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Print articleThe Swedish Code on Corporate Governance is Revised and Will Apply to More Companies
March, 2008 - Anders Björk
In the beginning of February, the Swedish Corporate Governance Board presented a proposal for a revised Swedish code on corporate governance (the Code).
Work on amending the code has been carried out in cooperation with representatives for both OMX Nordic Exchange as well as NGM. The intention is that from and including the second half of this year the new revised Code will be applied by all companies which are listed on the OMX Nordic Exchange, the Nordic list, and on NGM Equity. Approximately 320 companies will be covered by the Code.
The Corporate Governance Board has invited everyone who so wishes to submit their comments on the proposal for a revised Code, no later than 28 March 2008. After comments have been reviewed, the final revised Code will be presented on 6 May 2008, and will take effect on 1 July 2008.
Already when the Code was introduced in 2005, the express intention was, in the long-term, to carry out an evaluation of the Code and to increase its application area to cover all companies listed on a stock exchange. It is this work that now has been completed.
The Code has received some criticism for, amongst other things, containing unnecessarily detailed regulations and containing provisions which already exist under the law. To a great extent, the revision has aimed at simplifying the Code and taking away such unnecessary regulations. In the proposal for a revised Code, the number of rules has decreased from 69 to 43 and the Code has, to a certain extent, been rearranged in order to be more comprehensible.
In reality, no great material changes are proposed, but certain rules are clarified or made more stringent and, as mentioned above, a number of rules are removed.
The rules regarding nomination committees are clarified and made more stringent in certain cases. The proposed rules clarify that all members of the nomination committee are to safeguard the interests of all shareholders and prescribe that a majority of the nomination committee be independent of the company and the company management. At least one of the members of the nomination committee is to be independent of the company’s largest owner/group of owners and if several board members are on the nomination committee, no more than one of them may be dependent in relation to larger owners of the company. The revised Code proposal also clarifies that the only task of the nomination committee is to prepare decisions in election and remuneration issues.
Up until now, the Code has contained detailed independence criteria for board members, which have partly deviated from the independence criteria which OMX Nordic Exchange has stated in their listing requirements. The rules now become clearer in that the revised Code prescribes that companies must comply with the rules which apply to the exchange where the company’s shares are listed.
The proposal for a revised Code states that all boards of directors can decide that the board in its entirety can fulfil the tasks which fall on the audit and remuneration committees. The rules regarding audit committees may however be amended by new legislation in conjunction with the introduction of the eighth company directive of the EU.
The rules on internal control are amended and refer to new legislation which is introduced in conjunction with the introduction of the fourth and seventh company directives of the EU, which entails that an internal control report will be statutory.
In the corporate governance report, which will also be statutory, the requirements of explanations, which are given upon a deviation from the Code, are made more stringent. Upon deviations from the provisions of the Code, the companies must submit a description of the alternative solution which the company has chosen and the motive for the chosen solution.
Among the rules which are proposed to be removed, one can mention the requirement of various ways for shareholders to notify their attendance at the annual general meeting, rules on shareholders’ distance attendance at general meetings, rules on proposed board members’ and auditors’ presence at a general meeting, and requirements of a special board secretary.
In a later news letter, we intend to return with further information when the final revised Code has been presented.
Work on amending the code has been carried out in cooperation with representatives for both OMX Nordic Exchange as well as NGM. The intention is that from and including the second half of this year the new revised Code will be applied by all companies which are listed on the OMX Nordic Exchange, the Nordic list, and on NGM Equity. Approximately 320 companies will be covered by the Code.
The Corporate Governance Board has invited everyone who so wishes to submit their comments on the proposal for a revised Code, no later than 28 March 2008. After comments have been reviewed, the final revised Code will be presented on 6 May 2008, and will take effect on 1 July 2008.
Already when the Code was introduced in 2005, the express intention was, in the long-term, to carry out an evaluation of the Code and to increase its application area to cover all companies listed on a stock exchange. It is this work that now has been completed.
The Code has received some criticism for, amongst other things, containing unnecessarily detailed regulations and containing provisions which already exist under the law. To a great extent, the revision has aimed at simplifying the Code and taking away such unnecessary regulations. In the proposal for a revised Code, the number of rules has decreased from 69 to 43 and the Code has, to a certain extent, been rearranged in order to be more comprehensible.
In reality, no great material changes are proposed, but certain rules are clarified or made more stringent and, as mentioned above, a number of rules are removed.
The rules regarding nomination committees are clarified and made more stringent in certain cases. The proposed rules clarify that all members of the nomination committee are to safeguard the interests of all shareholders and prescribe that a majority of the nomination committee be independent of the company and the company management. At least one of the members of the nomination committee is to be independent of the company’s largest owner/group of owners and if several board members are on the nomination committee, no more than one of them may be dependent in relation to larger owners of the company. The revised Code proposal also clarifies that the only task of the nomination committee is to prepare decisions in election and remuneration issues.
Up until now, the Code has contained detailed independence criteria for board members, which have partly deviated from the independence criteria which OMX Nordic Exchange has stated in their listing requirements. The rules now become clearer in that the revised Code prescribes that companies must comply with the rules which apply to the exchange where the company’s shares are listed.
The proposal for a revised Code states that all boards of directors can decide that the board in its entirety can fulfil the tasks which fall on the audit and remuneration committees. The rules regarding audit committees may however be amended by new legislation in conjunction with the introduction of the eighth company directive of the EU.
The rules on internal control are amended and refer to new legislation which is introduced in conjunction with the introduction of the fourth and seventh company directives of the EU, which entails that an internal control report will be statutory.
In the corporate governance report, which will also be statutory, the requirements of explanations, which are given upon a deviation from the Code, are made more stringent. Upon deviations from the provisions of the Code, the companies must submit a description of the alternative solution which the company has chosen and the motive for the chosen solution.
Among the rules which are proposed to be removed, one can mention the requirement of various ways for shareholders to notify their attendance at the annual general meeting, rules on shareholders’ distance attendance at general meetings, rules on proposed board members’ and auditors’ presence at a general meeting, and requirements of a special board secretary.
In a later news letter, we intend to return with further information when the final revised Code has been presented.
