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The Swedish Corporate Governance Practices – A brief understanding

February 5, 2014

The Swedish model of corporate governance is fundamentally the same as in most other countries. The essence of Swedish corporate governance is that the ultimate power should rest with the shareholders.

Source of Swedish Legislation:

The main source of corporate legislation is the Swedish Companies Act (‘the Companies Act’). The Companies Act contains general provisions regarding the governance of a company, specifying the corporate bodies, the tasks of each body and the responsibilities of the individuals acting for the company. Other regulatory sources governing corporate governance include the Swedish Corporate Governance Code (‘the Code’), the rules of each regulated market, such as NASDAQ OMX Stockholm’s rule book for issuers, as well as statements by the Swedish Securities Council on what constitutes good practice on the Swedish securities Market. The Code is issued by the Swedish Corporate Governance Board.

Scope of the code:

This code applies to public limited liability companies admitted to trading on a regulated market in Sweden. At present, the only regulated markets where a company can have its shares admitted to trading in Sweden are NASDAQ OMX Stockholm (‘NASDAQ OMX Stockholm’) and NGM Equity (‘NGM’).

All companies applying the Code must each year publish a corporate governance report, which shall include information on the company’s compliance with the Code, and to the extent the company has chosen not to comply with a certain rule, explain the reasons for each case of non-compliance and what solution has been adopted instead. The report shall be a part of the company’s annual accounts or may be issued separately but in such cases it shall still be subject to review by the company’s auditor. The report shall be published on the company’s website.

Governance structure:

The shareholders’ meeting is the highest decision-making body of the company and this also reflects the shareholders’ strong position in Swedish corporate governance. In Swedish listed companies there are traditionally one or several majority owners, a fact that has influenced Swedish corporate governance.

Sweden has a one-tier board structure. Swedish law does not include provisions for a separate controlling body or supervisory board. The board of directors is responsible for the company’s organisation and the management of the company’s affairs. A limited number of issues are, according to the Swedish Companies Act, reserved to be exclusively dealt with by the board, but other than that, the shareholders, through the shareholders’ meeting, can resolve on any company matter, including issuing instructions to the board.

Election of Board members:
  • A nomination committee is established by the shareholders’ meeting (directly or indirectly). The tasks of the nomination committee is to propose board members and their remuneration as well as auditors and their remuneration.

  • The Code stipulates that the nomination committee shall have at least three members and the committee primarily consists of representatives of major shareholders. Further, the Code stipulates rules on how the nomination committee shall proceed with the work to propose the board members.

  • The names of the members of the nomination committee shall be published on the company’s website at least six months before the annual general meeting together with information on how the shareholders can reach the nomination committee.

  • The board members are elected at the annual general meeting. The Code stipulates that the board members shall be elected for one year at a time, until the next annual general meeting.

  • The minimum requirement for public companies is three board members, although the board of a listed company typically is larger.

Composition of the Board:
  • Swedish boards are usually non-executive. Only one person of the company’s management may be a board member and the majority of the board members must be independent from the company and its management.

  • Other requirements on the board include that at least half of the members must be resident within the European Union and furthermore that at least two of the independent board members must also be independent from the company’s major shareholders.

  • The majority shareholders often have the possibility to control or at least have a great influence over the board especially since the majority shareholder most likely also have a representative appointed in the nomination committee.

Employee representation on the Board:
  • Employees of companies with on average at least 25 employees during the past financial year are entitled to appoint two board members and two alternate board members. Employees of companies with on average at least 1,000 employees during the past financial year may appoint three board members and three alternates if the relevant company has different lines of business.

  • The number of employee directors may not exceed the total number of non-employee directors.

  • The employee directors are appointed by the local unions that are bound by a collective bargaining agreement with the relevant company. Employee directors generally have the same powers and duties as non-employee directors, subject to certain additional conflict of interest rules.

Conclusion
  • Although the Swedish corporate governance practices seem similar to what is practiced in India, there are some subtle differences. The code prescribes greater participation of the stakeholders -like the shareholders and the employees of the company in the decision making processes.

  • Also, a notable feature of their practice is the nomination committee which proposes names of persons to be taken on the Board of the Company. This is a suggestive practice to India corporate also.

  • This practice ensures that the Boards comprises of deserving and right candidates, who can lead to the growth of the company.

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