The New Corporate Governance Code 2025 will be Effective as from 1 January 2025

The Finnish Securities Market Association maintains the Corporate Governance Code for listed companies supplementing the obligations imposed by legislation. The Corporate Governance Code is applied in accordance with the “comply or explain” principle and consequently companies may depart from the recommendations, provided that the departing is reported and the reasons for it are explained.

The Securities Market Association published a revised Corporate Governance Code 2025 (the “2025 Code”) on 28 November 2024. The 2025 Code will replace the Corporate Governance Code 2020 (the “2020 Code”), which has been applied since 1 January 2020.

The work to update the 2020 Code was announced in June 2023, and a large part of the revisions in the new 2025 Code reflects the requirements set out in the directive on gender balance on the boards of listed companies (Directive (EU) 2022/2381, the “Board Gender Balance Directive”).

A draft of the updated Corporate Governance Code, together with a comparison setting out changes to the 2020 Code, was published 15 December 2023. Although some minor changes have been made in the final version of the 2025 Code compared to the draft made public in December 2023 (no comparison highlighting the changes to the draft has been published on the Securities Market Association’s website), the changes are mostly technical (e.g. removing the requirement to report the gender composition of the management team and board committees expressed in percentages).

The national legislation implementing the Board Gender Balance Directive has been prepared in parallel with the 2020 Code updates. The resulting amendments to the Finnish Limited Liability Companies Act (the “FCA”), Trade Register Act and Decree concerning regular disclosure obligations of issuers of securities (the “Disclosure Decree”) enter into force on 28 December 2024.

The scope of the recommendations of the 2025 Code relating to gender balance of the board of directors is more extensive than the corresponding changes reflected in the FCA and other regulation.

The quota requirement implemented in the FCA applies to listed companies having more than 250 employees and a balance sheet in excess of EUR 43 million or a turnover in excess of EUR 50 million, whereas the gender balance recommendation included in the 2025 Code applies, without qualifications, to all companies listed on Nasdaq Helsinki Ltd and companies traded in the Nasdaq First North Premier Growth Market segment.

The stated aim of the Board Gender Balance Directive and the implementing legislation is that the share of the underrepresented gender would increase to at least 40% of all members. Both the Directive and the implementing legislation include a table specifying when the 40% share of all members is considered fulfilled.

The 2020 Code recommended that both genders are represented on the board of directors. This recommendation is replaced by a recommendation in the 2025 Code that the representation of women and men on the board of directors must be balanced. The 2025 Code sets out a table specifying the minimum number of the members of the underrepresented gender that fulfils the balance requirement (noting that the target minimum number is aligned with the 40% target referred to in the amended FCA).

While the recommendation in the 2025 Code does not expressly refer to a 40% target, the table included in the 2025 Code, specifying the minimum number of the members of the underrepresented gender, is identical (for boards consisting of three to fifteen members) with the tables set out in the Board Gender Balance Directive and implementing legislation:

The 2025 Code imposes further obligations on companies compared to the legislative amendment in that a proposal for the composition of the board that departs from the recommended minimum number of the members of the underrepresented gender must be reported and justified when the proposal is made public. In addition, information on the departure must be provided in the notice to the general meeting.

The target date for reaching the gender balance requirement set out in the 2025 Code is 30 June 2026. Until then, the recommendation of the 2020 Code, requiring that both genders must be represented on the board of directors, will apply. Consequently, the reporting requirement concerning a departure from the gender balance requirement becomes applicable during the transition period only if all board members are of the same gender.

The Disclosure Decree requires large, listed companies (companies within the scope of the new FCA gender balance rule) to explain deviations from the 40% target referred to in the FCA in their CG Statement, and actions taken or planned to achieve the target. It should be noted that the obligation under the Disclosure Decree applies already from the financial period starting 1 January 2025, i.e. to CG statements published in spring 2026, although the target date for achieving the minimum level of board representation of the underrepresented gender is 30 June 2026.

Listed companies where one gender is clearly underrepresented should consider gender balance issues and the upcoming deadline in June 2026 when preparing the board slate proposal for the Annual General Meeting in 2025 to avoid a more extensive correction to the gender balance of the board of directors in 2026.

The 2025 Code no longer recommends companies to provide their Corporate Governance Statement (“CG Statement”) in a separate report from the management report but notes that companies may decide how they wish to present their CG Statement.

The 2025 Code stipulates that the CG Statement describes the implementation of the board’s diversity principles and presents the gender balance of the board in percentages. The gender of the members of the supervisory board (if applicable), the shareholders’ nominating committee and the management team, and of the CEO and deputy CEO, must also be reported in the CG Statement pursuant to the 2025 Code.

It should be noted that, even though the implementation of the gender balance recommendation is deferred to June 2026, other amendments set out in the 2025 Code become effective as from 1 January 2025, meaning that the amended requirement concerning the CG Statement applies to all CG Statements published after 1 January 2025.

Hence e.g. details concerning the share of the genders represented in the Board of Directors must be included in the CG Statement as percentages of the full number of members, although the new gender balance recommendation set out in the 2025 Code should only be reached by 30 June 2026 and the old representation recommendation of the 2020 Code applies until then.

Similarly, if the proposed composition of the board would result in only one of the genders being represented on the board after 1 January 2025, the company shall, based on recommendation 1, report this as a deviation from recommendation 8 (applicable until 30 June 2026) latest in the notice to the general meeting, unless reported earlier in connection with the publication of the proposal concerning composition of the board, in which case a reference to the earlier report is sufficient.

A consequence of the table defining the minimum number of board members of the underrepresented gender is that the percentage of the underrepresented gender that fulfils the balance requirement may, in reality, range from 25% to 44.4% when expressed as a percentage of all board members.

Hence, the percentage share of the underrepresented gender reported in the CG Statement may be less than the stated goal of 40% while still meeting and fulfilling the recommendation set out in the 2025 Code (and the requirements of the FCA). Once the amended gender balance recommendation takes effect, companies may consider clarifying this disconnect between the percentage share and the requirements of the recommendation in their CG Statements.

The Finnish Securities Market Association issued a statement in October 2021 supplementing the 2020 Code concerning the election procedure of board members (electing board members individually v. the board composition as a whole) from the perspective of good securities markets practice.

The view presented in the 2021 statement, noting that the company decides on which procedure to follow, has now been included in the rationale for Recommendation 5 (Election of the Board of Directors) of the 2025 Code.

Further updates to the Corporate Governance Code are prepared in a second phase, focusing mainly on sustainability aspects and assessing the current requirements on remuneration reporting and other possible minor updating needs.

The Securities Market Association published on 30 October 2024 a notice stating that a working group has been established and that the amendments are expected to be completed by the end of 2025. A draft of the updated code is expected to be published for comments in early autumn 2025.

If you have any questions about the this Legal Alert, please contact the undersigned or your regular Borenius contact.