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Corporate Governance

Governance Overview and Commitment

Upholding the highest governance standards is a key priority of the Finning Board of Directors. Finning has an established tradition of excellence in corporate governance and the Board is resolute in its commitment to fulfilling its duty of accountability. The Board is also committed to building on its best practices through continuous evaluation and improvement.

Our corporate culture of integrity and respect for the Company’s stakeholders is further reinforced by Finning’s Code of Conduct which guides the actions of our employees.

Board Mandate

The Board of Directors has overall responsibility for Finning’s business conduct. The Board fulfils this responsibility both directly and by delegating certain authority to Board committees and to Finning’s senior management.

The direct responsibilities of the Board include:

  • choosing Finning’s CEO, who is responsible for all of Finning’s day-to-day operations;
  • reviewing and approving the annual operating plan and the strategic plan that takes into account business opportunities and business risks;
  • overseeing and monitoring management’s systems for the operations of Finning;
  • monitoring and assessing Finning’s performance in meeting both short- and long-term goals established by management and approved by the Board;
  • directly reviewing and approving major transactions proposed by management, including the payment of dividends and the terms for the issuance of securities;
  • reviewing reports and recommendations from committees of the Board with respect to matters such as succession planning and giving necessary direction to management;
  • reviewing the content of significant communications with shareholders and the investing public, including this management proxy circular, annual information forms and quarterly and annual financial statements, management’s discussion and analysis and their associated press releases;
  • reviewing and approving key corporate policies;
  • managing its own affairs, including planning its composition, selecting its Board Chair, nominating candidates for election to the Board, appointing committees and determining director compensation; and
  • approving the appointment of all corporate officers and the remuneration of the CEO.

Board Meetings

During 2016, the Board of Directors met on seven occasions. Five meetings were in person and two were held by telephone conference. At each Board meeting, the Board discusses the corporate strategy and annually has an in-depth discussion on strategy and the top key strategic business risks to Finning. At every meeting the Board holds independent sessions without management and without the non-independent directors present.

Director Tenure

To encourage and facilitate Board renewal, the Board has adopted a mandatory retirement age policy. This policy, when combined with an effective annual Board assessment process and natural turnover, provides the Board with an appropriate balance of knowledge and understanding, new perspectives and diversity and allows for a strong and effective Board.

The Board recognizes that term limits can help facilitate board refreshment and new perspectives. However, term limits can also put a board at risk of losing longer serving directors who have an in depth knowledge and understanding of a company and its business and its strategic business partner relationships. This loss of knowledge and understanding would not necessarily serve a company or its shareholders’ best interests.

Retirement Policy

All directors are eligible for re-election until reaching age 72, and must retire at the next annual meeting following the date on which the director reaches the age of 72. The Board may waive this requirement in an individual case if, after conducting a thorough search, a qualified replacement director cannot be found or if the retiring director possesses such unique skills that the loss of these skills would be a material loss to Finning.

Diversity

Diversity is integral to Finning at all levels throughout our organization. In addition to the traditional concepts of diversity (e.g., gender, culture and geographic region) it is important for the Board to achieve a diversity of knowledge, experience and capabilities that supports Finning’s strategic direction. While Finning does not currently have a formal policy concerning diversity of director nominees, or the representation of women on the Board, it is committed to building and sustaining a diverse and inclusive Board that both supports Finning’s strategy and reflects the Company’s global presence. Finning has three female directors representing 23% of the Board. Management and the Board of Directors are committed to developing a written policy relating to the identification and nomination of women directors for approval by the Board in 2017.

Finning’s Board does not support fixed percentages or quotas for diversity, as it is ultimately the diversity of skills and experience that are most important in determining the value that an individual brings to the Board. As part of the Board renewal process, where candidates are relatively equivalent in their levels of required skills and experience, the Board is committed to advancing those candidates who enhance gender diversity to add a broader perspective on the Board.

Director Nomination and Skills Matrix

The Corporate Governance Committee, a committee composed entirely of independent directors, is responsible for identifying and recruiting new candidates for nomination to the Board. In developing these recommendations for the Board, the Corporate Governance Committee believes that having a diverse Board brings a broader range of skills, experience and perspectives to corporate governance, and enhances the Board’s effectiveness. Ultimately, when identifying potential candidates, the Board assesses the individual candidate’s competencies and skills against those that have been identified as desirable to enhance overall Board performance. The Board strives to provide a diverse and broad range of skills and synergies to support management in the achievement of their goals and Finning’s strategic plans, while maintaining the Board’s fiduciary responsibility to act in Finning’s best interest.

The Committee utilizes a skills and expertise diversity matrix to assist with reviewing the skill sets of candidates and the Board as a whole. As the Board composition changes and as Finning’s strategy evolves, the director skills matrix is reviewed to ensure that the current director skill sets align with the strategic corporate goals as well as to prioritize and identify areas of future enhancements or gaps in the current skill sets of Board members or its various committees.

