Finnair management taking fire

Police has opened up an investigation to look into an apartment arrangement between pension insurance company Ilmarinen and Finnair's (OMXH: FIA1S) CEO Mika Vehviläinen. Vehviläinen was also a member of the Board of Ilmarinen until he relinguished that position last week. Vehviläinen sold his flat to the pension fund with a 650 000 profit (9% annual return on his initial investment) and continues to occupy the premises as a tenant. Finnair is footing the bill.

The apartment had been on an open market for several months. The asking price was a little bit higher than the final arrangement. Vehviläinen says the transaction was done on market terms and was reviewed by outside experts. Newspaper Suomen Kuvalehti confirmed that Vehviläinen also received a buyback right to the apartment.

Finnair is a large customer of Ilmarinen. Police is investigating the matter as a potential case of taking a bribe. The investigation is at a preliminary stage and no charges have been brought. Ilmarinen’s Board will also review the apartment purchase.

This matter has opened up a debate on Board of Director positions that seems to be concentrated on very few people. Managing director of OP-Pohjola Reijo Karhinen already drew his conclusions and resigned his position in Ilmarinen’s Board. He said that it is good that a discource has been opened on such cross-arrangements where companies have directors on each other’s Board as it may easily lead to suspicions of conflict of interest even though there isn’t anything legally suspicious in such matters.

Newspaper Helsingin Sanomat subsequently dug up information on extra bonuses given to more than a dozen key personnel in Finnair. As cabin crew and other service personnel were asked to take a temporary pay-cut so that the company could stay competitive, upper management aided that decision by voluntarily agreeing the match the cut. It now turns out that many of them did not have the higher ground after all as they were given millions in extra bonuses so that they would stay with the company as it was undergoing a CEO switch.

Finnair representative told newspaper Ilta-Sanomat that many leaders were considering to leave together with ex-CEO Jukka Hienonen in 2009 and the company did not want to be left looking for to fill several key positions at once. Some of those people stayed for the extra year during which they could gather a large payout and then left the field. Ilta-Sanomat calculated that the extra compensation program cost over 15% of the savings made via the personnel wage reductions.