Corporate Governance in a Nordic Setting: The Case of Sweden 9783110725315, 9783110725346, 9783110725469

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Corporate Governance in a Nordic Setting

De Gruyter Studies in Corporate Governance

Series Editor Jill Atkins Cardiff Business School, Cardiff University, UK School of Accountancy, University of the Witwatersrand, South Africa

Volume 6

Corporate Governance in a Nordic Setting The Case of Sweden Edited by Peter Beusch, Kristina Jonäll and Svetlana Sabelfeld

ISBN 978-3-11-072531-5 e-ISBN (PDF) 978-3-11-072534-6 e-ISBN (EPUB) 978-3-11-072546-9 ISSN 2570-1673 e-ISSN 2570-1681 Library of Congress Control Number: 2023941364 Bibliographic information published by the Deutsche Nationalbibliothek The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available on the Internet at http://dnb.dnb.de. © 2024 Walter de Gruyter GmbH, Berlin/Boston Typesetting: Integra Software Services Pvt. Ltd. Printing and binding: CPI books GmbH, Leck www.degruyter.com

Contents Peter Beusch, Kristina Jonäll and Svetlana Sabelfeld 1 Introduction 1 Peter Beusch 2 A Nordic approach to corporate governance

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Peter Beusch 3 Nordic stock markets and ownership structures Peter Beusch 4 The Nordic countries’ corporate governance model Svetlana Sabelfeld and Kristina Jonäll 5 The Swedish corporate governance setting

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Kristina Jonäll 6 The Swedish corporate governance code and its development Derya Vural 7 Ownership and usage of control-enhancing mechanisms

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Conny Overland and Niuosha Samani 8 Diversity on the board 97 Conny Overland and Niuosha Samani 9 Board-level employee representation in Sweden Susanne Arvidsson 10 Sustainability governance

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Svetlana Sabelfeld 11 Corporate governance in a time of crisis

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Svetlana Sabelfeld, Kristina Jonäll and Peter Beusch 12 Corporate governance in the Nordic countries and Sweden – final reflections and outlook 153 Contributors

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1 Introduction 1.1 A short background to the concept of corporate governance This book is about corporate governance issues in a Nordic setting in general and the case of the Swedish corporate governance code and the Swedish corporate governance model more specifically. Still today, there is no general agreement on the definition of corporate governance, and diversity of governance practices around the world would also be inconsistent with a common global definition. Even so, perhaps the most widely used definitions today are the ones stated by the Cadbury Report and the Organisation for Economic Co-operation and Development (OECD). The Cadbury Report (Cadbury, 1992, p. 15) describes corporate governance concisely as “the system by which companies are directed and controlled”, a definition which focuses on structural issues more than anything else. The OECD’s (2015, p.9) definition, on the other hand, applies a relational-structural view as corporate governance: involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.

A general discourse around the separation of ownership and control started with Adam Smith (1776) around two and a half centuries ago, when he pointed out that “being the manager of other people’s money . . . one cannot expect to watch over it with the same anxious vigilance”. To protect owners from those who represent them in companies, the agents, was the initial concern of corporate governance and which continues to constitute the most important aspect of corporate governance today. This topic, not referred to as corporate governance in earlier times, did however enter practice as important following the Wall Street Crash of 1929, when it found its way into real managerial models and applications thereof. Berle and Means’ (1932) eminent publication “The modern corporation and private property” was significant in initiating a predominantly academic discussion about bringing shareholders back into the equation and giving them (more) control over management decisions. Still, it was not before the mid-1970s, that corporate governance appeared as a term, which occurred when the federal Securities and Exchange Commission (SEC) in the U.S. brought corporate governance on to the official reform agenda (Cheffins, 2013). Corporate governance received, almost exclusively in the U.S, additional attention due to Jensen and Meckling’s (1976) works on the ‘principalagency problem’.

