An extract from The Corporate Governance Review, 10th Edition
Shareholdersi Shareholder rights and powers
Shareholders exercise their rights and powers by participating in general meetings. Shareholders' most significant rights include voting rights in general meetings, the right to have a matter dealt with by a general meeting and the right to ask questions at a general meeting.
The annual general meeting convenes once a year, within six months of the end of the financial year. In between the annual general meetings, extraordinary general meetings may be convened either by the board, if deemed necessary, or by shareholders holding at least 10 per cent of the outstanding shares in the company. Under Swedish law, there are no special facilities for long-term shareholders.Matters to be brought by the general meeting
Any shareholder who wishes to have a matter addressed at a general meeting may submit a written request thereof to the board. The matter must be addressed at the general meeting if the request from the shareholder is received by the board no later than seven weeks prior to the general meeting, or at a later date if the request is submitted in due time for the matter to be included in the notice to attend the general meeting. The proposed matter must concern an issue relevant to the company, which falls within the competence of the general meeting.
There are certain matters that fall under the exclusive competence of the general meeting. The Companies Act and companies' articles of association regulate this. Matters falling within the competence of the board or the managing director of a company may be decided upon by the general meeting if the shareholders unanimously support the matter and the Companies Act does not prescribe otherwise.
Matters that fall under the exclusive competence of the general meeting include the election of board members and determining their remuneration, the election of the auditor of the company and any amendments to the company's articles of association, as well as decisions relating to the shares or share capital of the company and certain corporate restructuring matters, such as mergers and demergers. Share repurchases or share issues shall be brought about by the general meeting; however, the general meeting may authorise the board to decide on a repurchase of the company's own shares or share issue. The authorisation regarding share repurchases must specify the price range for a repurchase and, with regard to a share issue, the maximum number of shares to be issued. Decisions regarding dividend distributions are also reserved for shareholders; however, the dividend distribution may not exceed the proposal made by the board, except where such an obligation exists in accordance with the articles of association or where the distribution was resolved upon at the request of a minority holding at least 10 per cent of the shares in a company. Shareholders holding at least 10 per cent of the shares in a company are always entitled to request the payment of a dividend corresponding to half of the profits of the financial year, although not more than five per cent of the equity of the company.Decision-making at the general meeting
Each shareholder has the right to participate in a general meeting. The articles of association may prescribe that, to participate at a general meeting, a shareholder must notify the company thereof not later than the date specified in the notice to attend the general meeting. The main rule is that all shares carry equal rights; however, the articles of association may prescribe otherwise.
Resolutions at a general meeting usually require a simple majority to be passed. There are, however, certain matters that require a qualified majority of both the votes cast and represented at the general meeting. A majority is purported as qualified if it is supported by at least two-thirds of the votes cast and shares represented at the meeting.
Below is an enumeration of certain matters that require a qualified majority vote:
- amendment of the articles of association;
- directed share issue;
- directed issue of warrants or convertibles;
- acquisition and redemption of own shares;
- directed acquisitions or sales of own shares; and
- mergers and demergers.
There is a possibility for listed Swedish companies to apply postal voting, however this option is rarely used. Instead, voting is done at the general meeting either by the shareholder in person or by anyone with a written power of attorney.Objection to a decision by the general meeting
In the event that a resolution of a general meeting has not been adopted in due order or otherwise contravenes the Companies Act, the applicable annual reports legislation or the articles of association, a shareholder, the board, a member of the board or the managing director may bring proceedings against a company before a court of general jurisdiction to set aside or amend the resolution. Such proceedings may also be brought by a person whom the board has unduly refused to enter as a shareholder in the share register.
