it must do so. As soon as the force majeure ends, the performance of the contract must be continued immediately. The party invoking force majeure is also always obligated to minimise the damage caused by the disruption to themselves and their contractual partners. Identify Disruptions and Give a Timely Notice Management can best secure their company’s interests when they identify threatening disruptions in good time, document disruptions and their causes and consequences, and make sure that the company issues its own notifications and notices to its contractual partners in the prescribed time limits. If the contract does not provide time limits for issuing notices or other notifications, they must be issued in a reasonable time. It is also worth reviewing your business insurance policies and make sure that any damage events are notified within the time required by the insurance terms. Publish Changed Outlooks The coronavirus has already had an impact on business, but its effects will be seen in companies in many different ways and spans of time. Listed companies have to assess their outlooks during the current financial period and monitor the realisation of their forecasts and guidance. If the epidemic causes significant changes to business and previously published forecasts and guidance, this needs to be published as a profit warning as soon as possible. Consider Exceptional Arrangements for Your General Meeting The general meetings season is at its peak for listed companies, and it is natural that the coronavirus is giving companies and shareholders preparing for their general meetings pause for thought. Certain aspects of meeting arrangements can be altered on short notice. For example, the meeting venue stated in the notice convening the general meeting can in exceptional circumstances be changed prior to the opening of the meeting. The Finnish Companies Act allows a general meeting to be held elsewhere than in the municipality stated in the articles of association, but this requires a very weighty reason. The act also permits shareholders to participate in general meetings remotely. Euroclear Finland has the capability to carry out electronic advance voting for general meetings if the situation requires. Look into the Possibility for Virtual Closing in Mergers and Acquisitions   The coronavirus epidemic may affect mergers and acquisitions that have already been signed or that are being prepared. It is worth including wording in SPAs that the transaction can be closed virtually. This will ensure that the closing will not be prevented even if one of the parties is unable to travel to sign the necessary documents, for example, due to their company's internal guidelines. It is also worth reviewing the seller's representations and warranties in the SPA with an eye to how they might be affected by the epidemic. Other customary SPA clauses—such as long-stop dates and business between signing and closing—should be reviewed with particular care to ensure they provide enough flexibility.

   Published: 9.3.2020

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   Sustainable development through competitor cooperation?

   As competition lawyers, we want to believe that competition drives companies towards sustainable development. Many consumers will choose a sustainable product or service as long as it is not more expensive than its alternative, while some are prepared to pay a premium for sustainability. But what happens when the competitor who takes the first step ends up losing the competition? If there is no reward for blazing a trail, no one will take the risk. Change is not cheap, and despite their good intentions, consumers are often unwilling to open their purses any wider. This is particularly true with bulk goods. So, should competitors work together to develop more responsible products and services? While this could benefit all of society, the danger is that this kind of cooperation would be seen to be a cartel or to otherwise be a violation of competition law. Competition law does allow agreements that restrict competition as long as they provide consumers with efficiency benefits. Efficiency benefits include streamlining of production or distribution or technological or economic development. Based on the wording, one could fit the development of ecologically sustainable products or the abandonment of polluting technology under the umbrella of technological development. Case law does not pose an obstacle to this interpretation, either. In competition law, efficiency benefits have been assessed from an economic perspective based on, for example, prices or output. As of yet, there is no case law or authority guidance on sustainability as an efficiency benefit. However, as the limits of the planet are fast approaching, the interpretation of law must keep up. The European Commission will soon be updating its guidelines on cooperation between competitors. It could be worth it for parties submitting statements to the Commission to point out that cooperation between competitors could be an effective way to fight climate change.

   Published: 4.3.2020

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   Finnish Patent and Registration Office Renders First Trademark Non-Use Revocation Decision