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The liberal politics of Ronald Reagan and Margret Thatcher during the 1970’s and 1980’s, together with Milton Friedman’s (1970) message that “The social responsibility of business is to increase its profits” (and nothing more) helped to dominate not only the American but also the British manager’s way of thinking in terms of corporate governance. Still, more than anything else, it is assumed that it was the excellence of the managerial model, not the corporate governance model, exemplified by the U.S. global corporate success, that was the main reason why the American way of structuring and controlling businesses was seen as the ‘best’ approach, although other forms of corporate governance in other parts of the world were generally ignored at that time (Gilson & Roe, 1993). Due to this, from the 1970’s onward, corporate governance issues started to, on a global scale, be more and more concerned with behavioural patterns of these organizations and the specific markets, and the quality of corporate governance was almost exclusively measured by financial outcomes (e.g., firm and market performance, efficiency, and growth). The main assumption was that the financial market would solve efficiency issues and always represent the best possible estimate of the value of any investment (Efficient Markets Hypothesis) and that the positive (financial) outcome would automatically ‘trickle down’, improving societal welfare and income for all. Many American managers who, until then, continued to view themselves as stewards of the corporation rather than merely agents of the corporation’s shareholders (Donaldson & Preston, 1995), increasingly moved towards seeing the organization as an instrument for creating shareholder wealth. Thus, in the Anglo-Saxon parts of the world, it became obvious that corporations were nothing more than ‘financial investments’, where the financial outcome should be at the centre of any monitoring and control mechanisms. Everything else was apparently outside the businesses’ responsibility. Around the same time, monetary measures on a regional and national level, such as Gross National Product (GNP) and later Gross Domestic Product (GDP), representing the market value of goods and services produced and sold in a specific time and region, further increased this financial focus. In fact, from World War II onwards, GDP almost entirely replaced any other aggregated indicator and became international standard to measure the welfare, progress, and well-being of nations and people (National Accounts, 2011). Thus, in the GDP measure, Adam Smith’s (1776) writings on “The nature and causes of the wealth of nations”, more than two centuries later, provided a quantifiable solution and outcome. During the late 1980s and early 1990s, however, the popularity of this ‘shareholder only’ view, changed somewhat, as the U.S. economy was hit by recessionary conditions and the competitive threat posed especially by German and Japanese companies. Prominent academics started to accuse U.S. corporate executives of being “too compelled by takeovers and related financial market pressures to focus on the next quarter’ earnings at the expense of performance over the long haul” (Porter, 1992). Additionally, boards of these companies stood accused of being too little inclined to

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change because they got used to stability and prosperity in America after World War II (Johnson, 1990). Since then, the competitive world has changed. Especially Germany and Japan, but also other continental Europe and Asia countries, had during the 1970s onwards continued to apply a somewhat more institutional view of corporate governance. This was a view that sought to include, and attempted to balance, economic and social goals. From this perspective, corporations did have a sort of quasi-public character and role, something that today has similarities with the ‘stakeholder approach’. This term was coined by Edward Freeman (1984) already during the 1980s to illustrate that management needed to have a broader and more inclusive perspective than what the ‘shareholder view’ proposed. Since then, the debate between a relatively commercial and more shareholdercentric paradigm and the more normative approach that maintains that a stakeholder orientation should be pursued, has been going on (e.g., in Lazonick & O’Sullivan, 2000; Brennan & Solomon, 2008; Solomon et al., 2000; Salomon, 2020). Also, in recent decades, researchers and institutions have started to bring back a more comprehensive framework that would, besides the financial focus, include environmental and social elements in the evaluation of organizations and societies, which is visible in today’s discourse of corporate governance as well as in new measures that should go beyond GDP (Kubiszewski, 2013).

1.2 Some about the authors and the content of this book All authors of the chapters in this book teach and do research in the field of business administration in general and the discipline of accounting and finance more specifically. Besides a big interest in corporate governance overall, we also share the view that companies have an important role to play when it comes to working towards a sustainable society. Hardly anybody would claim that they want corporate governance to be designed and applied in companies so that it does not lead to a sustainable society. Viewpoints about how such a society looks like and, what is even more important, how best to achieve it, however, differ strongly, and it is probably easier to ascertain what type of corporate governance that leads to poor outcomes that to make out what good corporate governance is. It is beyond the purpose of this book to evaluate, with economic/statistic methods, the correlation between a specific corporate governance model and a particular region’s or country’s welfare, progress, and wellbeing. Still, the authors believe that the sum of the quality of all corporate governance in a particular region or country is mirrored in the region’s/country’s progress and that there is a strong interlinkage between corporate governance and societal progress at large. A contributing factor to this is that real corporate governance practices, thus not only the formulized corpo-

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rate governance rules and regulations, do concern, consist of, and include behavioural, social, economic but also political dimensions of the interaction between the business world and the environment and context of which the companies are part. The intention of the authors of this book is not to provide a comprehensive account of all issues regarding the Nordic and Swedish application of corporate governance but to outline the most distinguishing features thereof. What follows below is therefore a selection of several in-depth topics around the design and use of the Nordic and above all the Swedish corporate governance model. In most cases, the topics that are represented are also directly connected to the specialization of the author(s). This book wants to make a point that Sweden is part of a Nordic region that has a lot in common, and this also applies to the design and use of corporate governance. The Nordic region, which in this volume is represented by the countries Norway, Sweden, Denmark, and Finland, leaving out Iceland due to its relatively small economic size and impact, consists of relatively small open economies that are therefore highly dependent on international trade and a large export on global markets. Additionally, these four countries have, especially after World War II, developed what has become the characteristics of the Nordic welfare state model (Greve, 2007). The development of this welfare state model, to quite some extent, also explains the way the Nordic countries have developed their approach to corporate governance, which will be discussed in the next chapter (Chapter 2). The chapter will not only outline why the Nordic welfare model is seen as a political-ideological ‘middle way’ and what this means but also how this has been influencing the way different institutions and corporate life, inclusive corporate culture, and leadership styles, in the four countries have developed over time. In the presentation, there will be comparisons between the four countries but also between them and other important regions (e.g., EU, OECD) or more specific countries. Chapter 2 from Peter Beusch starts with a broad perspective on what progress and welfare means, which includes not only a comparison of financial but also social and environmental factors. Therefore, we provide in this chapter details about e.g., taxes, wage distributions and net replacement rates, gini-coefficiencies, and the quality of institutions, corruption, citizen participation and trust. Additionally, developments over time are illustrated precisely to give a more holistic picture of what ‘broad societal progress’ means. In Chapter 3, Peter Beusch continues with a focus on the four Nordic countries with an emphasis on the stock markets and ownership structures. Here, specific characteristics are compared within the four countries but also to other regions/countries, e.g., stock market size, market capitalization and ownership structure (e.g., institutional investors and public sector investors). Peter Beusch sums up the ‘Nordic’ part of the book in Chapter 4 with a presentation and discussion of the ‘Nordics’ corporate governance model’. First, the institutional framework will be outlined, where similarities but also differences between the four different countries’ models are discussed. It follows a section about the Nor-