An action to have a general meeting's resolution declared void must be commenced within three months of the date of the resolution. Where proceedings are not commenced within that period, the right to commence proceedings shall be forfeited. Proceedings may commence at a later time provided that the resolution is such that it cannot be adopted without the unanimous consent of all shareholders, consent to the resolution is required of all or certain shareholders and no such consent has been granted, or notice to attend the general meeting has not been given or significant parts of the provisions governing notice to attend the general meeting have not been complied with.ii Shareholders' duties and responsibilitiesProtection of minority rights
An important protection mechanism for the minority shareholders of a company is the principle of equal treatment. The principle is established in the Companies Act, and is thus applicable to both listed and unlisted companies. The principle entails that shares of the same class have the same rights, unless otherwise specified in the articles of association. A dividend that results in a difference in the payout per share is, therefore, in conflict with the principle of equal treatment. The same would apply to any other asset transfers that differentiate between shareholders of the same class of shares. In cases where a minority shareholder is unfairly treated in relation to a majority shareholder (e.g., if the company enters into an unfavourable agreement with a majority shareholder), the minority shareholder will not be able to rely on the principle of equal treatment to invalidate the transaction, because in that situation all shareholders are affected equally. However, in such cases minority shareholders are protected by other provisions of the Companies Act. For example, the Companies Act states that the general meeting may not adopt any resolution that is likely to provide an undue advantage to a shareholder or another person to the disadvantage of the company or another shareholder. The board, or any other representative of the company, is also prohibited from performing any legal acts or other measures that are likely to provide an undue advantage to a shareholder or another person to the disadvantage of the company or any other shareholder. If a minority shareholder manages to show that it has been unfairly treated, the transaction may be invalidated and the minority shareholder may receive damages. The transaction will typically not be regarded as unfair should the majority shareholder be able to show that the transaction was entered into in the normal course of business.
Some important minority shareholders' rights include the possibility for shareholders holding not less than 10 per cent of all shares in the company (owned by one shareholder alone or by a number of shareholders in conjunction) to demand in writing that the company's board convenes an extraordinary general meeting to address a specified matter. If the request is correctly made, the board is obliged to convene the meeting and must issue a notice to attend the meeting within two weeks of receipt of the demand. A specified matter is an issue relevant to the company that can be decided upon at the extraordinary general meeting. For that reason, it is not possible for minority shareholders to demand that an extraordinary general meeting is convened just for the opportunity to ask questions of the members of the board or the management. However, a minority that needs to ask questions of the board could initiate its right to appoint an extra auditor or a special examiner and demand that an extraordinary general meeting is held to decide on such matter. During the general meeting, the right to ask questions can be utilised as a first step to meet the information requests of the minority. If the board satisfies the minority's needs in this regard, the need to appoint an extra auditor or special examiner may no longer be necessary.
A minority shareholder may propose that an extra auditor appointed by the Swedish Companies Registration Office shall participate in the audit of the company together with the company's ordinary auditors. The proposal shall be submitted to a general meeting at which the election of auditors is to take place or at which a proposal set forth in the notice to attend the general meeting is to be addressed. If the proposal is supported by owners of at least 10 per cent of all shares in the company or at least one-third of the shares represented at the meeting, and a shareholder then submits a request to the Companies Registration Office, the Companies Registration Office shall appoint an extra auditor. As a general rule, it is the person whom the minority has proposed as an extra auditor who shall be appointed.
The extra auditor has the same privileges and obligations as the company's ordinary auditor and shall participate in the auditing of the company together with the ordinary auditor. Thus, the extra auditor shall examine the company's annual report and the company's bookkeeping, as well as the board's and the managing director's management of the company. Both the ordinary auditor and the extra auditor shall perform their function independent of the company and its management.
It should be noted that the ordinary auditor, as well as the extra auditor, have a duty of confidentiality and may not, without due authorisation, disclose to an individual shareholder or any third party any information concerning the company's affairs learned by the auditor in the performance of his or her duties, if the disclosure could damage the company. It is therefore mainly through the disclosure of the auditor's report and other accounting documents in close proximity to the annual general meeting that the minority shareholders of the company receive information concerning the company's financial situation. The auditor's report shall be presented to the company's board no later than three weeks prior to the annual general meeting. In listed companies, accounting documents and the auditor's report shall then be made available for the shareholders during a period of not less than three weeks immediately prior to the annual general meeting.
Further, a minority shareholder may submit a proposal for an examination through a special examiner. A special examiner's assignment is to review the company's management and accounts during a specific period in the past or certain measures or circumstances within the company. A proposal for an examination through a special examiner shall be submitted at an ordinary general meeting or at the general meeting at which the matter is to be addressed. Where the proposal is supported by shareholders holding at least 10 per cent of all shares in the company or at least one-third of the shares represented at the general meeting, the Companies Registration Office shall, upon request by a shareholder, appoint one or more special examiners. The special examiner shall submit a report regarding his or her examination. The report shall be made available and sent to the shareholders.Controlling shareholders and institutional investors
In many Swedish listed companies, there is a controlling shareholder (or shareholders) who has often retained control through shares with greater voting power, such as certain family or privately controlled investment companies. Together, Swedish institutional shareholders have large stakes in many Swedish listed companies. In specific cases, they try to team up and then exert great influence.
