COLUMN : How a small circle of insiders popped into the spotlight

The apartment deal of the Finnair CEO brought out the back-scratching of the business elite

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By Antti Blåbield
     
      According to Deputy Prosecutor-General Jorma Kalske, Finnair CEO Mika Vehviläinen was not guilty of taking a bribe in connection with his apartment deal in 2011.
      No criminal charges against Vehviläinen were pressed, as on the basis of the police investigations, the criteria for a crime were not met.
      There was no indication that the apartment deal that prompted such a furore had been used in an attempt to influence Finnair’s business activities in favour of the pension insurer Ilmarinen.
      Legal scholars regarded the interpretation of the Deputy Prosecutor-General as correct.
     
Finnair CEO Vehviläinen had sold his apartment to Ilmarinen for EUR 1.8 million, which made him a very good profit. Vehviläinen continued to live in the apartment as a tenant, with the rent paid by Finnair because of the housing benefit in his contract.
      The apartment deal met with criticism as the CEO of Finnair had a seat on the Supervisory Board of Ilmarinen, while the CEO of Ilmarinen in turn had a seat on the Finnair Board of Directors.
      Finnair is one of Ilmarinen’s most important employment pension clients, while Ilmarinen is one of the largest owners of Finnair.
     
Around the same time, Ilmarinen became a shareholder in an air freight carrier owned jointly by the two companies. But according to the Deputy Prosecutor-General, the apartment deal had no effect on the business relations of the pair.
      Were Finnair not a state-owned company but a state department of civil aviation, charges might have been pressed. A civil servant will face prosecution if he or she participates in business operations that may put in question their impartiality.
      ”A civil servant must not demand, accept, or receive financial or other benefits, if it could weaken confidence in him or her”, says the State Civil Servants’ Act.
     
Even though the book on Vehviläinen’s apartment deal has now been legally closed, it may have significant repercussions.
      One could imagine that the debate on the housing deal would affect the way ethical viewpoints will be taken into account in business operations in the future.
     
Many experts were surprised when the police decided to launch a preliminary investigation into the matter from the standpoint of whether Ilmarinen had tried to gain business benefits by giving bribes.
      In the first place, the close and cordial business relations between Finnair and Ilmarinen were generally known already beforehand.
      Secondly, Ilmarinen’s shareholding in the new air freight company was probably more important for Finnair than it was for Ilmarinen.
      Moreover, Finnair had to find a Finnish minority shareholder in the air freight company in order that the company would be Finnish, but not a subsidiary of Finnair.
      In international aviation, the air freight company is treated as a Finnish company (and gets certain route benefits thereby), but it does not have to adhere to the collective bargaining agreement signed by Finnair.
     
Quite another question, naturally, is why a large Finnish pension insurance company was willing to become a shareholder in a company, one of the rationales of which was to evade the Finnish collective agreement.
      And there is yet another puzzle, too: why would the Chairman of the Board of Finnair assist Ilmarinen in its attempts to bribe the CEO of Finnair?
     
After all, the real ticking bomb in the housing arrangement does not lie in the imagined bribery connection, but in the fact that the transaction was arranged among the insiders.
      When the CEO of Finnair did not manage to sell his apartment on condition that he could continue to stay in it as a tenant (and hence the housing benefit clause in his CEO contract could not be implemented), the then Chairman of the Board of Finnair [Christoffer Taxell], asked the CEO of Ilmarinen [Harri Sailas], who had a seat on the Finnair Board, whether the pension insurance company could purchase the apartment and include it in Ilmarinen’s real estate investment portfolio.
      The investment portfolios of pension insurance companies are worth tens of billions, and those companies do not usually buy individual apartments.
      However, an exception was made on this occasion.
     
From Ilmarinen’s perspective, the deal was financially trivial in respect of its investment portfolio. Nevertheless, in societal terms the decision and the consequent debate are significant.
      The transaction brings out into the public glare the networks and bilateral relations caused by the interlaced administration of companies.
     
The corporate elite has become a self-complementing vanguard of its own.
      Corporations recruit other companies’ executives or so-called professional board members to serve on their boards of directors.
      This practice is well-founded. In business life, experience is a valuable asset, and amid increasing competition, the role of a company’s board of directors, acting as a sparring partner and supervisor for the executive management, has become increasingly significant.
      However, the circle of competent individuals is small. Moreover, even executives are like lemmings, all running in the same direction.
     
A good example of this is the reward system for executives, which since the mid-1990s has strayed far away from the pay system used for the rest of the society.
      To what extent do the privileged few moving in the same circles jump on any given bandwagon instead of encouraging each other to question the prevailing doctrine?
      And how about other doctrines that are possibly transmitted from one top company to another in the same way, while the rest of the society can barely notice that the attitudes within the elite have changed?
      Today, it seems fashionable to call into question the state and the idea of the common good.
      This is an issue that the apartment deal arranged by those hiding behind the doors of panelled dining-rooms brought into the spotlight.
     
Will anyone learn anything from the debate?
      The executives of Finnair and Ilmarinen claim that they have learnt something: it is not enough to follow the letter of the law, but one must also see the ethical dimensions of one’s actions.
      While times are becoming increasingly difficult, the personal characteristics and choices of executives will be of greater significance than ever before.
      In addition to business expertise, it will be important for an executive to win the confidence of his or her subordinates, clients, and more widely, that of the society itself.
      This confidence will often be measured by studying people’s personal actions.
      The acceptance granted by a closed circle will not be adequate to the task.
     
     
Helsingin Sanomat / First published in print 16.9.2012


Previously in HS International Edition:
  Preliminary investigation revealed background of freight company Nordic Global Airlines (12.9.2012)
  Hautala: Finnair CEO housing arrangement unethical despite dropping of charges (11.9.2012)
  No criminal charges against Finnair CEO Mika Vehviläinen (10.9.2012)

See also:
  Ilmarinen pension insurance company and Finnair CEO suspected in bribery case (30.5.2012)

ANTTI BLÅFIELD / Helsingin Sanomat
antti.blafield@hs.fi