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dic corporate governance model as a ‘middle way’ between the Anglo-Saxon ‘one-tier’ governance model and the ‘two-tier’ governance model that exists in e.g., Germany and several other continental European countries. A more close-up of the Nordics’ setting with half-independent Boards of Directors (BoD) and a closer look at sustainability within the corporate governance codes of the four Nordics rounds this chapter off. Chapter 5, written by Svetlana Sabelfeld and Kristina Jonäll, continues with a more detailed overview of the Swedish corporate governance setting and how it developed over time and became what it is today. Focus here is on the most specific societal changes, specifically on labour unions and industrial family conglomerates, as these were the two most powerful institutions involved in the shaping of the distinctive features of the Swedish way of practising corporate governance. Kristina Jonäll follows, in Chapter 6, with a more in-depth analysis of the origin (year 2005) and further development (changes in 2008, 2010, 2015, 2016, and 2020) of the Swedish corporate governance code, and looks at the time ahead of that. Additionally, the features and practices of the corporate governance board are discussed. The large presence of controlling owners and the frequent usage of controlenhancing mechanism is a specific feature of the Swedish governance system, which is the focus of the discussion in Chapter 7 written by Derya Vural. A mostly theoretical discussion about agency conflicts in general with concentrated ownership is followed up with data that illustrates the case of Sweden and other European countries. Challenges with corporate governance systems in this matter on the European level close this chapter. Conny Overland and Niuosha Samani are, together, the authors of Chapter 8 and Chapter 9, which are two additional chapters that describe specific elements that are somewhat characteristic for Swedish corporate governance practices. Diversity on the board of directors (BoD) is the main content of Chapter 8, which is an area that has been subject to significant debate, and at many places changes as well, in Europe overall but also in Sweden. Here, the authors not only delve into gender diversity issues in Sweden but also other types of diversity. Related to the topic in Chapter 8, the system for board-level employee representation in Sweden is the focus of Chapter 9. Here, the authors start with an international comparison before exploring certain questions around the ‘when do employees appoint representatives’, ‘how are employee representatives perceived’ and ‘how does all this relate to firm outcome’. Susanne Arvidsson is the author of Chapter 10, which sheds light on the important issue of governance and sustainability as it discusses the real work of companies in setting up efficient systems for sustainability governance. Here, she illustrates challenges and opportunities during such attempts with help of longitudinal data from large-listed companies and provides the reader with lessons learnt. Chapter 11, written by Svetlana Sabelfeld, continues with a rather ‘hands-on’ case in a very topical area as it discusses corporate governance in times of the recent global pandemic crisis (COVID-19 crisis). Drawing on interview data from a large

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Swedish industrial company, she highlights challenges but also opportunities that arose in corporate governance practices of this firm. Finally, in Chapter 12, the editors of this book will sum up all contributions on corporate governance in the Nordics and especially in Sweden with final reflections and an outlook.

