1. Post

   Responsibility is Routine in the Corporate World – What About Public Contracting Entities?

     The UN Member States are committed to promoting sustainable public procurement routines in accordance with national laws and goals. The tools are certainly there: in Finland alone, the public sector uses approximately EUR 35 billion on procurements per year. Contracting entities have the potential to make a huge impact: they determine whether public buildings are built with low-emission standards, whether vegetarian food is served at schools or whether home care employees drive electric cars. Contracting entities have the power to decide that their entire subcontracting chain must comply with human rights and the ILO’s agreements—or they can just decide to follow the same old model. Contracting entities can award points to tenderers for taking environmental considerations into account. The Court of Justice of the European Union confirmed this already 16 years ago in the Concordia Bus Finland  judgment. A precedent from Finland! However, legal expertise is still needed to build responsible operating models. The Competence Centre for Sustainable and Innovative Public Procurement Keino was established this year. In the future, Keino will help Finnish contracting entities with the strategic management of procurements and the assessment of efficacy. This is a project we all can be proud of! Innovative companies are also driving changes to how public procurements are carried out. Dialogue between contracting entities and responsible companies promotes sustainable development. The UN's Sustainable Development Goals are aimed at the year 2030. After an exceptionally hot summer, one could ask whether contracting entities should be actually be setting goals for 2020.

   Published: 27.8.2018

2. Post

   When Group Companies Compete against Each Other in Public Procurement

   These questions may sound surprising. After all, the prohibition of bidding cartels under competition law  does not apply to companies that are part of the same group and that are in a relationship of control. For example, a group’s parent company may exchange information or allocate customers with its subsidiaries in the daily course of its business without this being considered a competition infringement. Public procurement is a different ball game, though. According to the Court of Justice of the European Union, companies participating in a public procurement procedure must compete against each other and make their tenders independently even if they are part of the same group. The CJEU has lately charted the territory between competition law and procurement law. It recently handed down judgments in two cases, Lloyd’s of London and Specializuotas transportas, in which it held that tenderers in a relationship of control must not be excluded from procurement procedures, but their tenders must be autonomous and independent of each other.  If in doubt, the contracting entity must ascertain whether the relationship between the group companies had a specific effect on the tenders they submitted in the procedure. This is required by the principles of transparency and non-discrimination. The contracting entity must ask for additional clarification if it knows, for example, that the same persons are involved in the decision-making bodies of both companies or that the two tenders make use of the same resources. Ask about Connections, Be Prepared to Clarify How does the CJEU’s new case-law translate into practice? Contracting entities seek to generate as much competition as possible. It is important for them to ascertain that tenders are actually in competition against each other, especially in the case of framework agreements with multiple tenderers or if tenderers are allowed to submit partial tenders. Group companies, in turn, must be able to show that they have not cooperated when preparing their tenders. Finally, it is in everyone’s interest to avoid messy appeal procedures after the procurement decision is made. The following simple checklists will help contracting entities and group companies avoid pitfalls.    Checklist for Contracting Entities Checklist for Tenderers

   Published: 20.6.2018

3. Post

   GDPR Calls for Cooperation

   Public debate about the new regulation has focused on a few individual questions, and administrative sanctions have taken on an oversized role in the debate. I personally wish that, instead of fixating on fines, the upper management of organisations would stop to think about how to secure data-based business operations in the event the authorities prohibit the use of data or order the deletion of data. Another important thing to ponder would be what the careless processing of data could mean to the reputation of a company. This latter issue is a subject that has gotten a great deal of media attention recently. There is more at play than the bogeyman of huge fines. My hope is that the GDPR gets professionals from different fields to work together better and that this becomes on new export for the EU. We’ll know if my hopes come true in 2020 when the Commission is set to examine the practical impacts of the new regulations. It is important for us lawyers to understand the logic underlying data systems as well as business needs and strategy if we are to come up with sustainable solutions for our clients. IT experts in turn need to understand the main principles of the law so that they can make sure that data systems and services comply with regulations. Corporate management for its part needs to understand the opportunities offered by technology and the requirements of the law in order to make their businesses more innovative and profitable. Let’s make the most of this change! A wise person once said, ‘Dear past, thank you for the lessons; dear future, we are ready’. We are ready at Castrén & Snellman—I hope you are, too!

