The Swedish Corporate Governance Board (the "SCGB") has announced amendments that have recently been made to the Swedish Corporate Governance Code (the "Code"). The amendments include, inter alia, the following:
- A sustainability perspective has been added to the duties of a company's board of directors. The board must establish necessary guidelines for the company's conduct in society in order to ensure long-term value creation capacity.
- The board's responsibility for internal control applies not only to financial reporting but also to all relevant aspects of the company. However, formalized routines are required only for financial reporting. The corporate governance report must describe the board's actions as regards the monitoring of internal control in connection with financial reporting and as regards proper reporting to the board.
- Each member of a company's nomination committee must consider carefully whether there is any conflict of interest before accepting a position on the committee.
- The nomination committee must receive the full results of the board evaluation, and the corporate governance report must specify how the board evaluation is conducted and reported.
- The Code's section on remuneration is simplified by, inter alia, replacing the rule that board members should not receive stock options with a requirement that programs targeting the board should be prepared by the company's shareholders and promote long-term share ownership.
- For companies that become newly listed (such as in connection with an IPO), the Code must be applied in full as from the time of the listing. Previously, newly-listed companies did not have to be fully compliant with the Code until the first annual general meeting following the listing.
Proposals from international institutional shareholders as regards compulsory individual voting and counting of votes when electing board members have not led to any amendments to the Code, as the Swedish Companies Act already provides for the opportunity to apply such voting procedures.
Why is the Code being revised?
There are several reasons why the Code is being revised. First, a considerable amount of time has elapsed since the Code was last revised in 2009. Since then, the SCGB has arranged round-table discussions, high-level symposia and open consultations, which identified a need for revision. Secondly, the European Commission's ongoing corporate governance work, resulting in several proposed pieces of legislation, is likely to require amendments to the Code. This concerns in particular the European Commission's recommendation on the quality of corporate governance reporting ("comply or explain"), an updated shareholder rights directive, the directive on non-financial information, and the directive and regulation on auditors and audits. The current changes to the Code only take into account the above-mentioned "comply or explain" recommendation. Thirdly, since 2010 the SCBG has issued four sets of instructions which have now been implemented in the Code, and, lastly, the Code required revision due to changes to Swedish stock exchange rules that have been made in recent years.
Potential further amendments to the Code in 2016
The directive on non-financial information and the directive and regulation on auditors and audits have yet to be implemented in Sweden, and, in addition, the negotiations are not completed as regards the updated shareholder rights directive. Hence, the revised version of the Code does not include potential amendments resulting from these regulations and directives. However, this EU legislation is likely to require new amendments to the Code when implemented, which is expected at the end of 2015 or in 2016. Therefore, it is likely that the Code will be further amended during 2016.