References National Accounts (2011). Central Bureau of Statistics. Archived from the original on 16 April 2011. www.cen tral-bureau-of–statistics.an/SNA/sna_intro.asp Berle, A. Jr., & Means, G.C. (1932). The Modern Corporation and private property, Macmillan, New York, NY. Brennan, N. M., & Solomon, J. (2008). Corporate governance, accountability and mechanisms of accountability: An overview. Accounting, Auditing & Accountability Journal, 21(7), 885–906. Cadbury Report (1992), Report of the Committee on the financial aspects on corporate governance, Gee Professional Publishing Ltd, United Kingdom, UK. Cheffins, B. R. (2013). The history of corporate governance. Law working paper, Cambridge an ECGI. January 2012. Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implications. Academy of management Review, 20(1), 65–91. Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman, Boston. Friedman, M. (1970), “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine, September 13. 16. Gilson, R.J., & Roe, M.J. (1993). “Understanding the Japanese Keiretsu: Overlaps Between Corporate Governance and Industrial Organization.” Yale Law Journal, 102: 871–906. Greve, B. (2007). What characterise the Nordic welfare state model. Journal of Social Sciences, 3(2), 43–51. Jensen, M., & Meckling, W. (1976). “Theory of the firm: managerial behavior, agency costs and ownership structure”. Journal of Financial Economics, Vol. 3 No. 4, pp. 305–360. 23. Johnson, E.W. (1990). “An Insider’s Call for Outside Direction.” Harvard Business Review, March–April 1990, 46–55. Kubiszewski, I., Costanza, R., Franco, C., Lawn, P., Talberth, J., Jackson, T., & Aylmer, C. (2013). Beyond GDP: Measuring and achieving global genuine progress. Ecological economics, 93, 57–68. Lazonick, W., & O’sullivan, M. (2000). Maximizing shareholder value: A new ideology for corporate governance. Economy and society, 29(1), 13–35. OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris. http://dx.doi.org/10. 1787/9789264236882-en Porter, M.E. (1992). Capital Choices: Changing the Way America Invests in Industry. Journal of Applied Corporate Finance, 4–16. Smith, A. (1981): An Inquiry into the Causes of the Wealth of Nations, 2 Vols (Liberty Press, Indianapolis). Solomon, J. (2020). Corporate governance and accountability. John Wiley & Sons. Solomon, J. F., Solomon, A., Norton, S. D., & Joseph, N. L. (2000). A conceptual framework for corporate risk disclosure emerging from the agenda for corporate governance reform. The British Accounting Review, 32(4), 447–478.

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2 A Nordic approach to corporate governance In this chapter, we discuss corporate governance from a Nordic perspective, then including the countries Sweden, Denmark, Finland, and Norway. These Nordic countries often constitute a base that is seen as quite homogeneous dependent on several parameters and characteristics. This in turn has influenced the design and even more the use of corporate governance in the various Nordic countries. An important role in all this has been played by the Nordic welfare model, which is described throughout this chapter. Thus, Section 2.1 describes the historical emergence of the link between the Nordic corporate governance model and the Nordic welfare model. Section 2.2 continues with an illustration of the Nordic middle way before section 2.3 talks about the ‘golden era’ of the Nordics that later turned into a ‘lean-welfare-state model’. Section 2.4 focuses on the Nordic countries’ taxes and the development thereof. How wages are distributed in the Nordics is the core of Section 2.5 before Section 2.6 illustrates the development of net replacement rates for standard workers. Section 2.7 displays income-inequality (Gini-coefficient), where all Nordic countries have low inequality compared to most other OECD countries. What this has to do with the quality of institutions, with corruption, citizen participation and trust (Section 2.8), and how much of this can be attributed to, or is the basis for, a Nordic corporate culture, will be discussed in Section 2.9, which ends this chapter.

2.1 Corporate governance and the Nordic welfare model The focus of this book is directed towards the Swedish corporate governance model. To understand this model, and with that the main content of the rest of this book, however, one needs to understand at least some of the background, context, and setting, but also the public debate that has led to the model itself. The Swedish corporate governance model is unique in terms of its design but also how it is applied in, and complied by, companies in Sweden. Today, this distinctiveness, at least on paper, is less than the similarities, compared with most corporate governance models in the Western World. The similarities are particularly many when compared with the Nordic neighbors. In fact, during the last decade or so, it has not been uncommon that some researchers as well as practitioners (e.g., in Lekvall et al., 2014; Sjafjell & Mahonen, 2014; Ilmonen, 2015; and Thomsen, 2016) have talked about a Nordic corporate governance model.

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The Nordic approach to corporate governance, which includes the countries Norway, Sweden, Denmark, Finland, and Iceland, where Iceland often, as in the presentation that follows, is omitted due to the country’s minimal size and importance, has attracted international attention for a while. The reason for this attraction, however, has varied over time. First, the Nordic economies have been quite different, compared to other regions, due to their welfare states, as these countries, for quite some time, were characterized by large government sectors, strong labour unions, a rather equal income distribution, but also high taxes (Andersen et al., 2007). These high taxes, especially during the 1970s and 1980s, contributed to the Nordic countries sometimes being called ‘tax and spend’ countries. Still in 1993, Sweden’s public spending reached 67 % of the gross domestic product (GDP) which, especially from right wing observers all over the world, was used as an explanation for Sweden’s fall from being World’s fourth-richest country in 1970 to being number 14 only in 1993 (Economist, 2013). The GDP measure, overall and per capita, has since its inception in 1937 become one of the most dominant measures to illustrate economic growth and it is still a very common way of valuing a society’s well-being and progress as it measures the total value of all goods and services produced in a country. Thus, this measure is often used in combination with, and to explain the efficiency of, a nation’s business and investment climate. Exactly for that reason, GDP development measures have in the past been used to explain how well different corporate governance models worked in certain countries or parts of the world. In terms of GDP per capita, all Nordic countries score today among the top 22 countries in the world. However, it is not specifically the economic situation that is extraordinary. In fact, it is only Norway and Denmark that are among the top ten in the world’s GDP ranking of today, which they also have done since the 1970s. The economic performance of Sweden, on the other hand, ranked at number 18, could be judged as quite moderate compared to the country’s performance in the 1970s and 1980s. What, however, is extraordinary and typical for the Nordic countries is the way of balancing economic prosperity and social prosperity and how corporate governance has, in this Nordic setting, played a role in achieving this balance. The specific role that corporate governance plays in a Nordic setting is, however, easier to see in real practice and in the interaction between companies, employees, and society at large than it can be deduced from various company codes and regulations. There are many different definitions of corporate governance, usually depending on which worldview is applied. In its most simple form, however, the main objective of corporate governance is to ensure that companies are directed and controlled for the purpose that ‘we’, i.e. the most important decision-makers in certain socio-economic areas, believe firms have or should have. What purpose a company has had in a specific society or country, what companies’ role is and should be, however, has always been and still is widely debated and is anything but obvious. It has been equally uncertain how corporate governance codes and systems should be designed and used to help achieve desirable outcomes.