   The new Finnish Trademark Act, which entered into force on 1 May 2019, introduced a brand new possibility to use a post-opposition administrative revocation procedure by filing a non-use action before the Finnish Patent and Registration Office. The Office has now rendered its first trademark revocation decision in a case where our IP team successfully prosecuted the matter on behalf of a US client and the Office revoked the mark for non-use. As applicants can now choose to file such actions before either the Finnish Market Court or the Office, here’s our take on the pros and cons when choosing the right forum. Costs The official fee for filing an application for revocation before the Office is EUR 400. If you decide to file such action before the Finnish Market Court, you need to pay official fee of EUR 2,050. Even though the Office’s fee is much lower compared to the court’s fee, the downside is that the applicant cannot claim its own costs from the counterparty if the action is filed before the Office. In court proceedings, by contrast, the applicant can claim that the counterparty needs to pay both the applicant’s legal fees and the court’s official fee. Length of the Proceedings It is still too early to say which forum renders faster rulings. If the proprietor of a mark subject to non-use claim remains passive or admits the claim, no major difference exists when comparing the time it takes the Office or the Market Court to handle the case. However, if the owner of the mark resides outside Finland, the service of the non-use claim to the proprietor is far easier through the Office. As regards actual proceedings, the Office is more willing to grant extensions to submit statements compared to the court. The office grants extensions of 2 months upon a simple request, and another 2 months with grounds. This usually leads to very long processing times if both parties file the maximum extension requests. When looking at possibilities to appeal, the Office’s rulings can be appealed to the Market Court. If the applicant decides to file the action directly before the court, the appeal must be filed before the Supreme Court of Finland, which requires leave to appeal. Such leave is granted in approximately 7% of cases, which means that the Market Court’s ruling becomes final in most cases. Conclusions If it is more or less clear that the proprietor of the mark has not used its mark in the past five (5) years, it seems to be more efficient to file the claim before the Office. This applies especially if the proprietor of the mark resides outside Finland. However, if the matter is more complex, requires witnesses to be heard or relates to a pending infringement case, it is likely better to file the claim to the Market Court.

   Published: 12.2.2020

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   Better Results in IT Projects through Change Management

   Clients and suppliers often do not want to sit around negotiating these kinds of situations beforehand, but these issues can often escalate into full-blown IT disputes. IT disputes can often be avoided through agreed collaboration mechanisms, such as change management and steering group processes. WHAT IS CHANGE MANAGEMENT? When we talk about changes in this context, we mean changes to the agreed outputs of a project. Changes usually lead to more work, increased budgets and delayed timetables. The purpose of change management is to identify, discuss and plan for significant change needs that will have an impact on the goals of the IT project and that have been agreed in the specifications. Change management is worth using in both traditional and agile software development models in order to stay on top of potential changes to the timetable, goals or budget of a project. Clear change management processes can contribute significantly getting a project across the finish line flexibly and without disputes. Change management practices can be used to curb excessive desires for changes, to analyse changes better and assess their necessity more thoroughly.  HOW DO THINGS USUALLY GO IN PRACTICE? If the scope and details of a project are unclear when entering into the agreement, you should expect trouble. The parties may have very different ideas of what the project is trying to achieve. The client may think they are getting a tailored set of ‘emperor’s new clothes’ suitable for all normal purposes and conditions. In contrast, the supplier may have come away thinking that the clothes have to be chic and practical, but may not have realised that they also have to be warm and waterproof. When these kind of situations arise, the attempted solution is often for the project managers to agree on new deliverables and a new timetable for the project, despite the fact that the agreement may state that only valid way to decide on changes is for the steering group to make a decision and record in the minutes of a meeting. At worst, this can lead to a situation where, months down the road, the parties discover the discrepancy between what had been agreed and what was delivered, or at least find themselves with fundamentally different views of what had been agreed. A ‘flexible shortcut’ taken with the best of intentions could ultimately lead to the courtroom. HOW CAN YOU AVOID THESE PROBLEMS? There is no getting around the importance of the parties taking the time to carefully draft the specifications for the project when trying to avoid disputes caused by differing expectations. The parties also need to have procedure for taking the client’s changing needs into account. This procedure needs to set forth how the parties agree on changes to the scope of the agreement while the agreement is in force in a manner that is binding on the parties. Once you sign the agreement, do not just leave it to collect dust in your archives. If the agreement contains clear clauses on change management, it is worth writing up straightforward change management instructions for the client’s and supplier’s project teams. Even the best agreement cannot prevent disputes if it is not complied with in practice.

   Published: 10.2.2020

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   Six Trends for the New Decade of Technology

   Technology will change every industry and service. The most significant changes will be in the energy, transport and logistics sectors. We got a taste of things to come last summer when we helped Google’s subsidiary Wing Aviation Finland start a drone food delivery service in Finland.  We have already gotten a taste of these trends helping our clients in numerous ground-breaking projects over the past decade, and I am sure that the pace will only intensify from hereon.

