A Nordic Model of Corporate Governance

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Jan 28, 2015 ... The Nordic Corporate Governance Model. A study aimed at defining a common Nordic model of corporate governance. Presentation at ...

The Nordic Corporate Governance Model A study aimed at defining a common Nordic model of corporate governance

Presentation at breakfast meeting in Oslo 28 January 2015

Per Lekvall

Agenda 1. The study in brief

2. The essence of Nordic corporate governance

3. In summary

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The study Background  Perceived difficulties to obtain understanding and recognition of Nordic corporate governance

 within the EU system  on the international capital market.  As individual countries we are small and of little significance on the international scene – together we carry greater weight.

Purpose  To define and describe a common Nordic model of corporate governance...  …based on existing legislation, self-regulation and non-codified practice in the four major Nordic countries.

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The study

Project organisation Project Owner: SNS/Pernilla Klein

DENMARK

FINLAND

REFERENCE GROUP Sten Scheibye, chair Frederik Bjørn Lars Nørby Johansen Anne Pindborg Bjørn Sibbern

REFERENCE GROUP Stig G. Gustavson, chair Maarit Aarni-Sirviö Gunvor Kronman Leena Linnainmaa Sixten Nyman Tapani Varjas Tom von Weymarnn

WORKING GROUP Legal expert Jesper Lau Hansen CG expert Carsten Lönfeldt

Legal expert Manne Airaksinen CG expert Tom Berglund

Project Manager Per Lekvall

NORWAY REFERENCE GROUP Ingebjørg Harto, chair Finn Jebsen John Giverholt Christina Stray

Legal expert Gudmund Knudsen CG expert Harald Norvik

Legal experts Rolf Skog/Erik Sjöman CG expert -- (PL)

SWEDEN REFERENCE GROUP Hans Dalborg, chair Petra Hedengran Annika Lundius Anders Nyrén George Pettersson Ulrik Svensson

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The study

Structure of the report Foreword Executive Summary I. Introduction  Background  Purpose and scope of the study  Project organisation  Outline of the report II. The Institutional Framework of Nordic Corporate Governance  The regulatory framework  The market for publicly traded stock III. A Consolidated Nordic Governance Model  The essence of the model  An owner-oriented governance structure  Shareholder minority protection. IV. The Nordic Model of Corporate Governance: the Role of Ownership A comment by Ronald J. Gilson Appendices A. Corporate Governance in Denmark B. Corporate Governance in Finland C. Corporate Governance in Norway D. Corporate Governance in Sweden E. Ownership Concentration on the Nordic Stock Markets

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The essence of Nordic corporate governance Starting point Key issue of modern CG – “The Agency Problem”



How to ensure that the company is run by the board and management in the true interest of its owners?

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The essence of Nordic CG

Classical solution - the Anglo-American model  Institutional framework characterized inter alia of:

  

Generally highly dispersed ownership structures of listed companies – lack of strong, long-term engaged shareholders Deep-rooted aversion towards control ownership

The Board in de facto control of the company

 Prime means of dealing with agency problem:

  

Dispersed investment strategies Open and active markets for corporate control Internal organizational provisions e.g.

  

Independent directors Board committees for dealing with integrity problem of “mixed boards” Moving remuneration decisions upwards in the governance structure

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The essence of Nordic CG

The Nordic solution  Institutional framework characterized by:

  

Concentrated ownership structures of listed companies A generally positive view of controlling owners… …typically concentrating their investments to one or a few companies where they engage actively in the governance of the company.

 Prime means of dealing with agency problem:

 

A hierarchical governance structure, allowing strong owners to effectively control and take a long-term responsibility of their companies… … balanced by extensive minority protection measures that effectively curb the scope for control owners to extract private benefits at the expense of minority shareholders.

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The essence of Nordic CG

Concentrated ownership Percentage of listed companies with at least one shareholder controlling more than 20% (red bars) and 50% (blue bars), respectively, of the votes of the company Source: Study carried out by SIS Ägarservice for the Nordic CG Project 80,0 70,0 60,0

67

65 57

62

54

50,0 40,0 30,0

28

27

23

20,0

17

15

21

10,0

5

0,0 Denmark

Finland

Norway

Sweden

Nordic region

UK

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The essence of Nordic CG

A hierarchical governance structure

Ownership level

Oversight and control level

Two-Tier Model

Nordic Model

One-Tier Model

General Meeting

General Meeting

General Meeting

Supervisory Board

Board Non-executive directors

Executive level

Management Board

Executive Management

Board Non-executive and executive directors

The essence of Nordic CG

Strong minority protection provisions  The principle of equal treatment of shareholders  Far-reaching individual shareholder rights

 Majority-vote requirements at GMs of up to total unanimity  Minority powers to force certain GM decisions  Related-party transactions allowed provided market terms and full transparency  High degree of transparency towards shareholders, the capital market and the society at large

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The essence of Nordic CG

Does the Nordic minority protection system work? Median value of control-block votes in different legal systems *) French civil law jurisdictions

23 %

 Including France 27%, Italy 30%, Mexico 37%

German civil law jurisdictions

16 %

 Including Germany 5%, Switzerland 1.5%

Anglo-Saxon common law jurisdictions

1.6 %

 Including UK 7%, US 0.7%, Canada 0.5%

Nordic jurisdictions

0.5 %

 Denmark 0.3%, Finland 0.5%, Norway 4%, Sweden 0.4%

*) Nenova, T.: The Value of Corporate Voting Rights and Control: A Cross-country Analysis. Journal of Financial Economics 68 (2003), pp. 325-351.

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In summary  A model designed to allow strong owners to largely control their companies...

 ...in the belief that such owners will have stronger incentives and greater resources to engage in and take a long-term responsibility for the companies than what can generally be mustered by minority investors...

 ...to the benefit of all shareholders.

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