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From that perspective, it seems only fair to believe that many important Nordic decision-makers in the past, albeit business-people, politicians, or others, have believed that the sum of good corporate governance work, and the socio-economic outcome thereof, arise equally, or go hand in hand with, the sum of the quality of life of the population and the overall development of the country. Thus, in the Nordic economies, there seems to have been, and maybe still is, a somewhat clearer connection between economic and social prosperity on the one hand and corporate governance on the other hand, where these aims have fed into each other. In a Nordic setting, the GDP measure probably has never reached the same status as in several other Western countries. Although important, it was regarded as only one of many imperative measures that illustrates the quality of life and the well-being of the country and their people. More and more experts around the world today seem to agree, that the GDP measure is beginning to look outdated (e.g., illustrated in Giannetti et al., 2015). The typical Nordic setting with its specific history and development is generally used to exemplify the success of a broader view on growth and progress. In their White Paper from September 2020, the World Economic Forum has, together with the big four audit firms Deloitte, EY, KPMG, and PwC, presented their ‘Measuring Stakeholder Capitalism’ approach, which is supposed to bring forward new measures that are needed to track global progress (Walter, 2020). Clearly, such an approach, if executed and implemented in a sincere and genuine manner, and not used as a ‘smoke screen’, would replace a still dominant shareholder focused corporate governance model with a more genuine stakeholder approach. Such an approach would then truly incorporate environmental, social and governance (ESG) issues that are needed to align corporate values and strategies with UN’s Sustainable Development Goals (SDGs). The following sections aim to illustrate some of the history and development of this typical Nordic way of balancing between economic and social prosperity. Additionally, we focus on how corporate governance has, in the Nordic setting and compared to some examples of the rest of the Western World, represented an attempt to attain such a balance.

2.2 The Nordic welfare model as a ‘middle way’ The concept of a relatively homogeneous Nordic corporate governance model should not be assumed to have been created according to a common preconceived masterplan. Rather than intelligent design, it is more likely that it is the result of processes of socio-economic, socio-cultural, and socio-political evolution, being linked to the development of the Nordic welfare model. Probably, it is the Nordic welfare model and not the corporate governance model that is most well-known abroad as being distinctive. This distinctiveness, however, apparently also has had an impact on the way the Nor-

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dic countries developed their corporate governance models. Therefore, we begin by taking a closer look at the development of the Nordic welfare model. In order to make a rather long (hi)story relatively short, the Nordic welfare model began to develop for real during the early post-war decades and during a time when Europe was divided by the Iron Curtain (Kautto & Kuitto, 2021). At that time, Scandinavian countries, with Sweden in the forefront, began to underline their ‘third way’ in domestic and international policy debates, which represented a compromise between unregulated capitalism and state socialism. After the wars, there were several reasons for this Scandinavian ‘third way’ to accelerate in the North, reasons for which the foundation had been laid many years earlier. First, the patterns of land ownership in Scandinavian countries were, due to the late onset of industrialization, still very distinctive (Kautto & Kuitto, 2021). Thus, the large number of people who may have been referred to as ‘peasants’ in Nordic countries still represented a powerful political force compared to, for example Britain, where ‘peasantry’ had been assimilated into the working class, whereas in large parts of Europe and Russia, feudal arrangements still prevailed. Therefore, in the decades leading to the twentieth century, farmers held significant political power in the Nordic parliaments (Rothstein & Uslaner, 2005). Independent farmers also became one cornerstone of a tri-polar class structure, together with the working and the upperclasses (Kautto & Kuitto, 2021). Also, due to the relatively weak role of religion and, because of the reformation, the early division of power between church and state, local public authorities were taking on an increasingly strong role in close cooperation with the central authority (Kautto & Kuitto, 2021). Thus, during the early decades of the twentieth century, political cross-class coalitions were needed to drive welfare state projects forward. This was best visible in Denmark, Sweden, and Norway, where the division between ‘leftists’ and ‘rightists’ was less deep than in most other countries during that era, making possible “a historical compromise” and the development of a “spirit of trust” between the two classes (Rothstein & Uslaner, 2005). The class struggle was, however, stronger in Finland, where a Civil War with over 30,000 casualties was fought in 1918, only a year after their independence from Russia, which the ‘rightists’ won. Finland did, however, catch up with its Nordic neighbors with the construction of the Nordic welfare state through parliamentary means (Rothstein & Uslaner, 2005). During the 1930s, social democratic parties came to power in Sweden, Denmark, and Norway, in alliance with agrarian and or social liberal parties (Kautto & Kuitto, 2021). Since then, they have enjoyed long periods in office in all three countries, where Sweden, however, has been in a class of its own. In Sweden, the Social Democratic Party (SAP) was in government for 44 years, between 1932 and 1976, with a three-month exception in 1936 only. For more than twenty years, from 1945 to 1976, the party even governed Sweden alone. Norway’s Labour Party governed the country between 1945 and 1965 whereas the Danish Social Democrats were, usually in coalition, in government from 1947 to 1968 with a short exception during 1950 and 1953.