   Published: 29.1.2020

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   New Corporate Governance Code for Listed Companies 2020: Some Observations

   Over the course of the year, we noted a few times that the directive addresses a problem that we don't really have in Finland. For example, it seems strange that the remuneration policy goes into detail on the fees of the board of directors, when the Finnish practice is that the general meeting resolves on remuneration each year. At worst, the remuneration policy could limit the decision-making power of the shareholders if it describes remuneration in too much detail. We tried to leave room for common sense and flexibility in the new code. Fortunately we had a wide range of experience in the committee, and we were able to look at things from numerous perspectives. We’ll find out how well we did when new code is tested in real-world situations. We have received numerous questions relating to the application of the code. I address a few of these questions below. What Are Governing Bodies? By law, the remuneration policy and report for governing bodies only concern the governing bodies referred to in the Limited Liability Companies Act, which are the board of directors, possible supervisory board, managing director and possible deputy managing director registered in the Trade Register. As a reminder of this, we put the words ‘governing bodies’ in the titles of the documents, even though it leads to them being quite a mouthful.  In order to maintain the consistency of market practices, listed companies shouldn't include management team remuneration in either the remuneration policy or report. However, in order to maintain transparency, information on the remuneration of the management team must be published on the company's website along with current information on the remuneration of governing bodies. Otherwise, the current remuneration situation could remain unclear, as the report takes a historical perspective and the policy looks to the future. When Do the New Remuneration Policy and Report Have to be Published? The first new remuneration policy has to be presented to shareholders in the general meeting held during the spring of 2020. The first remuneration report then has to be published a year later during the spring of 2021. The report assesses how the remuneration policy has been applied in the company. Companies that want to get a head start are free to draft the remuneration report for 2019 according to the new rules. Listed companies are already hard at work preparing new remuneration documentation. One question that has come up is whether the new remuneration policy has to be ready as soon as the code enters into force at the start of January. The answer is no. The remuneration policy is presented to the general meeting, which issues an advisory resolution on whether it supports the policy. Before this, the company must publish is proposal to the general meeting for a remuneration policy. The valid remuneration policy must be available to the public on the company's website, and the website must also state whether the general meeting has voted on the policy.   During the reform and circulation for comments of the code, we discussed whether the policy should be ready to publish already in connection with the notice convening the general meeting or whether it is sufficient to publish it three weeks prior to the general meeting. Based on substantial feedback, we chose the latter alternative in order to leave enough time for drafting the policy. We did not consider a situation in which the board of directors would approve the remuneration policy before deciding to convene the general meeting. I don’t imagine that this situation came up when the legislation was being drafted, either, as the provisions clearly point to the general meeting. The point of confusion here is that the general meeting only has an advisory role, which means that the board’s resolution is decisive with respect to approval. Even if the general meeting does not support the remuneration policy presented to it, the company continues to apply the policy. A new, amended policy is then presented to the shareholders no later than in the annual general meeting of the following year. However, my interpretation of the legislation is that the policy does not have to be ready yet on 1 January 2020. The most clear and sensible approach would be for the board to approve and publish the remuneration policy at the same time as the notice convening the general meeting. After being discussed by the general meeting, the policy is also published on the company's website. Why Does the Code Have Related Party Instructions? The board of directors has to decide on related party transactions that are not part of the company's ordinary course of business or are not implemented under arms-length terms. Related party transactions are rare, but companies still need to be familiar with the processes related to them. The board won’t be able to fulfil its obligation unless it knows 1) who the company’s related parties are and 2) what business dealings the company has with them. Companies have to compile information on their related parties in order to be able to identify related party transactions. Related parties are defined in the IAS 24 standard, which unfortunately is quite complex. It is worth collecting or reviewing this information at regular intervals and also to request that related parties notify your company of any changes themselves. In order to fulfil its obligations, the board of directors must establish principles for monitoring and assessing related party transactions. The board must particularly consider how the company identifies related party transactions, who they are reported to and who supervises the procedure. When drafting these principles, the board needs to take a thorough look at how the company’s processes work. Establishing these principles may feel like an extra burden, but defining and identifying related parties really shouldn’t be anything new, as related party transactions already have to be reported in IFRS financial statements. It is worth taking this opportunity to check that your companies processes work. The Securities Market Association published a Q&A on its website in the near future, which provide answers to the most common questions. For now they are available only in Finnish . We are also eager to get more feedback on the new corporate governance code. Please contact Pauliina Tenhunen, pauliina.tenhunen@castren.fi .