   Published: 31.5.2018

4. Post

   What it Takes to Acquire a Committed Team, Not Just a Business in M&A

   A company’s books will tell you how many people it employs, but talent is not reflected in multiples or enterprise values. Despite the fact that retaining key personnel should be on the buyer’s mind, it is usually off the negotiation table when the terms of the deal are agreed. Purchase price adjustment mechanisms tied to retaining ‘dream teams’ remain rare. The question then is how buyers can ensure that they get value for the money they invest when the business or company they are acquiring is dependent on certain key employees. This question should be at the top of mind of any buyer today, since acquisitions are increasingly less about acquiring tangible assets and more about  acquiring the right people . A share or business purchase agreement may include a condition precedent stipulating that the key employees must still be employed by the target on the closing date in order for the buyer to have an obligation to go ahead and complete the deal. But what happens after the deal is completed and the seller is gone? As legal advisors we strive to guide our clients to find the right path to ensure the key personnel stay on board, and committed, also after the merger or acquisition. Successful Integration Means Leading People through Change We spend a lot of time on due diligence in order to identify risks. When it comes to the workforce, we tend to focus on historical and potential future liabilities involving direct costs. Once the investment is made, however, the most significant risk lies in successfully integrating and leading people through the change that a merger or acquisition inevitably entails. In the due diligence review, we check that agreements with key employees contain sufficient non-compete and non-solicitation clauses preventing them from transferring to a competitor not only during their employment but also for some time thereafter. If they decide to leave, the agreement should prevent them from soliciting other colleagues and potential talent to leave with them. We do the same to ensure that these people are bound by adequate confidentiality and IPR clauses, which provide protection against sensitive information leaking out and know-how and technology ending up in the wrong hands. This is all well and good, but is just the first box to tick. A Transaction Bonus Alone Won’t Save the Day In order to motivate key employees to put in all the extra work needed in a sales process, the seller may already have incentivised them by agreeing to pay a one-time cash bonus once the deal is signed. Transaction bonuses may, further, be agreed to become payable only if the key employees, either individually or as a team, remain employed with the target for a certain time after the deal is closed. A transaction bonus can also be crafted as security against potential later dismissal by the new owner. If so, it becomes payable if the key employee is served notice before a certain date. Consequently, transaction bonuses are often paid by the seller. At the end of the day however, no transaction bonus can provide much comfort to a buyer regarding the future. In fact, a very significant transaction bonus may have quite the opposite effect, in particular if the employee does not have sufficient clarity about the future. Recognising Key Employees and Keeping Them On Board Perhaps one of the key questions is whether we are paying enough attention to who the key employees really are. Key employees are often defined as the executive management. While they are certainly essential in most businesses, buyers should also be looking in less obvious places. It is important to look for employees who have skills that could be decisive during the integration phase or crucial for delivering long-term targets. The back-office IT team may be irreplaceable, because they are the ones who will be responsible for the business-critical IT carve out that lies ahead after the merger. Once you have truly identified your target’s key employees, you can consider how to incentivise them. It is generally worth looking at a mix of short- and long-term target-based bonus arrangements. A traditional approach is to offer key employees equity. However, ownership is not for everyone. Some employees would still prefer to just collect a paycheck. A hybrid form, called virtual stock, could be a good alternative for these kind of employees. Virtual stock can provide the financial upside equity offers, though it lacks the other rights a shareholder would have, such as vote rights. Interestingly enough, there are some  surveys  showing that there are a number of soft incentives that may be much more effective—and much cheaper—than money in retaining key people after the deal is closed. The McKinsey study linked above describes a European industrial company that applied a mix of non-financial and financial incentives during a recent reorganisation. That company found that it required only 25% of the budget that had previously been spent on a broad, cash-based scheme. What the McKinsey study indicates is that while money is an important factor in retention, it won’t do the trick alone. Clear Future, Happy Staff M&A veterans tend to focus on keeping talent. We recognise that employees stay when they are engaged, paid well, mentored, promoted regularly, respected and trusted. Ultimately, what employees want most of all is clarity about their future. This requires communication from the employer. Praise from managers, attention from leaders, promotions, opportunities to lead projects and chances to join management or mentoring programmes do not cost much, but can be very effective motivators. Non-financial incentives take a bit more time, attention and care to put in place, though, which is perhaps why they are not always at the top of the list in the aftermath of a hectic deal. Financial incentives can and should be used, but they need to be designed carefully. For example, it is essential to ensure that a substantial part of any incentive is paid only after the merger or acquisition and when certain performance targets have been met. It may also be worthwhile for a buyer to stop for a minute and consider whether it is isolated individuals that need be retained or actually a groupof individuals that need be retained  as a team . If the latter, the financial incentive can be tailored with criteria committing the whole team. Finally, try to avoid last minute incentive arrangements, as they actually tend to dilute trust and appreciation than create genuine commitment. As always, timely communication is the key when dealing with people.