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Finland’s Social Democratic Party was, due to the special strength of the communist left, less influential than was the case in the Nordic neighbors. After World War II, social reforms started to take place, especially in Norway and Sweden, where Social Democrats held hegemonic positions and where they, together with the support of strong trade unions, controlled and expanded the welfare sector further. In Denmark, developments advanced more slowly initially but accelerated over time. Nonetheless, taxation on an increasing scale was needed in all the Nordic countries to fund the increased responsibilities. Clearly, these growing welfare states needed to be financed in some way or another and for that, the business sector had to be part of the package. Gender equality is an additional factor that is argued to be part of the Nordic countries’ similarities of social structures and cultural values, and as such, women have had, over decades, a uniquely important place in Scandinavian welfare state developments (Kjeldstad, 2001). In all Nordic countries, women achieved suffrage relatively early. Norway was the world’s first sovereign nation in 1913 to allow women to vote and run for office. They were only surpassed by the Grand Duchy of Finland (occupied by Russia at that time) where from 1906 women had been allowed to vote and stand as candidates. Denmark and Iceland followed in 1915 and Sweden in 1919. Despite this early success, by the 1950s, in the Nordic countries, women were still far from equal in political, economic, and social terms. It was the 1970s, when the second wave of feminism started, when the interests of women began to distinguish the Nordic countries from other advanced countries at that time. This then included a strong emphasis on individual entitlements, the early introduction of transfers to single mothers, child allowances paid to mothers, and the like. At the same time, women’s studies began to appear as an academic field of research, followed by intense cooperation thereof in Nordic countries. It was during this period that the ‘golden era’ of the Nordic countries began, as discussed in the following section.

2.3 The “Golden Era” turning into a lean-welfarestate model The distinctiveness and success of the Nordic welfare model gained popularity during the late 1970s and early 1980s, when large parts of developed Western economies suffered from some combination of stagnation and inflation that followed the oil crisis during the 1970s. Especially Sweden and Norway, but to a somewhat lesser extent also Finland, managed to maintain full employment and economic growth. Denmark succeeded less well during the 1970s when it came to reducing unemployment, but the country still invested heavily, similarly to its Nordic neighbours, in a generous welfare service system, where child-care, healthcare, old-age-care, free education, social protection, and female employment, were all financed from general taxes. This period