   Published: 23.1.2020

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   Three Guidelines for Board Membership: Get Interested, Get Informed and Get an Opinion

   According to the Finnish Limited Liability Companies Act, ‘the management of the company shall act with due care and promote the interests of the company’. Though short and superficially simple, this requirement actually encompasses a huge variety of case-by-case obligations, but you can get quite far with three key guidelines will get you far: get interested, get informed and get an opinion. Get Interested One of the key duties of the board of directors is defining the company’s strategy. This work requires that the board’s focus is squarely on the future and that the board has a comprehensive understanding of the company and its business. Without such an understanding, the board will not be able to have sufficiently in-depth conversations with the company’s operative management or challenge the management’s views. The board also needs to be familiar with the company’s business environment and the changes taking place in it. It is also important to keep abreast of societal developments. Going through the motions will not cut it, true understanding takes genuine interest. Routine tasks naturally take time, but it is the board’s own responsibility to make sure it has the necessary time to devote to strategy work. Finnish boards have been good at reaching this goal, at least according to a recent survey commissioned by Directors’ Institute Finland (DIF) and institutional investors Solidium, Ilmarinen, Varma and Elo and carried out by the Nordic Institute of Business & Society (NIBS). According to the survey, the boards of large Finnish corporations use about 32% of their time for strategy work or strategic discussions, making this the largest single type of board work. The results of the survey also show that the boards of Finnish companies focus the vast majority of their attention in their strategic discussions on changes to their business environment as well as on known and potential disruptors. Intellectual property and capital structure are on the bottom of the list of priorities, and somewhat surprisingly, it seems that boards spend relatively little time discussing competitors. Get Informed While board members are expected to have a comprehensive understanding of the company and its business, not every member can necessarily be required to have specialised knowledge of all of the facets of the company’s operations. Nevertheless, it is worth getting to know the key areas of the company’s business, even if they are outside your core competence. This principle was thrown into sharp relief by the Finnish Supreme Court in a fairly recent precedent (KKO 2016:58), which concerned whether the board members of a manufacturer of potato flakes were guilty of impairment of the environment and neglected their obligations as board members due to the company’s plant contaminating the environment by emitting potato soil sludge. The Supreme Court found that the board members were liable for the decisions made by the company that were in violation of its environmental permit and the law. This liability was not reduced by the fact that the board members’ tasks on the board were focused on commercial law and financial consulting or by the fact that the company’s managing director had, in practice, seen to the company’s operations. The board must familiarise itself with the key matters of the company and its business, otherwise the board will not have a clear understanding, among other things, of what risks the company’s operations involve. If necessary, the board must delegate tasks and follow up on them. Get an Opinion From time to time, the actions of a board member can have consequences for the underlying organisation that appointed them. In its decision on the bus cartel (KHO:2019:98), the Finnish Supreme Administrative Court deemed that a certain bus company had participated in a competition restriction based on the fact that a representative of that company had participated in a meeting of the board of the Finnish Bus and Coach Association. The meeting had noted for information purposes and de facto approved a policy presented by the members of a joint venture’s board concerning the processing of certain routes in that joint venture’s information system. This decision highlights the fact that matters discussed in board meetings can come in for scrutiny. This is true not only of actual resolutions, but of everything on the board’s desk, including matters that the board is only informed of. It is important to present your own opinion and, if necessary, record a dissenting position in the minutes of the meeting. ‘Groupthink is one of the biggest risks for board members. This happens when you align your opinion with the thinking of the rest of the board, even when you know that the decision being made is not the best one. Reasons why this happens could be, for example, an entrenched board habit where one member is quick to take a position that everyone else falls in line with,’ warns DIF Secretary General Leena Linnainmaa in connection with the publication of DIF’s 2019 survey.

