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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 2018, the Board of Directors met on six occasions. Five meetings were held in person and one was 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 five years. Five of the twelve nominees have served on our Board for less than four years.

Inclusion and Diversity at Finning

At Finning, we believe that inclusion of diversity broadens talent, drives better performance and increases innovation, leading to better outcomes for all of our stakeholders and making us a stronger company overall. To promote an inclusive culture and protect the physical and psychological safety of Finning’s employees, we are committed to ensuring all individuals enjoy respect and dignity in a safe work environment, free from discrimination, harassment and workplace violence.

Our demographics, in age, gender and nationalities, reflect the global nature of our operations and customer base. Finning’s goal is to recruit, develop and promote talent inclusively, to ensure our workforce reflects the global supply of talent. We are striving to achieve a more balanced gender composition across our workforce, leadership levels and board of director roles.

2018 Inclusion and Diversity Initiatives

In 2018, we expanded on our commitment to a respectful workplace by deploying virtual training to all employees, teaching them how to identify, respond appropriately to and prevent incidents of harassment. We trained our HR managers to deliver training to our leaders on building respectful teams. Finning also focused on building awareness of and belief in Finning’s inclusion journey by holding conscious inclusion workshops and training programs. There programs are designed to increase leaders’ knowledge of why inclusive and diverse teams matter to Finning, how unconscious biases undermine our decision quality, what our leaders can do to build inclusive and diverse teams and how to recruit inclusively.

We believe having a diverse and inclusive board leads to a better understanding of opportunities, issues and risks; enables stronger decision-making; and ultimately improves the Board’s performance and ability to provide strategic oversight and maximize shareholder value. In a dynamic global environment, the benefits of inclusion and diversity are critical to our long-term success and viability. 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. At this year’s annual meeting, four of the twelve directors standing for election are female, representing 33% of the Board or 36% of the independent directors.

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 several 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

This year twelve directors will be elected to the Board. 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 2018, the Board evaluation process was overseen by General Counsel and Corporate Secretary. Due to the Board Chair transition that occurred in January 2019, no Board Chair evaluation was conducted in 2018.

The Board evaluation process included an online survey to identify areas for Board focus with Board member and key management participation. The Board evaluation covered a wide range of topics including Board composition and succession, alignment of the Board and executive on strategy and priorities, Board leadership, CEO succession plans, director recruitment and development, and shareholder and stakeholder engagement, among other topics. The Board evaluation also included a survey on committee and committee chair effectiveness, covering topics such as composition, committee reporting, committee leadership and priorities for the coming year.

Individual directors evaluations included an online survey to receive quantitative ratings and qualitative feedback on each director’s contributions in the form of a peer review. 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.

The office of the General Counsel and Corporate Secretary compiled the results of the Board and committee evaluations, 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. The results of the individual director assessments were also compiled and provided to the Corporate Governance Committee chair and the Board Chair. Individual meetings between the Board Chair and each director to debrief individual directors on their results in the peer review are proceeding in the first quarter of 2019. The Corporate Governance Committee Chair will meet with the Board Chair to review the Board Chair’s individual results.

The conclusion of the evaluations is that our Board is seen to have a strong level of engagement and there is close alignment between the Board and management on the Board’s effectiveness and on Board priorities. The committees are also seen to be working effectively, with good support from management. The observations and recommendations from this evaluation process will be considered in the development of Board and committee objectives for 2019.

Director Development

We design our director orientation and education programs to inform and educate our directors on a range of topics so they are better equipped to deal appropriately with issues that may arise during their tenure, make more informed decisions and perform their duties as a member of the Finning Board generally.

The Corporate Governance Committee oversees the program, which includes putting together materials, resources and sessions on corporate governance matters as well as our business, strategy, operations and current issues facing the business.

Director Orientation

The orientation process begins with prospective directors. As part of the on-boarding process, we provide information about Finning’s culture and strategy, Board compensation, director compensation and Board mandate, which outlines the key responsibilities of directors.

New directors receive training and access to the Board portal, which provides important orientation materials such as the Board policy manual, Board and committee meeting materials, key policies and communications materials. They also receive detailed information about Finning and our business, and new directors meet with senior management to receive briefings and materials on:

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

Director orientation also includes visits to plant sites and facilities where appropriate.

Continuing Education

Each director is responsible for staying informed about Finning's business and outside developments that could have an impact on Finning. Senior management provides regular updates to the Board about our business, including financial, business and strategic information, as well as recent developments and other issues. Outside advisors may make presentations on specific topics or developing issues, and director may visit plant sites and facilities from time to time to gain additional insight into our business.

We provide information about emerging corporate governance trends and best practices and other related 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 also advises directors of educational opportunities from time to time.

Risk Oversight

Our business includes market, credit, liquidity and other risks. We have a strong risk management culture and an enterprise risk management process to manage our business activities and risks.

Each of our operations identifies the main risks that could have a negative effect on Finning's business, and then develops a plan to mitigate those 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 risks and mitigation plans during each quarterly Audit Committee meeting.

The Board and its committees are responsible for ensuring that management has taken all reasonable steps to identify and manage all key risks:

  • the Audit Committee receives quarterly updates from management at every regularly scheduled meeting on the top risks and any changes in the risks or their relative ranking. It reviews our process for assessing and managing risks, including how we monitor and control major financial risks, and reviews our public disclosure of risks
  • the Human Resources Committee reviews our executive compensation policies and practices to make sure they align with our compensation principles and do not encourage inappropriate or excessive risk-taking
  • the Corporate Governance Committee receives quarterly updates on regulatory matters relevant to governance, 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 practice
  • the Safety, Environment and Social Responsibility Committee oversees our policies and systems to monitor safety, health and environmental risks.

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;
  • Majority Voting Policy;
  • Board Diversity Policy;
  • Global Political Contributions Policy; and
  • Global Sustainability 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.

The Code applies to everyone at Finning, including our subsidiaries and affiliates, and we expect our agents, consultants, contractors and suppliers who work with us to act consistently with our Code. 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.

Our Global Ethics Committee oversees investigations of reports of suspected Code violations. It is a management committee made up of our Compliance Officer (General Counsel and Corporate Secretary), CFO, Chief Human Resources Officer, Senior Vice President, Corporate Controller and Vice President, Risk Management. Our regional ethics committees investigate suspected violations of the Code in the regions and report on their investigations to the Global Ethics Committee. The regional ethics committees include senior executives from finance, legal, human resources and internal audit.

The Audit Committee monitors compliance with the Code. It receives quarterly reports from the Global Ethics Committee on the number and nature of complaints, and specific reports of any suspected violations of the Code that may constitute a material risk.

Everyone is responsible for reporting a suspected breach immediately, by contacting their supervisor, manager or local representative. They can also contact our Compliance Officer, file a report in English or Spanish through our ethics and compliance website or call the ethics and compliance hotline. All reports are treated impartially and confidentially, and there is no retaliation for anyone who speaks up and acts in good faith. 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.

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.
300 – 565 Great Northern Way
Vancouver, B.C. V5T 0H8

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. Our five-year average support of our approach to executive compensation is 94.24%. We are holding another advisory vote on executive pay at our 2019 annual meeting of shareholders on May 7, 2019.

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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