Swedish Governance Code

Rise in companies deviating from Swedish governance code

The Board’s 2019 Annual Report, published this week, revealed that over a third (34 per cent) of companies that apply the Code reported at least one deviation in 2018, up from 29 per cent in 2017.

The Swedish Corporate Governance Board has reported a rise in the number of companies deviating from its Code.

Although the Code has a principle of ‘comply or explain’, where companies are free to self-regulate and are not required to follow the rules if they explain why and what they did instead, the Board said the deviations are both positive and negative.

“The development is positive in light of the Code’s aim to make companies reflect and bring transparency to their corporate governance.

“However, the development is negative in the sense that if the rules of the Code are respected, the standard of corporate governance within listed companies should be improved,” the report stated.

The Board surveyed 314 companies in total; 305 listed on Nasdaq OMX Stockholm and nine on NGM Equity, representing 95 per cent of the companies that apply the Code.

A total of 107 companies reported deviations (up from 89 in 2017), with 79 reporting one deviation, and 28 companies stating they deviated from the Code more than once.

A total of 47 (15 per cent) reported some kind of deviation from this rule, 3 percentage points higher than last year.

Most of the deviations related to rule 2.4, which states members of the company board may not constitute a majority on the nomination committee and that the chair of the board may not be the chair of the nomination committee.

The most common explanation for the deviation was that the person concerned was a major shareholder or deemed to be the most competent to lead the work of the committee.

19 companies, (just under 6 per cent) also reported non-compliance with rule 9.7, which covers incentive programmes. The majority of companies deviated from the provision that the vesting period is to be at least three years.

The report did reveal better compliance with the Code’s gender balance reporting rules, though.

The number of companies who failed to comment on gender balance fell to just 9 per cent, down from 11 per cent in 2017 and a substantial improvement from 2013 when 58 per cent of companies’ nomination committees failed to comment on the issue.

However, nearly two-thirds (61 per cent) of companies failed to comply with rule 10.3, which requires companies to declare all share and share price related incentive programmes for employees and board members.

The Code asks companies to publish a description of any ongoing variable remuneration programmes for the board of directors and executive management. A total of 86 per cent of the companies published this information, a small increase on last year’s 85 per cent.

The Board also launched a scathing attack on the European Union, warning that increasing intrusion from the EU could harm Sweden’s corporate governance framework.

“The biggest problem is that the EU seems to believe that its job is to implement the Anglo-Saxon corporate governance model across Europe,” Arne Karlsson chair of the Swedish Corporate Governance Board said.

“It doesn’t need more than a few such elements to creep into Swedish corporate governance for the basic principles upon which our model is constructed to be demolished and for us to be given a regulatory framework that is a hotchpotch with no common thread.”

“The Board will of course continue its efforts to defend the Swedish and Nordic models,” Karlsson added.

The Board is currently working on a proposed updated version of the Code for circulation in autumn 2019, with plans to bring a revised Code in force from 1 January 2020.

Last Updated: 7 September 2019
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