   Published: 22.1.2020

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   Towards a Decade of Virtue

   First, let’s take a look back. What were the major undercurrents of the 2010s? The financial crisis struck the Finnish economy like a sledgehammer at the end of the 2000s, and recovery has been painfully slow. The last-minute sale of Nokia’s mobile phone business in 2013 marked the end of an era, but set off a new wave of entrepreneurship and business. The Arab Spring began at the start of the 2010s, but the results have fallen far short of the hopes it first kindled. The 2010s will be remembered as a decade of a weakening Europe, as well as a decade that saw the return of power politics to the global stage. The EU’s expansion stopped, its clout weakened amidst a lack of leadership and it spent the last years of the decade in the pangs of Brexit. China on the other hand has increased its political, economic and military influence through strategic power politics and state capitalism. I think there are many reasons for hope in the 2020s. The climate crisis has launched a positive surge of civic activism. In the eyes of the young—and many older people as well—the world’s foremost opinion leader is 16-year-old Greta Thunberg, who embodies the change she is demanding. Many companies have also begun to show that it is possible to do their part while still doing good business. It is clear that in the 2020s we will need to find new ways to succeed and solve the problems facing our society. It is time to start measuring the competitiveness of virtue. Our Nordic democratic values, our responsibility and our ability to cooperate are true strengths. We manifest them by cherishing honesty and integrity—genuine Nordic virtues. We can use these virtues as the foundation for a sustainable future. For attorneys, virtue means, for example, that ethical principles, in addition to the letter of the law, will come to guide our work even more as we develop sustainable businesses with our clients. The strength of our virtues allows us to serve as an example and punch above our weight in the global arena.

   Published: 30.12.2019

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   Should We Be Regulating Working Hours or Protecting Free Time?

   It is clear that legislation is having trouble keeping up with the rapid pace of change in working life. Work is being shaped by accelerating digitalisation and the rise of the platform economy, but also by the fact that the generations now entering the workforce have different expectations towards employers and work. As the line between working time and free time is blurring, perhaps rather than regulating working time, we should be protecting the right to free time. This would help prevent burnout and would ensure that people are able to maintain their enthusiasm for work as long as possible. It will be interesting to see how eagerly employers adopt the possibilities offered by the new act. Companies could use the new flexibility available to them to become more attractive employers, which would help them hire and hold on to the best employees. We are seeing the same discussion happening in every industry: results should mean more than hours, and mutual trust between the supervisor and employee is the foundation on which everything else is built. There is every reason to believe that the new opportunities for flexibility offered by the act, particularly flexible working hours, could work well in many workplaces. However, it still remains to be seen whether the new act will provide sufficient answers for today’s work communities or whether we will be writing about another amendment a few years from now.

   Published: 3.12.2019

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    Finland’s New Working Hours Act – New Tools for a New Decade

    Flexible Work Lets the Employee Decide One of the most significant reforms is the flexible working hours system. In this new system, the employer and employee agree a working hours clause stating that the employee is free to choose the time and location for at least half of the working hours. This model is a good fit, for example, for expert positions in which the employer defines the goal, but the employee decides where and when they work to achieve that goal. By contrast, the flexible working hours model is not well suited to customer service or factory work where the employer dictates the time and place for work. Working Hour Reserve for Working Hours, Benefits and Free Time The second major reform is the introduction of working hour reserves. Reserves are a way to integrate work and free time in which employees can save up and combine working hours, free time and monetary benefits converted into free time. The employer enters into an agreement on adopting a working hour reserve with the employees’ representative, but each employee can decide independently whether to transfer items into the reserve. If the working hour reserve allows it, the employee can transfer additional hours and overtime hours; flexitime hours (within the limits set by the act); unpaid evening, night and Sunday work hours based on collective bargaining agreements; as well as other benefits converted into working hours into the working hour reserve. Changes to Flexitime Accrual and Periods The regulation of flexitime is also changing. As of the start of 2020, the accrual of overrun hours cannot exceed 60 hours and over a four-month period, and the shortfall cannot exceed 20 hours over the same period. The maximum overrun and shortfall under the current act is 40 hours. Furthermore, the daily flexitime limit has been extended from three hours to four hours, and the evening flexitime period can be separate from the rest of the working day, for example from 20:00–22:00. It is worth noting that in many respects national labour market organisations can establish different flexitime arrangements in collective bargaining agreements. Extension of Regular Daily Working Hours Increased to Two Hours Employers and employees can agree on a maximum extension to daily working hours of two hours, unless prevented by a collective bargaining agreement. For example, the working time could be 6 hours one day and 10 hours another, but the working hours have to balance out to a maximum of 40 hours over a four-month period. Flexible working time solutions that can be tailored to the individual workplace can help companies attract and retain the best talent. At best, flexible solutions can provide a competitive edge. It is worth keeping in mind, however, that there are prerequisites and limits for local working hour solutions, and it is worth double-checking what they are from the new act or from an employment law specialist.

    Published: 25.11.2019