As a result of director recruitment and renewal activities that have been ongoing over the past four years, the Committee has been actively recruiting Board members who help address the specific skill and diversity requirements that have been identified in the director skills matrix as potential gaps. The Board and management are confident that ongoing recruitment activities will further strengthen the Board through diversity and in meeting the strategic needs of the Company.

Director Independence

The Board of Directors is currently made up of 13 members and following the 2017 annual and special meeting, the Board of Directors will be made up of twelve members. The Board has considered which of its members are “independent” for purposes of National Instrument 58-101 of the Canadian Securities Administrators and has concluded that all directors, other than L. Scott Thomson (who is the President and Chief Executive Officer of Finning) are independent. Details for determining director independence are further discussed in the management proxy circular.

Board and Committee Evaluations

Acknowledging the impact that good governance contributes to corporate effectiveness, annually the Board, facilitated by the Corporate Governance Committee, formally reviews its own performance and the performance of each committee of the Board, the committee chairs and the Board Chair. The Board’s peer evaluation process is facilitated through one-on-one director interviews with the Board Chair. Details of the process undertaken for the 2016 evaluations are described in the management proxy circular.

The results of the 2016 performance assessments of the Board and its committees and respective chairs, as compiled by the office of the Corporate Secretary, indicated that governance is working well at Finning. Board performance is strong as measured against its objectives, and the committees and chairs performed effectively and in compliance with their respective Terms of Reference. Overall, the Board of Directors and its committees demonstrate a healthy culture, with a broad diversity of perspectives and a high commitment to strong Board governance through education, site visits and interaction with Finning and Caterpillar executive management.

Orientation and Continuing Education

The purpose of the Director Orientation and Education Program is to ensure there is an orientation program for new directors and an ongoing education program for existing directors. The program utilizes materials and resources that inform and educate directors on the Company’s corporate governance framework, and on our business, operations and current issues and strategies, as well as address the educational needs of directors in respect of their duties generally. The program is overseen by the Corporate Governance Committee.

The purpose of the director orientation program is to increase a director’s familiarity with the Company and its industry and to equip directors with sufficient information and resources to facilitate fully informed decisions.

The purpose of the education program is to enable directors to better perform their duties, and to recognize and deal appropriately with different issues that may arise during their tenure as a director and a member of a Board committee.

Director Orientation

Director orientation begins when a potential director is being considered for membership on the Board, is the focus during the onboarding phase for a new director, and transitions into ongoing director education and assessment.

As part of the recruitment process, prospective Board members will receive certain information regarding the Company’s organization, culture, strategy, Board composition and compensation plans, and Board mandate outlining the key responsibilities of directors.

At the time of appointment as a director, the Corporate Secretary’s office will provide training and access to the Board portal, where key orientation materials can be accessed, including Finning’s Board Policy Manual. Other material on the portal includes Board and committee meeting materials, governance information related to the responsibilities of directors, in addition to key policies and communications materials.

New directors are also provided with detailed information describing Finning and our business. In addition, all new directors meet with senior management for detailed briefings. Briefings and materials supplied include details on:

  • business and strategic plans;
  • key strategic risks and risk management;
  • operational overviews;
  • compliance programs;
  • treasury (funding position, arrangements, policies); and
  • financial reporting and auditing policies and procedures.

The orientation program also involves director visits to plant sites and facilities, where appropriate.

Ongoing Director Education

Each director ultimately assumes responsibility for keeping himself or herself informed about Finning’s business and relevant developments outside Finning that affect our business. Management assists directors by providing regular updates on relevant developments and other information that management considers of interest to the Board, including, in addition to financial, business and strategic information.

The education portion of the program is designed to enhance directors’ skills and understanding of Finning’s business environment. This knowledge will enable them to better perform their duties and to recognize and deal appropriately with different issues that may arise during their directorship. Educational opportunities include:

  • paid membership to professional organizations such as the Institute of Corporate Directors;
  • periodic presentations to the Board by management and advisors on specific topics related to Finning and our business;
  • articles on emerging corporate governance trends and best practices, analyst reports and other relevant topics regarding Finning’s business are regularly posted on the Board portal for all directors’ general information;
  • guest attendance at committee meetings by non-committee Board members who are interested in more in-depth discussions regarding subject matters of interest;
  • plant site and facility visits from time to time to give directors additional insight into Finning’s business; and
  • external director education programs to enhance their development as a director. The General Counsel and Corporate Secretary reviews information on education opportunities and advises directors, as appropriate.

Risk Management Process

Finning’s Board, with assistance from its committees, is responsible for ensuring that management has identified the principal risks of Finning’s business and that all reasonable steps have been taken to ensure the implementation of appropriate systems and plans to manage these risks. The Audit Committee assists the Board in the assessment of the management systems and processes to manage business and financial risks. Management updates the Audit Committee on the top key risks, including strategic, financial, operational and corporate risks, and any changes in relative ranking of those risks at each regularly scheduled Audit Committee meeting. The Human Resources Committee reviews Finning’s compensation policies and practices to confirm their alignment to Finning’s risks and principles to ensure that they do not encourage inappropriate or excessive risk taking. The Safety, Environment & Social Responsibility Committee oversees the policies and systems to monitor for safety, health and environmental risks.