   Published: 2.5.2018

5. Post

   Brexit to Drive Financial Sector onto the Continent

   From the perspective of the financial and insurance markets, this will mean that thousands of investment firms, funds, banks and insurance companies will lose the right to offer their services from the EU to the UK and vice versa . London will remain one of the world’s largest financial centres after Brexit, but regulations will complicate the financial sector’s operations in the EU. Financial sector companies will have to establish and obtain licences for subsidiaries on the continent. Many companies have already begun this process. It will take time for a political understanding to become a binding agreement, and the transitional period involves many uncertainties. This has led many supervisory authorities to require that applications for EU operating licences be submitted by the end of June this year. Just having a mailbox in continental Europe will not be enough, as the EU’s financial supervisory authorities are taking a harder line towards screen companies. The EU requires that subsidiaries have real business operations and responsible personnel residing in the EU. It will not be possible to run a company remotely from the UK. Brexit and other market changes and regulatory projects affecting the EU’s financial sector are no doubt causing many of our clients a great deal of concern. We are a strategic advisor that understands our clients’ business and can help them navigate this shifting regulatory landscape and identify the opportunities that these changes will bring.

   Published: 23.3.2018

6. Post

   Law and Hospitality in Russia: Welcoming the World Cup

   Category Certificates In accordance with Federal Law No 108-FZ ’On preparation for and the staging of the 2018 FIFA World Cup, the 2017 FIFA Confederations Cup in the Russian Federation and for amending certain legislative acts’, hotels are only allowed to provide hotel services if they have a category certificate to prove that their services comply with a particular standard. The Government has established that hotels and other types of accommodation are to be classified within six categories, ranging from 5 stars to 1 star, plus a ‘zero star’ category. At present, category certificates are mandatory only in the cities and regions hosting the World Cup. However, as of 2019 this requirement will be expanded to all hotels in Russia. Providing accommodation services without a category certificate is an administrative offence, but only large hotels (having 50 or more guest rooms) will be penalised before 2020. Sale of Tickets The same Federal Law prohibits any sales (including re-sale, distribution, allocation, exchange or other similar activities, whether profitable or not) of tickets to World Cup games or other documents giving the right to obtain such tickets, without entering into respective agreements with FIFA or its authorised agencies. Hotels that offer service packages including accommodation and access to World Cup games need to take this into consideration. Price Regulation By Decree N. 89 of 10 February 2016, the Russian Government established maximum prices per night for accommodation in hotels that are located in the cities and regions hosting the World Cup. The prices depend on the hotel categories and apply only for the period of staging of the World Cup. The highest prices have been set for St Petersburg. For example, one night in an ‘apartment’ or ‘suite’ type of room in a five-star hotel in St Petersburg costs up to RUB 700,000 (approx. 10,000 euros), while the price for a similar room in Volgograd will not exceed RUB 45,000. Safety Rules In April 2017 the Russian Government adopted new requirements for hotels to ensure that their anti-terrorism safety level is adequate.  Now all hotels in Russia must be categorized in accordance with their level of potential danger and the risk of acts of terrorism, as well as the possible scope and consequences of such acts. The new rules provide for four safety categories of hotels, each of which is subject to specific requirements and obligations. There are also requirements common for all hotels: to draft a plan of safety measures, to install video surveillance and emergency lighting systems, etc. Except for category 4 hotels (lowest risk level), all hotels must develop safety passports and have them approved by the local offices of the National Guard and the Federal Security Service. Sanitary Requirements Contrary to the federal measures described above, implementation of specific sanitary and epidemiological requirements associated with the World Cup is primarily the responsibility of regional authorities. Currently, certain regions have adopted decrees on immunising personnel involved in serving World Cup footballers and guests. For example, hotel employees in the Kaliningrad Region must be vaccinated against hepatitis A by 1 May 2018 (except for those already vaccinated or who have had this disease), and they must prove their previous vaccination against certain other diseases. Employees of restaurants and catering services must also be vaccinated against Sonne dysentery. Increased Authority Vigilance The above list of legal requirements is not comprehensive, and hoteliers may face increasing attention from various state agencies until the end of the World Cup. Reports already indicate that the number and frequency of inspections by fire protection authorities have significantly increased. Many issues arise from the specific migration rules for the World Cup guests or the taxation of transactions between hotels and non-resident FIFA suppliers (including those who coordinate accommodation services). Supervision of the use of 2018 FIFA World Cup symbols, which are intellectual property and which FIFA has exclusive rights to, is also a priority task for Russian authorities. Sharing experiences of dealing with supervisory authorities and best practices of compliance with ever toughening legal requirements is vitally important for hoteliers who are preparing to benefit from the 2018 FIFA World Cup in Russia.

