Governance Profile

Good corporate governance ensures that companies are managed as efficiently as possible from a shareholder perspective. Models of corporate governance in various countries are determined by a combination of laws, rules, culture and custom. The following overview provides information on how the Swedish model of corporate governance differs from others and how it is unique. Here, you will find concise information on the following:Swedish Corporate Governance structure

Regulation

Corporate governance in Swedish listed companies is regulated largely by the Companies Act and the Swedish Code of Corporate Governance (the Code), but also by other laws and the regulatory framework in the form of general listing requirements and listing requirements applicable to the regulated market on which its shares are traded. The Companies Act determines the basic rules of the company's organization, such as the governing bodies that should be in a company, the tasks each governing body has and the responsibility of any person serving on any of these bodies. The Code complements the law with rules that for some areas are more demanding. The Code is based on the comply or explain principle. This implies that a company may choose to deviate from certain rules in the Code on condition that this is openly disclosed and that alternative solutions are described. The Swedish Corporate Governance Board has established a revised corporate governance code with new rules on executive remuneration, directors' independence and revised rules on audit committees. The new Code came into force on 1 February 2010, but the rules on independence and remuneration do not apply until July 1 2010. According to the Annual Accounts Act companies shall submit an annual corporate governance report in which they describe the principles of corporate governance that apply in addition to those imposed by law or regulation. If a company does not comply with any code of corporate governance, the reasons for this shall be explained. If a company complies with a code of corporate governance the report shall explain if and what parts of the Code it does not follow and the reasons for this.

In the Code there are additional rules about what a corporate governance report must contain that to some extent goes beyond what is stated in the Annual Accounts Act.

Read more about the corporate governance report (only in swedish) >

Read more about the Swedish self-regulatory model via the links on the right.

Ownership structure

The ownership structure of the Swedish stock market differs significantly from those of other jurisdictions, and in particular from that of Britain and the United States. While the majority of listed companies in these countries have a dispersed ownership structure, ownership of Swedish listed companies is usually dominated by one or a few major shareholders. These owners often exercise active influence at companies, for example through direct involvement in the Board.

The institutional ownership of listed companies has grown significantly in Sweden over the last few decades. In 2008 around 85% of the value of the OMX Nordic Exchange Stockholm was held by different institutions. This does not mean, however, that institutional shareholders control the Swedish equity market. Differentiated voting rights and multiple classes of shares can allow owners of small holdings in terms of the number of shares to control a large proportion of the votes at the general meeting. Institutional owners have historically played a more passive role. They have recently been criticized for this. However, as institutions have become increasingly powerful, they have, at least on the surface, started to take on a more active ownership role.

Shareholder Rights

Shareholders exercise their influence through the general meeting.  Meetings’ decisions are taken by simple majority of votes cast.  Some decisions, however, require a qualified majority. Each shareholder is entitled to have a matter considered at the annual general meeting provided the request is submitted to the board within a specified period. Each share has one vote if it is not clear from the statutes that the company has shares with different voting rights.  No stock may have a voting power that is greater than ten times the voting power of another share.  A minority of shareholders with a total of at least one tenth of the shares of the Company may request that the Board convene an Extraordinary General Meeting.  In general, Swedish shareholder meetings decide on the adoption of the income and balance sheet and the profit or loss dispositions, the discharge of the directors and the executive director (CEO), the election of directors and auditors and directors' fees and audit fees.

Nomination Committee

According to the Swedish Code of Corporate Governance, companies that apply the Code shall have an Nomination Committee that represents the company's shareholders. The Election Committee's main task is to propose a chairman and other directors and, when relevant, an auditor. The Committee members shall look after the interest of all shareholders.  The Swedish-Norwegian model, with an Nomination Committee appointed by the owners, is in an international perspective, unique. The General Meeting appoints the Nomination Committee members or indicates how the members should be appointed. The Nomination Committee shall have at least three members, one of whom shall be appointed Chairman. Typically, the Nomination Committee consists of representatives of the three to five largest shareholders and the board chairman. The majority of committee members should be independent of the company and its management. At least one of the committee members should be independent of the largest shareholder or group of shareholders. Directors may be included in the Nomination Committee, but may not constitute a majority of the committee members.  The chairman of the board or other directors may not be chairman of the Nomination Committee.

