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  • Communication key to 'unique' Nordic governance

NORDIC/SWEDEN - Nordic companies are suffering from other countries' lack of understanding about the Nordic system of corporate governance, experts have claimed.

At the International Corporate Governance Network (ICGN) mid-year meeting in Gothenburg, entitled 'Impact of Sovereign wealth funds & Nordic Corporate Governance', Peter Montagnon, chairman of ICGN, suggested there are international concerns about a lack of proportionality in the Nordic system, as it does not work on a one-share one-vote approach.

Instead, Per Lekvall, board secretary at the Swedish Corporate Governance Board, said the Nordic system of corporate governance - which describes similar regimes in Sweden, Norway, Denmark and Finland - is based on a strict hierarchical structure, with the power balanced in favour of the shareholders than the mainly non-executive management boards.

He revealed in the Nordic region between 60-70% of the 20 largest companies have shareholders that own 20% of more of the company, compared to just 15% in the UK and 20% in the US, although Lekvall pointed out the governance system balances this with strong protection for minority shareholders.

This means minority shareholders of various sizes can block major decisions at the annual general meeting, such as mergers or changes in capital structures, while a minority of 5-10% can force certain decisions such as calls for a minority auditor or an extraordinary general meeting.

However, Petra Hedengran, head of corporate governance at Investor AB, warned the "unique" approach to shareholder nomination committees and owner-controlled processes "sometimes creates confusion and misunderstanding" internationally.

"Some Swedish companies have been downgraded in international corporate governance ratings because the company doesn't have a policy on the length of time someone can serve on the board", she claimed.

But she revealed in the Swedish context this would be "contradictory" as the Nordic system accepts and supports strong ownership, although she added it is "important to emphasise this doesn't mean majority shareholders can use power in an uncontrolled way" as the company laws have "considerably stronger minority protection than other regimes".

Hedengran warned delegates it is "important to learn and appreciate the differences between systems to understand that one model does not fit all".

However, as many overseas investors use proxy advisers to provide information on the local market and recommendations on how to vote at AGMs, Eva Persson, senior vice president at AB Volvo and general counsel for Volvo Group, claimed it was important that the advice given was "adequate and of high quality".

She said: "I have a positive attitude to proxy advisers as if you have a large number of investments with lots of companies it is very difficult to follow up each and everyone. But it is important that the advice is adequate and of high quality".

In particular, Persson claimed advice centred on Swedish companies had been found to be "not high quality", either because the advisers "don't understand the corporate governance system, or just don't like it".

For example, she highlighted a case where an adviser had specific criteria for assessing the independence of the management board, so although the company complied with the rules of the stock exchange and the Swedish Corporate Governance Board, the adviser told investors to vote against the appointment.

This was despite the fact that under Swedish law the most amount of votes wins, so voting against the appointment would not work unless the investors proposed an alternative person.

"I'm not sure if it was a lack of understanding of Swedish law, but the advice had no effect and voters couldn't explain why they'd voted as they had. There needs to be much more communication to ensure investors get adequate advice," said Persson.

However, Robert McCormick, chief policy officer at Glass Lewis & Co, warned there was also a need for companies in the region to provide more information to overseas shareholders, particularly in Sweden where English information is often published later, and to realise that if investors "don't have enough information they will abstain or vote against the issue".

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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