   Published: 15.3.2018

7. Post

   Proposed Restrictions to Interest Deductions Would Harm Finland’s Competitiveness

   Bringing Finnish National Legislation up to the Minimum Level of the Directive The proposed amendments are based on the EU’s Anti Tax Avoidance Directive (ATAD) , which sets a minimum level for national legislation. However, the Ministry of Finance’s proposal goes significantly further than the ATAD requires. Finland should not implement more strict regulations than the minimum required level, because we don’t yet know how our key competitors are implementing the same directive – based on preliminary information, they are certainly not going as far as the Finnish proposal. Furthermore, Finland should take advantage of the wiggle room provided by the directive in order to secure our national competitiveness. Tightening Rules for Interest Deduction The minimum level required by the ATAD will already significantly tighten national interest deduction rules, but the Ministry of Finances proposal goes even further. In addition to restricting affiliated company interest deductions, the Ministry proposes restricting the deduction of interest expenses of loans from third parties. The Ministry’s proposal would expand the scope of restrictions to the point that they would catch, for example, companies in the real estate business and financial sector. The proposal also significantly expands definition of interest to cover various bank fees and advisory costs. According to the proposal, the deductibility of interest expenses payable to third parties would only be restricted when the tax subject is part of a group or is associated with the other party or has a permanent establishment. It is odd, to say the least, that the legislator would take such a strong hand in guiding how companies arrange their own operations. If establishing a subsidiary or expanding operations abroad could poison a company’s existing bank financing, we can justifiably ask whether this kind of regulation is acceptable from the perspective of the right of domicile and equality. As the current regulatory framework will be changing in any case, it is vital that the most problematic parts of the bill be addressed without delay. The new regulations will force tax subjects to reassess their financing and even their corporate structures, and it is vital that the final form of the amendments is clear as soon as possible. Due process requires that any amendments be known as soon as the tax year starts. The current proposed timetable is unacceptable for tax subjects whose 2019 tax year has already started. In my opinion, at least the following changes should be made to the proposal: Predictable tax treatment and flexible financing opportunities are decisive factors for international investors considering investments in Finland. Interest deduction provisions are a key part of tax treatment. As we don’t yet know what other countries are doing, it is completely unnecessary to harm Finland’s attractiveness by implementing the ATAD bin a more stringent form than international agreements require.

   Published: 9.3.2018

8. Post

   Are Your Service Agreements GDPR Ready?

   Even if you have outsourced the processing of personal data, you remain liable for that processing. You cannot outsource your statutory obligations, and failing to meet those obligations can carry heavy consequences. The key issue is how the outsourcing company (in data protection parlance, the data controller) has instructed the service provider, i.e. the personal data processor. The instructions must be documented, and are often incorporated into data processing agreements that define the rights and obligations of both the data controller and the processor with respect to the processing of personal data. A Data Processing Agreement is a Must The GDPR requires that the outsourcing of personal data processing must be agreed in writing. The GDPR also sets minimum requirements for what the agreement must contain. The most important requirements are: Many Kinds of Data Protection Agreements In practice, a data protection agreement can be either included as a section on personal data processing in the service agreement itself or by executing a separate personal data processing appendix or agreement. A separate appendix is often a good option, because it is easy to add to existing agreements. Despite the fact that the GDPR requires a written data processing agreement, neither the EU nor Finland’s data protection authorities have yet published model agreements. As a result, many data controllers and processors have drafted their own models in an effort to fulfil the requirements of the GDPR. As the roles of the companies, the personal data to be processed and the outsourced functions vary, data processing agreements also vary a great deal. The GDPR sets the minimum requirements for data processing agreements, but it is often justified to agree on other things, as well. For example, the agreement can set out how quickly the data processor has to notify the data controller of data breaches. In contract negotiations, the issue of the parties’ liability for damages and the possible limitation of liability often arises. It is worth dedicating time to resolving this, particularly when adding a data protection appendix to an existing service agreement. Other common issues that come up in negotiations include the processor’s right to use subcontractors, data transfers out of the EU, maintaining backups after the expiry of the service agreement and the compensation of costs incurred by the processor from assisting the data controller. Choose Your Service Provider Carefully Even though data processing agreements are important, data protection is something that needs to be on your mind already when choosing a service provider. Under the GDPR, the data controller must assess the expertise of service providers and only use providers that furnish sufficient guarantees that the data will be properly protected. The higher the risk posed by processing to the data subjects – for instance, if the processing of healthcare data is being outsourced – the stronger the data controller’s obligation to ensure that the service provider is capable of processing personal data securely. What is the Next Step? The requirements of the GDPR are backed up by a significant risk of sanction . As a result, companies that are data controllers must first determine the circumstances in which they transfer personal data to service providers. Without this knowledge, it is difficult to ensure that the terms of any contracts they have meet the GDPR’s requirements. This is true of both existing and future contracting relationships As the GDPR’s requirements are new, it is quite likely that existing service agreements do not meet all of them. Every company that has outsourced personal data processing needs to be preparing to amend their old agreements. There will only be few months’ transition time before the GDPR becomes effective, so if you haven’t already started updating your agreements, now is the time. Naturally, the GDPR’s requirements will have to be taken into account in new agreements, as well.