Read more about the Election Committee  in an article written by Per Lekvall at the Swedish Corporate Governance Board: Nomination in Swedish Listed Companies.

Board

The Board has overall responsibility for the company's organization and the management of its affairs. The Board reviews the company's and, if the company is the parent company of a group, the Group's financial situation. Among the Board's tasks is also included, under the companies Act, the responsibility to ensure that the company's organization is designed so that the accounts, the management of the company's means and the company's business operation are monitored safely. If there is no CEO, responsibility for this  lies with the Board. Swedish boards consist of at least three members, one of which is a chairman. The vast majority of Swedish boards of directors are composed of external members, i.e. non-executive directors. Most Swedish boards have an audit committee (statutory) and a compensation committee.

Read more about the Board's role/responsibility/sanctions/composition >

Read more about Board evaluation >

Audit committee

The so-called audit directive from the EU (8th Company Law Directive) has been implemented in Sweden in the Companies Act and mandates listed companies to form an Audit Committee. The Companies Act states the following: only directors can be members of the Audit Committee and it shall have at least two members. The committee members shall not be employees of the company.  At least one member shall be independent and have accounting or auditing competence.  The Swedish Code of Corporate Governance states that the Audit Committee shall be composed of at least three directors and that the majority of these shall be independent of the company and its management.  The committee's role is to independently monitor the management of the company's accounting and control systems. The aim is to clarify the Board's responsibilities for accounting and internal control and to prevent management from gaining undue influence over the audit.

Read more about Audit Committee >

Compensation Issues

Remuneration of senior executives has been a widely debated topic in Sweden.  Demands from various quarters have been made to limit bonuses and other compensation. The code has recently been revised in the light of the recommendation on the remuneration of directors of listed companies by the European Commission published in spring 2009 (2009/3177/EG).  According to the Code, boards shall establish a remuneration committee which monitors, follows and evaluates the compensation models that exist in the company.  The General Meeting shall decide on all shares and share-related incentives.  Variable compensation should be linked to predetermined and measurable criteria. In addition, the company shall limit variable cash compensation and severance pay. A common form of compensation for top officials is a combination of fixed salary, variable bonus and long term incentives such as stock options.

Read more about the compensation committee/board compensation/management compensation >

Takeovers

Public takeover bids and so-called "takovers", are governed both by law and by stock market rules. The purpose of regulation is to protect minority shareholders in listed companies and allow for healthy restructuring in the industry.  Neither board members nor the Chief Executive Officer may take action that is likely to impair a bid (defensive measures) without shareholders' approval. Public takeover bids are handled by the FSA and the Securities Council.

Chief Executive Officer

Where appointed, Chief Executive Officers (CEO) oversee day-to-day management, i.e. the continuous management of activities, in accordance with the board's guidelines and instructions. In addition, the CEO takes measures that, in view of the extent and nature of the company's business, are of unusual nature or importance if the Board's decision cannot be awaited without significant inconvenience to the company. What belongs to the remit of the CEO is "negatively" defined in the law, in the sense that it covers what is not of an exceptional nature or importance.

The CEO may, among other responsibilities, enter into contracts with suppliers and customers as well as with contracts of employment of executives in the company's service, unless the agreement with regards to its content, the period to which it relates and the company’s conditions seems unusual or of great importance for the company. Determining which issues should be considered as part of the current management will to a certain extent depend on the nature and size of the company.

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Reports

Corporate Governance in the Nordic Countries

This presentation from 2009 is the result of a collaboration between the self-regulatory bodies of corporate governance in the five Nordic countries: Denmark, Finland, Iceland, Norway and Sweden. Its purpose is to inform international investors and other market participants about the key elements of Nordic corporate governance.

Download Corporate Governance in the Nordic Countries >
Downloaded from www.bolagsstyrning.se.

Rules and guidelines

Regulators


Self-regulation in the Swedish Securities Market

The purpose of the Association for Generally Accepted Principles in the Securities Market is to promote the observance and development of generally accepted principles in the securities market.


Guidelines and rules are developed independently within the association by the following bodies:


Principles of the organization are:

Read about self-regulation in the Swedish securities market > from www.godsedpavpmarknaden.se

Read more about the Swedish corporate governance model > (English) from www.bolagsstyrning.se.

Other Bodies and Associations

Investors

International