Corporate governance is the system of rules, practices, and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of a company’s many stakeholders.
At Finnfund, overseeing and developing the corporate governance approach is the responsibility of the risk management function, and the implementation and daily work is conducted by the investment team as part of due diligence and portfolio management.
We believe that good corporate governance is a precondition for the achievement of sustainability in business and long-term economic development. Finnfund promotes good corporate governance in its investments. Together with 35 development financiers, Finnfund has signed the Corporate Governance Development Framework to address the governance risks and opportunities in its operations. The framework is based on the IFC corporate governance assessment methodology, and it is specifically developed for development finance.
During the due diligence phase, prior to the investment decision, Finnfund uses corporate governance screening tools to assess the maturity of the investee’s governance structures and systems. During the investment period, especially in equity investments, we put emphasis on developing these structures further.
The aspects assessed include, for example:
- Commitment e.g., existence and functionality of the company’s administrative organisation
- Board of Directors e.g., practices and functionality of the governing body
- Control Environment and Process e.g., internal monitoring mechanisms
- Transparency and Disclosure e.g., calculation and reporting systems, obtaining information
- Shareholders’ Rights e.g., shareholders’ influence and equal treatment
The Corporate Governance Development Framework can be found here: Corporate Governance Development Framework