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became known as the ‘Golden Era’ or ‘Golden Age’ (Kuisma, 2007) for the Nordic welfare states. Another term often used was ‘welfare capitalism’, which is a concept that has at least some similarities with what has now emerged under the concept of “stakeholder capitalism” (Walter, 2020) as mentioned earlier. However, the “Golden Era” faded, especially in Sweden and Finland, and to a much lesser extent also in Norway, around the 1990s, when severe economic difficulties, e.g., dramatically increasing unemployment rates, negative growth rates, and substantial government budget deficits hit the countries. Finland suffered the most due to the collapse of its neighbor and big business partner the Soviet Union, but also Sweden experienced comparatively high unemployment rates for the first time since World War II. In Sweden, this led to tough negotiations between employers’ associations and trade unions resulting in several retrenchment measures in the social security system. In Norway, however, the crisis was less severe where a three-partite cooperation, mostly with wage restraints, succeeded to uphold the welfare state model, competitiveness, and full employment. From the mid-1990s, it was therefore Norway, with a very high growth rate, generally due to the production of North Sea oil and gas, but also Denmark, which led the path towards full employment, with Sweden and Finland lagging behind. In fact, Sweden found itself in a significant crisis ever in the early 1990s, mainly due to hyperinflation during the second half of the 1980s and a related real estate crisis. Since then, however, not only Sweden but the entire Nordic region changed course with a somewhat stronger emphasis on market liberalism and AngloSaxon capitalism, a combination that was labelled the ‘lean welfare state model’ (Rhodes, 1996), which shared even stronger similarities with what today is marketed as “stakeholder capitalism” (e.g., as in Walter, 2020). The popularity of the Nordic welfare model has, in academic as well as in policyoriented debates, varied over time mostly depending on fluctuations in the relative economic performance of the countries/region. Still, in recent years, the Nordic region has attracted considerable positive attention. In a special report on the Nordic region published in February 2013, The Economist used the title “The next supermodel”, pointing to the fact that the Nordic countries clustered at the top of global league tables of everything from economic competitiveness to social health (Economist, 2013). According to the publication, part of the explanation for this super model was, that the countries stood out by being home to a notable share of world-leading companies, which by far exceeded the region’s share of the world economy. A similar explanation for the Nordic excellency is brought forward by Lekvall et al. (2014). The idea of a distinctive Nordic welfare model has always had strong prescriptive overtones, often used as an example to be followed by other countries but occasionally also as a dystopia to be avoided. An aging population and the fact that less tax money from a smaller share of employed people must pay for a growing share of elderly people, however, appears to be a demographic problem for this model. This imbalance intensifies the pressure to increase taxes at the same time as economic globalization has,

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for a long time-period, been a challenge to the Nordic welfare model due to increased international tax competition. To continue working until a higher age, e.g., with a proposed target age for retirement at 67 in Sweden, is exactly what is going to happen in most areas of the private and public sector right now, which seems to be the first step to take to counter the economic divide.

2.4 Taxes in the Nordic economies Today, all Nordic countries are known as ‘high-tax-countries’ and they share many similarities, but they are by no means identical to each other. As in many other European countries, the Nordic tax system has grown more complex over the past century, but since around 2000, the main impetus for tax reforms in the Nordic region, according to Einhorn (2019),1 a researcher from Aarhus University in Denmark, has been: to make national economies more competitive, to increase willingness to work and invest, and to make tax administration and enforcement more efficient.

All Nordic countries apply a high tax burden on personal income compared with other regions, with Denmark and Sweden ranking top of the world with the highest personal income taxes of all OECD countries. Altogether, marginal tax rates (income and social security taxes) in Nordic countries approach 60 percent and more for affluent earners, and they are only about 15 percentage points lower for average earners. According to a report from Timbro,2 Sweden had, in 2019, with 76 percent the highest ‘effective marginal tax rates’3 among 41 investigated OECD and EU countries. Finland with 71 percent was fifth highest, Denmark with 66 percent was seventh, and Norway with 62 percent held eleventh position. These high values for the Nordic countries sound extreme but twenty-nine of the 41 OECD countries have effective marginal tax rates higher than 50 percent, with an average of 56 percent, similar to the Nordic average. Also, the difference between the Nordic countries and the OECD area overall has been shrinking during the last decades, and high-income taxation overall is relatively high in the EU and OECD countries, and not only in the Nordic region. In the Nordic countries, this measure has declined somewhat between 2016 and 2019, but this decline has been even stronger in AngloSaxon countries. In most South European countries, however, it has continued to increase during the same period.

 https://nordics.info/show/artikel/overview-of-taxation-in-the-nordic–region (Assessed 2022-09-01).  https://taxfoundation.org/taxing-high-income–2019/ (Assessed 2022-09-01).  The “effective marginal tax rate” shows that if a (well–paid) “worker gets a raise such that the total cost to the employer increases by one dollar, how much of that is appropriated by the government in the form of income tax, social security contributions, and consumption taxes?”.

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The corporate (business) income taxes, often abbreviated as ‘CIT’, on the other hand, are in all Nordic counties, except Norway, today below the European Union average. Interestingly, within the OECD countries altogether, the corporate income taxes (CIT) have decreased from 32.2% in 2000 to 23.3% in the year of 2020.4 During the same time-period, however, in all Nordic countries there has been a rather strong increase of taxation on consumer goods, and today, most goods are taxed at 25 respectively 24 (Finland) percent.5 In Norway, the CIT in general is also 22% for most companies.6 However, certain companies within the financial sector in Norway have a CIT of 25%, and to offshore production and pipeline transportation of petroleum and gas, an additional 56% special tax applies, resulting in a net income marginal tax of 78%. Thus, when accounting for the average CIT in Norway, including various petroleum and gas taxes, it is about 2.5 times the European Union and OECD average. Norway can be counted among a very rare group of countries worldwide that have large natural resources where the revenues are distributed through a high tax system to a large part of current and future generations rather than a small part of the population benefiting. A measure often used to assess the level of taxes is the tax-to-GDP ratio, thus the total taxes of a country compared to the gross domestic product (GDP), which is the standard measure of the value added created through the production of goods and services in a country during a certain period. In 2020, the OECD average taxes in comparison to the GDP was 33.5% and the relationship between these measures was higher in all Nordic countries.7 Denmark has the highest with 46.5% for Nordic countries followed by Sweden with 42.6% and Finland with 41.9%. Norway, with only 38.6%, has the lowest tax-to-GDP ratio of the Nordic countries, due to the large financial returns generated with the large funds created precisely via high taxes on petroleum and gas. In comparison, the UK taxes for the same time were 33.5 % of GDP and the same ratio for the US was, with 25.5%, extraordinarily low. Whereas the tax-toGDP ratio average for the OECD countries in 2020 was only slightly above that in 2000 (33.5% compared with 32.9%), this measure has in the United States decreased from 28.3% in 2000 to 25.5% in 2020.

