Good corporate governance is a practice deeply embedded in the ethos of the Kesko Corporation, a leading provider of trading sector services
Kesko is a highly-valued listed company and has around 2,000 stores engaged in chain operations in eight countries. More than one million customers shop at K-stores every day.
Established in 1940, Kesko has been listed on the NASDAQ OMX Helsinki stock exchange since 1960. At the end of 2011, there were some 40,000 shareholders. In 2011, Kesko’s net sales totalled some €9.5bn and the whole K-Group’s (i.e. Kesko and retailers) sales amounted to some €11.8bn. Since 2005, Kesko’s President and CEO has been Matti Halmesmäki, an influential figure in the trading sector and acts as the Chair of the Board of the Federation of Finnish Commerce and on the Board of the Confederation of Finnish Industries EK.
Expansion through Russia
Kesko is expanding its operations, especially in the large and fast-growing Russian market. The main emphasis is on the food, sports, building and home improvement trades. Kesko’s strong balance sheet enables significant capital expenditures to be made in future growth areas. In the food trade, the objective is to open 10 large-scale grocery stores in Russia by 2015. The capital expenditure is estimated to be €300m over 2011-15. In the building and home improvement trade, Kesko currently operates 14 K-rauta stores in Russia with 11 new stores planned to be opened by the end of 2015; the capital expenditure is estimated at €300m. In August 2011, Kesko acquired Intersport operations in Russia, where 36 stores were transferred to the Kesko subsidiary with the aim of at least doubling the store network by the end of 2015.
For Kesko, good corporate governance is a factor which provides a strong basis for long-term success in business operations for the benefit of customers and shareholders, says its General Counsel, Vice President Anne Leppälä-Nilsson. Openness, transparency and continuously updated investor and stakeholder communications are a central part of good corporate governance in Kesko. Information on good corporate governance is centralised at its website in the corporate governance section, which has been modified for increased user-friendliness and information.
Effective risk management is a competitive advantage and an important aspect of corporate governance, which is especially emphasised in financially difficult times. Risk management at Kesko is a systematic and comprehensive process, whose goals, principles, organisation, as well as responsibilities and practices have been defined in the risk management policy confirmed for adoption by the board. The key objectives of Kesko’s risk management are to help ensure profit performance, dividend distribution ability, shareholder value and the implementation of responsible operating practices. Kesko’s risk management policy is based on the COSO ERM Framework and the SFS-ISO 31000 standard.
At Kesko, a risk is defined as an event or a circumstance that may hinder or prevent the attainment of objectives, or lead to a failure to exploit business opportunities. The risk tolerance determined by the board controls risk appetite throughout the group. Risk taking in relation to tolerance is monitored on a regular basis, especially in connection with strategy discussions and when making decisions on business projects or capital expenditures.
A practical component of risk management consists of group-wide compliance programmes, especially in competition matters and responsible operating practices. It is important for Kesko that all units, regardless of location, operate in compliance with its common responsible practices and values. As part of a compliance programme, Kesko’s legal affairs, risk management and internal audit have organised a series of value discussions focusing on its responsible operating practices since 2010.
It is important for Kesko to provide investors and stakeholder groups with updated information, not only on business opportunities, but also on the group’s risk management. To this effect, Kesko has focused on providing the market with transparent and updated risk reporting. In connection with the financial statements, as part of the report by the board of directors, and in the corporate governance section on Kesko’s website, there is comprehensive reporting on risk management implementation, significant risks and their management responses. Any material changes in risks are reported to the market by the board of directors in its interim reports.
Taking care of the environment
Kesko mitigates climate change by improving the efficiency of its energy consumption and increasing the recovery of waste. The design and building of a new store site or a shopping centre are based on sustainable development, environmental friendliness and energy efficiency. Solutions that reduce the consumption of materials and energy during the lifecycles of properties are adopted in building new stores and refurbishing existing ones.
The energy efficiency of properties can be improved by recovering the condensation heat of refrigeration units in stores, fitting chest freezers with lids and using LED technology in new advertising signage.
Kesko promotes sustainable building and is a member of the Green Building Council Finland (FIGBC), choosing the international BREEAM as its environmental assessment method best suited for retail store properties.
In Finland, retail logistics generate dozens of millions of transport kilometres in a year due to the geographical length of the country. Kesko’s objective is to reduce carbon dioxide emissions from transportation. In autumn 2011, K-food stores’ transportation started testing a new kind of double-decker lorry trailer that will help reduce the carbon dioxide emissions from transportation by a third.
The reduction of waste throughout stores and warehouses, as well as recovery, have a significant environmental impact. Kesko Food’s objective for the future is to direct nearly all generated waste to recycling or energy and fuel production. The recycling rate in Kesko Food’s logistics is nearly 95 percent and the aim is to raise K-food stores’ recycling rate to 90 percent in 2012.
The return rate of used glass bottles in Finland is nearly 100 percent and consumers recycle more than 90 percent of recyclable plastic bottles and aluminium cans. A total of 338 million cans and 111 million recyclable bottles were returned to K-food stores in 2011.
For the customers of building and home improvement stores, energy efficiency means more comfortable living, smaller energy bills and a cleaner environment. The energy specialist service available from the K-rauta and Rautia stores offer customers energy efficient solutions, such as energy saving surveys, thermographic camera inspections, air heat and ground heat pumps, solar water heaters and solar panels.
Treating everyone as equals
Kesko’s buying principles guide its responsible purchasing, where various policy statements have been prepared to support its operations. These include a fish and shellfish statement, timber policy, a stand on sand blasting of jeans and a palm oil policy. In product sourcing, Kesko pays special attention to the human rights and working conditions of employees across the supply chain, with a special focus on countries where the risks of violating these rights are highest. For supplier audits, Kesko uses international systems – BSCI audits and the SA8000 certification. The objective is to do business in high-risk countries only with suppliers who have passed the audit.
Kesko Food’s Product Research Unit analyses product samples of foods and home and speciality goods, develops new foodstuffs and is responsible for product recalls. The Product Research Laboratory has the ISO 17025 certification. In 2011, Product Research analysed some 9,000 samples. Nutritional value information was added to all 4,600 cooking recipes maintained in Kesko’s recipe service.
The focus areas of employee wellbeing are work and competence, management and leadership, personal life management and working community. The wellbeing of the working community and the quality of leadership are measured with an annual personnel survey. The guide Our Responsible Working Principles provides guidelines to all of the K-Group’s personnel for operating in accordance with the joint values and responsible practices. Kesko also participates in the UN Global Compact initiative and is committed to observe 10 generally accepted principles related to human rights, labour standards, the environment and anti-corruption.