Swedish boards to adopt a ‘sustainability perspective’ under revised corporate governance code

But international investors knocked back over individual director elections

The Swedish Corporate Governance Board (SCGB) has unveiled a revised corporate governance code that calls on board directors to adopt a ‘sustainability perspective’ and urges members of the committee that nominates board candidates to avoid conflicts of interest. The revised code does not, however, include a change requested by several big investors to introduce compulsory elections of individual directors.

Authored and overseen by the SCGB, the code must be complied with by all firms on Stockholm’s stock exchange as a condition of listing. If they do not comply, the Swedish firms must explain why not. The code was last revised in 2009. Among the new changes to the code is a provision whereby board directors are asked to add a sustainability perspective and establish guidelines for it.

The SCGB says such a move is necessary to ensure long-term value creation. “To be clear: Many Swedish companies already have adopted a sustainability perspective and report on what they are doing on this front in their annual reports,” SCGB Executive Member Björn Kristiansson told Responsible Investor from Stockholm. “The difference is that we have now defined it as best practice for all companies.”

Another key change concerns the committee that nominates candidates for the board. Unique to Sweden, this committee consists of big shareholders in the company and, typically, the chairman. Candidates proposed by the committee are then voted on by all shareholders at the annual meeting. The revised code further states that each member of the committee “must consider carefully whether there is any conflict of interest” before agreeing to serve. Kristiansson said the recommendation was necessary as many big shareholders own several Swedish companies.

Other minor changes include obliging newly listed companies to respect the code immediately after listing and clarifying that the board’s responsibility for internal control applies “not only to financial reporting but also to all relevant aspects of the company.”But the code does not take into account a wish by several big international investors – including APG, PGGM and Norges Bank Investment Management – to introduce compulsory votes on individual directors. As reported, these investors decided to engage with the SCGB on the issue in the wake of a corporate jet scandal at Swedish forestry firm SCA. SCA’s CEO, chairman and vice president were forced to resign amid the scandal.

The SCGB said: “Swedish company law and the code allow shareholders to request a ballot for each director and to request a vote count for each decision at the shareholders’ meeting. International shareholders can also utilise these opportunities through their proxies.” As a result, the SCGB said it could not find any basis for introducing the changes sought.

Kristiansson also said the investors around APG were probably not fully appreciating the fact that board candidates are already thoroughly vetted by the nomination committee. “In fact one big international investor that has complained about the model has so far refused to serve on one of these committees. I think the investor’s perspective would be different if that were the case,” he added.

APG said that it would continue to engage with the SCGB on the election of individual directors at Swedish firms. “We do not consider their decision to be the end of the line. For foreign investors, a situation whereby we have to actively seek separation of votes is not satisfactory because we are limited logistically compared with the local shareholders,” said David Shammai, Senior ESG specialist at APG Asset Management. Shammai added that APG hoped that, in the spirit of best practice, Swedish firms would themselves move more toward individual elections of directors.