In 2016, the Board continued to educate new directors on the top key strategic risks to Finning’s business. Top risks are noted in each quarterly operating review with the Board. In 2016, management presented the Company’s enterprise risk process and held an educational session on the top key strategic risks and mitigation actions for the short and long term. As part of this process, emerging risks that could impact Finning’s business into the future were identified and discussed.

Key Policies

As part of its oversight responsibilities, the Board has approved a number of policies to ensure employees at all levels maintain Finning’s high standards of governance. These are:

  • Code of Conduct;
  • Code of Ethics for Senior Executive and Financial Management;
  • Corporate Disclosure Policy;
  • Majority Voting Policy;
  • Policy on Share Trading, Hedging and Use of Material Information;
  • Whistleblower Policy;
  • Global Anti-Bribery and Anti-Corruption Policy; and
  • Global Political Contributions Policy.

Annually, Finning’s senior executives and financial management receive the Code of Ethics for Senior Executives and Financial Management, together with the Code of Conduct, Corporate Disclosure Policy, Whistleblower Policy, Global Anti-Bribery and Anti-Corruption Policy and the Policy on Share Trading, Hedging and Use of Material Information. These employees are required to acknowledge annually in writing that they are aware of these policies and that they agree to comply with their terms.

Ethical Business Conduct

Finning’s Code of Conduct (Code) governs the behaviour of all directors, officers and employees of Finning and our subsidiaries and affiliates. The Code also requires that agents, consultants, contractors and suppliers act consistently with Finning’s Code when acting with or on behalf of Finning. The Code, available in English and Spanish, sets out the fundamental terms upon which Finning conducts business and deals with subjects such as ethical decision making, compliance with laws, corruption and bribery, business and fiscal integrity and responsibility, health and safety, care of the environment, conflicts of interest, diversity and inclusion, and providing a workplace free from harassment.

The Board monitors compliance with the Code through the Audit Committee. All directors, officers and key employees acknowledge their support and understanding of the Code on an annual basis. All new employees receive a copy of the Code upon hiring. All directors, officers and employees have a duty to report suspected Code violations. In order to address Code matters in a timely, unbiased and confidential manner, the Company has established a Global Ethics Committee comprised of the Compliance Officer (General Counsel and Corporate Secretary), Executive Vice President & Chief Financial Officer, Vice President, Risk Management, Chief Human Resources Officer and the Senior Vice President, Corporate Controller & Treasurer. The Global Ethics Committee investigates and, where appropriate, delegates potential violation claim reports to the Regional Ethics Committees (comprised of senior level executives in finance, legal, human resources and internal audit). The Global and Regional Ethics Committees are management committees. The Audit Committee receives quarterly reports on the number and nature of complaints received by the Global Ethics Committee and the Regional Ethics Committees, including specific reports of any suspected Code violations that may constitute a material risk.

Anyone who believes that a violation of the Code has occurred or who requires advice regarding compliance with the Code, is encouraged to report such violation or concern through Finning’s compliance website or telephone hotline. Both the compliance website and the telephone hotline are managed by an independent global reporting agency. In addition, our Compliance Officer can be contacted directly at complianceofficer@finning.com. Further information on the reporting of ethics violations or concerns is provided in Finning’s Whistleblower Policy.

Communications With The Board

The Board ensures systems are in place for our communication with our shareholders and other stakeholders. Such communication includes quarterly and annual financial statements and related management’s discussion and analysis, management proxy circulars, annual information forms and news releases containing significant new information. The Board also encourages shareholders to attend Finning’s annual meeting. The annual meeting provides a valuable opportunity to hear directly from management about the results of Finning’s business and operations. Members of the Board are in attendance at annual meetings and the Board and committee chairs are available to answer questions.

The Board has determined that questions or concerns related to the Board and senior executive succession process, executive and Board compensation, Board level corporate governance and other matters that are within the scope of the Board’s supervisory and oversight duties, as set out in its Terms of Reference, may appropriately be addressed to and by the Board.

Those shareholders, employees and other interested parties wishing to communicate directly with the Board may do so through the Board Chair. Direct your written communication marked Private and Confidential, in writing to:

Board Chair
c/o General Counsel and Corporate Secretary
Finning International Inc.
1000 – 666 Burrard Street
Vancouver, B.C. V6C 2X8

Advisory Vote on Executive Compensation

As part of Finning’s commitment to strong corporate governance practices, since 2011 the Board has given shareholders the opportunity to cast an advisory vote on the Board’s overall approach to executive compensation (Say on Pay) at its annual meeting. At the 2016 and 2015 annual meetings, Finning’s approach to executive compensation was approved by 95.11% and 94.41%, respectively, of the Common Shares voted on the advisory Say on Pay resolution.

For further details on Finning’s Board of Directors or on its governance practices, please refer to Finning’s most recent Management Proxy Circular.

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