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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 directors, officers and employees.

Board Mandate

The Board of Directors has overall responsibility for Finning’s business conduct and fostering our long-term success to maximize shareholder value. The Board fulfils this responsibility 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 Finning’s day-to-day operations;
  • reviewing and approving the annual operating plan and the strategic plan, which take into account business opportunities and business risks;
  • overseeing and monitoring management’s systems for Finning’s operations;
  • 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 Board committees and giving management the necessary direction;
  • reviewing the content of significant communications with shareholders and the investing public, including this management proxy circular, the annual information form, and quarterly and annual financial statements, management’s discussion and analysis and associated news releases;
  • reviewing and approving key corporate policies;
  • managing the Board’s affairs, including planning its composition, selecting the Board Chair, nominating candidates for election to the Board, appointing committees and committee chairs and determining director compensation; and
  • approving the appointment of all corporate officers and the compensation of the CEO.

Board Meetings

During 2017, 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.

Retirement and Term Limits

Pursuant to Finning’s retirement policy, when directors turn 72 years old, they are no longer eligible to stand for re-election at the next annual meeting and must retire from the Board. The Board can waive this requirement if a qualified replacement director has not been identified after a thorough search, or if the director’s retirement would have a material impact on Finning because it would mean losing a unique set of skills.
The Board has not adopted term limits because it would risk losing directors with a deep understanding of Finning and its business and strategic relationships. The Board believes that it has achieved healthy renewal through ordinary turnover and its retirement policy.
The average tenure of the proposed Board is six years. Seven of the twelve nominees have served on our Board for less than four years.

Diversity at Finning

Being a global leader necessitates inclusive behaviours that diversify talent, drive engagement and ultimately deliver better outcomes for our stakeholders. Finning values diversity on the Board and at all levels of the organization.

Diversity Statement

We are committed to elevating diversity at Finning, to building and sustaining a diverse and inclusive workforce with clear accountability frameworks, staffing goals, and a robust pipeline of diverse leaders. Diversity at Finning means being inclusive of individuals regardless of gender, race, national or ethnic origin, colour, religion, age, sexual orientation, marital or family status, or physical or mental abilities.

Our diversity statement is included in our Code of Conduct and applies to everyone at Finning, including our directors, officers and employees.

We believe that Finning should have a diverse and inclusive Board that supports our strategy and global presence. In 2017, Finning adopted a Board Diversity policy that sets out our approach for promoting and achieving inclusion and diversity on our Board, including the identification and nomination of female directors. The Corporate Governance Committee considers diversity when conducting recruitment activities and reviews diversity as part of its annual review of the director skills matrix.

While the Board does not support fixed percentages or quotas for diversity, our goal is to have female directors represent at least 30% of the Board. Of the twelve directors who stood for election at our 2018 annual meeting, four were female, representing 33% of the Board.

The Board considers relevant skills and experience and the need to fill any gaps in the Board’s skill set when recruiting potential director candidates. When candidates have similar skills and experience, the Board will advance the female candidate to enhance diversity and add a broader perspective.

Director Nomination and Skills Matrix

The Corporate Governance Committee is responsible for recruiting new directors who will broaden the skill set and diversity of our Board. When considering director nominees, the Board assesses the individual candidate’s competencies and skills against those that the Board has identified in a skills matrix as desirable to enhance Board performance. 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 Finning’s strategic goals. The skills matrix also helps the Board to prioritize and identify areas for future enhancement or gaps in the current skill sets of the Board and committees.

Director recruitment and renewal activities have been ongoing over the past five years. The Corporate Governance 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 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

The Board reviews its performance every year to assess its general performance and progress on its annual objectives. The Corporate Governance Committee is responsible for the evaluation process, which is conducted annually in-house through the Corporate Secretary’s office and at least every three years through an independent external consultant.

In 2017, the Corporate Governance Committee engaged Watson Inc. to conduct a comprehensive review of Board and director effectiveness.

The Board evaluation began with a preliminary online survey to identify areas for Board focus in the evaluation and followed up with individual interviews with each director and members of senior management who have regular interaction with the Board and/or its committees. The Board evaluation covered a wide range of topics including Board structure, composition and succession, alignment of the Board and executive on strategy and priorities, Board/management relationship, Board leadership, Board culture and dynamics, director recruitment and development, and shareholder and stakeholder engagement, among other topics. The Board evaluation also included a portion on committee effectiveness, covering topics such as composition, committee leadership and priorities for the coming year.

Individual directors evaluations included a comprehensive online survey to receive quantitative ratings, qualitative feedback and a peer review of director contributions. The director evaluations also covered a wide range of issues including strategic perspective, key strengths relevant to the skills matrix and future Board requirements, business, risk and financial acumen, fiduciary duty, objectivity and independence, level of engagement and boardroom demeanour.

Watson Inc. compiled the results, discussed them with the Corporate Governance Committee chair and the Board Chair and delivered a report to the Corporate Governance Committee, which was then reported to the Board. Individual meetings between the Board Chair, the Corporate Governance Committee chair and each director to debrief individual directors on their results in the peer review were completed in the first quarter of 2018. The Corporate Governance Committee chair also met with the Board Chair to review his individual results.

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.

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. Finning provides information about emerging corporate governance trends and best practices and other relevant information through the Board portal, and directors receive paid memberships to professional organizations like the Institute of Corporate Directors.

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 Corporate Governance Committee receives quarterly updates on regulatory matters relevant to governance matters to ensure that Finning stays at the forefront in this area, and reviews our governance practices to make sure they align with regulatory requirements and best practices. The Safety, Environment & Social Responsibility Committee oversees the policies and systems to monitor for safety, health and environmental risks.

In 2017, 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.

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;
  • Whistleblower Policy;
  • Corporate Disclosure Policy;
  • Code of Ethics for Senior Executive and Financial Management;
  • Policy on Share Trading, Hedging and Use of Material Information;
  • Global Anti-Bribery and Anti-Corruption Policy; and
  • Majority Voting Policy;
  • Board Diversity Policy
  • 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 has earned a strong reputation for business integrity. For 85 years, Finning’s rigorous standards of business conduct have been a key reason why employees work for us, customers and suppliers partner with us and shareholders invest in us.
Our code of conduct (code) puts into practice our principles of transparency, ethics and professionalism. It covers several areas including ambassadorship, shared commitment and accountability, ethical decision-making, corporate disclosure, conflicts of interest and confidentiality.

Finning’s 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 2018 and 217 annual meetings, Finning’s approach to executive compensation was approved by 92.39 and 94.75%, 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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