As we are in season of Annual General Meetings (“AGMs”) it is appropriate to highlight the ongoing discussion if (re-)election of directors is to be made in bundled form or on an individual basis. In Sweden the former is common practice and means that all board candidates are presented as one voting item to shareholders. This routine is also practised in Finland, Brazil, Turkey, among others - but generally and in most of Europe individual vote count in board elections is used. Proponents of bundled voting means individual vote count undermines the authority of the nomination committee and that the shareholders still don’t have enough information since Board discussions are behind closed doors. Benefits of the individual voting include the ability for shareholders to hold individual board members accountable and make it more accessible to exercise this right.
Last summer the Norges Bank Investment Management (”NBIM”), which manages the Norwegian pension fund (”oil fund”), took a stance for amending the system in Sweden. Both in media and in an official, so-called, position paper they express their views. In their argumentation they refer to the OECD Principles of Corporate Governance - stating that; "for the election process to be effective, shareholders should be able to participate in the vote on individual nominees or on different lists of them". According to NBIM Sweden and Finland are among the few remaining advanced markets with bundled board elections – implicating it is an out-dated procedure.
The NBIM is a significant owner in the Nasdaq OMX with stock ownership in many large Swedish companies, e.g. Volvo and SCA, totalling a value of almost 100 billion SEK. The Norwegians, however, are not alone in proposing changes. In a letter to Chairman of The Swedish Corporate Governance Board (”Kollegiet”), Arne Karlsson, several international investors including APG, AXA, CalPERS recommend amendments to the Swedish Corporate Governance Code (“the Code”).
Despite these opinions, in the new revised version of the code there where no amendments made - with an attached explanation from Kollegiet, in their own position paper. Kollegiet means that the opportunities in Swedish company law for individual voting are sufficient in combination with the good practices already existing in the companies and its committees. In fact, company law states that shareholders of Swedish companies may request individual director elections and Individual Vote Count (IVC) at AGMs. This is done through the Nomination Committee that proposes the Board, as a group. But, if further members are proposed, so that there are more candidates than available seats, there will be an individual vote count. Or if a request for individual vote count is presented as specific proposal for the AGM there is also an opportunity - if the Chairman brings it up, and if more than half of the AGM attendees approves this proposal. Without further explanation this is rarely used in practice, why it need to be changed according to the investors.
Despite that Kollegiet decided to not implement any changes the discussion is continuing. In the end of January, the NBIM CEO Yngve Slyngstad announced that the fund want at least one seat in the Board nomination committee of the companies where they are one of the five biggest owners. At the end of the year these companies where SCA ,Volvo, Assa Abloy, Axfood, Hufvudstaden and Kungsleden. Mr Slyngstad expect change within companies and says; "I actually think that the ten largest companies in Sweden will use individual vote count this spring”.
NBIM has received criticism for not being active at AGMs, especially in the case of SCA where they supported the Board despite recent scandals. Slyngstad’s explanation is that they didn’t want to jeopardize the company by not approving the Board. NBIM don’t see its role as becoming more active at AGM s but rather sees a procedural change; ”Either the world adapt to Sweden, or Sweden will adapt to the world.”
A number of companies have already announced that they will adapt to the demands from investors this spring; TeliaSonera, Ericsson, Handelsbanken, SEB and Swedbank.
"It has been a discussion for some time in Sweden about the possibility of voting on each member and some institutions have put forward such requests to the Swedish stock market companies; also to us. We have listened to them for this year's AGM,"
says TeliaSonera's Press Officer Henrik Westman.
This year seem to be a start of a change in Board nomination/voting procedure driven from a sustainability issue in one of Sweden’s largest companies, SCA. As owners, NBIM exercises its right to impact how companies are run – for long time profitable returns. Investors on all fronts are more active in their ownerships, in many ways, illustrated in Swedbank now recently and perhaps even more in the future with new company Board practices.