Swedish AP funds critical of EU corporate governance proposals

Swedish state buffer funds Førsta AP-fonden and Tredje AP-fonden (AP1 and AP3) have attacked the European Commission Green Paper on corporate governance.
The funds, which have a combined value of SEK440bn (€48.3bn), were commenting ahead of the closing of the consultation period later this month.
AP1 says the Commission has not presented any evidence that the benefits of the new proposals would outweigh the costs. It argues that a “limited set of interviews” and consultation meetings conducted by the Commission “cannot be regarded as sufficient basis for the regulation proposals”.
“A fundamental standpoint, therefore, is that the need for and the costs should be investigated and evaluated thoroughly before further regulation is introduced,” AP1 says. Both funds strongly advocate the Swedish model of governance, which features nominating committees and entrenched shareholder engagement.

The AP funds’ remarks follow earlier critical comments on the plans from the Swedish Corporate Governance Board.The funds say no action is needed in response to the Commission’s questions about the agency relationship between institutional investors and asset managers, specifically on whether any measures should be taken about incentive structures for managers and more effective monitoring of managers by investors.

“We believe this is best done by self-regulated codes and industry initiatives,” they say, adding: “Transparency and disclosure is ultimately an issue between asset owners and asset managers.” On proxy advisors, the funds argue that no further EU regulation is necessary.
AP1 argues that, on the whole, detailed compulsory regulation is “counterproductive” and may even lead to shareholders becoming less engaged, not more.
On the question of possible changes to rules to prevent investor short-termism, AP3 refrains from answering while its sister fund says only that there is no reason to discriminate between different types of owners.

The Commission launched the consultation in April and it closes on July 22. It grew out of 2010’s Green Paper on Corporate Governance in Financial Institutions. Responses from AP1 and AP3.