There are no particular duties for controlling shareholders or institutional investors in Swedish legislation and self-regulation, except for the general obligation to launch a takeover bid when a shareholder's ownership exceeds a certain level (30 per cent of the voting rights in the company) and the right and obligation to redeem the remaining outstanding shares when the shareholding exceeds 90 per cent of all the shares in the company.
A shareholder does not owe the same fiduciary duties towards the company as the board and is not required to act positively in the interest of the company. However, a shareholder should compensate for damage that he or she causes to the company, a shareholder or another person as a consequence of participating intentionally or though gross negligence, in any violation of the Companies Act, the applicable annual reports legislation or the company's articles of association.iii Shareholder activism
Shareholder activism has been fairly moderate in Sweden. However, in the past couple of years shareholder activism has increased in companies that are subject to a takeover offer, wherein the activist is calling for a higher price to be paid by the bidder after an offer is completed. This is done by the bidder taking a stake in the target during the offer period and thereafter taking advantage of the strong minority protection contained in the Companies Act. There is also a growing tendency, especially among institutional investors, to take a more active role. Swedish institutional shareholders play an important role in Swedish listed companies. Together, they have large stakes in many Swedish listed companies. In specific cases, they try to team up and then exert influence. In their daily activism, they try to exert influence through direct dialogue with the board and by taking part in nomination committees, but also indirectly by making statements in industry news media.
Activist shareholders normally gain a position through the acquisition of a corner in a company, in some cases together with Swedish or non-Swedish institutional investors.Say on pay
The Code stipulates that a company shall have a nomination committee that, inter alia, shall nominate candidates to the board and propose the remuneration payable to the board and committee work. The proposal shall be put forth at the annual general meeting. In addition, the Companies Act requires the annual general meeting to resolve on principles for remuneration to management, to which the board must adhere when setting the remuneration for the CEO and other management staff.Derivative action
Derivative actions on behalf of the company may be brought where a minority of owners of not less than 10 per cent of all shares in the company have, at a general meeting, supported a resolution to bring such a claim or, with respect to a member of the board or the managing director, have voted against a resolution regarding discharge from liability. If shareholders holding at least 10 per cent of the shares in the company vote against a resolution regarding discharge of liability, a claim of damages may be brought against the board and the managing director despite the fact that the rest of the shareholders have voted for discharge.
Where the general meeting has adopted a resolution to grant discharge from liability or not to commence an action for damages (without 10 per cent of the shareholders having voted against the resolution), or the period for the commencement of an action has expired, an action may nevertheless be brought where, in the annual report or the auditor's report or otherwise, from a material aspect correct and complete information was not provided to the general meeting regarding the resolution or the measure on which the proceedings were based.iv Takeover defences
The Swedish corporate governance framework is significantly guided by the principle of equal treatment and a strong requirement on the board to always act in the best interest of the company and its shareholders. The board may not promote shareholders' initiatives that conflict with these rules and principles. For that reason, unless the general meeting of shareholders has resolved upon it, target boards are prevented from taking defensive measures, and, thus, the Swedish takeover rules are rather takeover-friendly in that sense. The board may, however, at all times seek alternative bids (i.e., white knights).
Staggered boards do not exist (each board member is elected annually, and there is no way of preventing a new owner from making an immediate board replacement). Poison pills and stitching, etcetera, are not allowed under Swedish law.v Contact with shareholders
As set out in Section III, Swedish listed companies have a duty to disclose all inside information as soon as possible. Shareholders also receive information on all matters proposed to be decided upon by the general meeting. The notice to a general meeting shall be published and made available to the shareholders no later than three or four weeks (depending on the type of general meeting) prior to the general meeting and shall include information on the decisions proposed to be taken. Shareholders also have the right to ask questions at the general meeting, and in practice often do so in connection with the managing director's presentation of the financial statements of the company.
The company may generally contact individual shareholders as long as the contact is in the interests of the company and in accordance with the principle of the equal treatment of all shareholders (i.e., the contact may not be aimed at giving one shareholder undue benefit at the expense of other shareholders or the company). However, if inside information should be disclosed, MAR requires that the disclosure is made in the normal exercise of an employment, a profession or duties. Certain situations where the company engages in discussions with a major shareholder typically meet such criteria; these may include, for example, planned share issues or other corporate restructurings. In case of contemplated securities offerings, the rules regarding market soundings in the MAR may be applicable, and the company would have to comply with certain additional requirements in the MAR.
Large shareholders acting together will have to observe the rules relating to acting in concert, which may trigger an obligation to launch a mandatory takeover bid if the joint holding of shareholders acting in concert were to exceed 30 per cent of the votes in the company.