   Published: 2.3.2018

9. Post

   Rule 40 Guidelines for Commercial Advertising During the Olympics

   One of the Most Expensive Sports Brands on the Planet In practice, the Olympics are known in every corner of the globe, and the games currently boast an audience of over a billion counting both on-site spectators and home viewers. This makes the Olympic movement one of the world’s most expensive sports brands, and the trademarks and other intellectual property rights associated with the Olympics are the property of the International Olympic Committee (IOC) and its national member organisations. Due to the recognition of the brand, these IP rights represent significant financial interests, and managing them is an important part of safeguarding the reputation and continuity of the Olympics. Rule 40 Guidelines for Commercial Exploitation One key tool that the IOC uses to protect its financial interests relating to IPRs are the Rule 40 guidelines. These guidelines include rules for the competitors, coaches and other team members participating in the Olympics concerning commercial advertising during the games. The IOC uses the rules to grant its main sponsors exclusive rights to use the brand and trademarks of the Olympic movement in their marketing and during the games in return for the sponsors’ support, which makes the activities of the Olympic movement and the organising of the games possible. Under the Rule 40 guidelines, teams or team members participating in the Olympics cannot allow their person, name, image or athletic performance to be used for advertising purposes during the games. In addition to restricting the use of trademarks, the guidelines also include marketing restrictions for commercial actors that are not partners of the Olympic movement. Athletes’ personal sponsors typically fall into this category. Commercial actors are prohibited, among other things, from using Olympics participants in new marketing campaigns timed in such a way that could give the false impression of commercial cooperation between the marketer and the Olympics. References to the role or success of participants in the current or past games are also prohibited during the games. Athletes and other team members participating in the games or their sponsors can apply for exceptional permission for marketing during the Olympics using the participant’s person, name, image or performance. Either the IOC or a national Olympic committee will handle the application depending on whether the marketing would be international or limited to a single country. Clamping Down on Ambush Marketing The Rule 40 Guidelines also prohibit commercial actors from using certain terms referring to the Olympics in marketing during the games if the terms are linked to the name or image of a person participating in the games. The list of prohibited words includes some general words, such as gold, medal or victory. Restricting the use of these words is an attempt to prevent ambush marketing, which seeks to unjustly benefit from the reputation of the Olympics and the related financial interests without directly infringing the Olympic movement’s trademarks or other IPRs. Ambush marketing creates a false impression of cooperation between the commercial actor and the Olympic movement without actually using any marks owned by the movement. Listing prohibited terms reigns in the creation of such false impressions. Ambush marketing is a particularly harmful phenomenon for the Olympic movement, because over 40% of the income of the Olympics is from the support of the movement’s commercial partners. Furthermore, partners provide the games with vital technical services and product support. Ambush marketing reduces the value of the benefit the main sponsors receive in exchange for their important support. It is vital to the continuity of this support that the financial benefit of the Olympics is channelled to the organisers and financiers of the games. The Rule 40 guidelines ensure that this is the case and help secure the continuation of the Olympic tradition. Castrén & Snellman is an official partner of the Finnish Olympic Committee and is supporting the Finnish Olympic team. Pia Ek Antti Markkanen

   Published: 14.2.2018

10. Post

    Too Many Public Procurement Disputes in Finland

    The average handling time for cases was over 8 months. This is obviously far too long considering the interests of both contracting entities and bidders. So, what could be done to decrease the number of disputes? Here are a few ideas for contracting entities: Currently, appellants win approximately 20% of the appeals before the Market Court. Thus, the vast majority of appeals are rejected and many appeals could be avoided. This would shorten the handling times and allow the Market Court to concentrate on the right cases.

    Published: 9.2.2018