 http://www.oecd.org/about/ (Assessed on 2021-09-21).  https://nordics.info/show/artikel/overview-of-taxation-in-the-nordic–region (Assessed 2022-09-01).  https://taxsummaries.pwc.com/norway/corporate/taxes-on-corporate–income (Assessed on 2021-0928).  https://www.oecd.org/tax/revenue-statistics-united–states.pdf (Assessed on 2022-09-1).

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2.5 Wage distribution How income is distributed among the population is an important measure for the well-being of a nation and has been a topic of great interest in both public debate and economic research in recent years all around the world. From that perspective, the earlier described Nordic welfare model is especially important to have in mind. According to the Nordic Economy Policy Review of 2018, published by the Nordic Council of Ministers,8 income inequality has increased more in the Nordic countries than in most OECD countries since the early 1990’s. However, the starting point was extraordinarily low, and inequality in the Nordic region remains well below the OECD average. According to the same report, it is capital income that has become a more significant factor of inequality, in part because the top one per cent of the population receives two-thirds of all dividends. Figure 2.1 shows the wage spread in the Nordic countries compared with some other countries and regions in the form of a ratio between the 10th and the 90th percentiles.9 Note that the statistics in Figure 2.1 refer to gross salary and the numbers refer to somewhat different years as statistics was not available for all years. The 10th percentile is the value that 10% of all observations are less than or equal to. The 90th percentile is the value that 90% of the observations correspond to or less than. Expressed differently, the ratio between the 10th and the 90th percentile shows how many low wages there are on a high wage, which shows if there is a large wage spread between those who earn little and those who earn a lot. Figure 2.1 illustrates further that Sweden is one of the countries with the lowest difference between low and high wages. In comparison to all OECD countries, all four Nordic countries are among the six with the least difference (together with Belgium and Italy). France and Germany are closer to the EU average wage spread (3.2), which is still lower than the OECD average spread (3.34) that is surpassed, however, by the wage spread of the United Kingdom (3.38) and even more by the large wage spread of the United States (4.84). The US wage spread is, among the 37 OECD countries, only surpassed by Columbia (5.28) and Chile (5.56), where almost six low wages go on a high wage, when looking at the lowest respectively highest earning 10 percent of the population. A high wage spread ratio does not automatically mean that those with low wages earn little but can also mean that those with high wages earn a lot. If one wishes to find out how large the wage spread is in a country, it may be more relevant to compare low wages with the median wage because it provides a better picture of the level

 https://nordregio.org/nordregio-magazine/issues/income-inequality-on-the-rise-in-the-nordic-coun tries/the-rich-get-richer-and-the-poorer-get-relatively-poorer-also-in-the-nordic-region/ (Assessed 20229-1).  https://www.ekonomifakta.se/Fakta/Arbetsmarknad/Loner/Loneskillnader-i-olika-lander/ (Assessed 2022-9-1).

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United States

4,84

United Kingdom

3,38

OECD average

3,34

EU average

3,2

Germany

3,28

France

2,86

Denmark

2,6

Finland

2,56

Norway

2,34

Sweden

2,14 0

1

2

3

4

5

6

Figure 2.1: Wage distribution in Nordic countries and international.10

of low wages. In this case, Sweden in fact has the lowest wage spread in terms of the ratio between the median and the 10th percentile. In Sweden, the median salary is 36% higher than the 10th percentile salary. For the other Nordic countries, the median salary is 43% (Norway), 47% (Finland) respectively 48% (Denmark) higher than the 10th percentile salary. Progressive taxation reduces the differences between high and low net wages. Differences in wage distribution between countries are due to, among other things, differences in wage formation systems. The wage spread in Sweden has in principle been constant since the mid-2000s, thus a high salary is about twice as high as a low salary, and after tax, the difference becomes even smaller due to the progressive income tax. When looking back at the development since 1970, one can see that the differences in wages between those who earned least (lowest 10%) and the most (highest 10%) decreased until 1980.11 Especially, it was the salaries of white-collar workers that became increasingly equal. Between the mid-1980s and around 2008, a firm increase in wage spread may be noted. Since then, the differences have been largely stagnant. The reduced wage differences for salaried employees in the lower wage levels during the early 1990s can be explained by the fact that more routine and low-paid jobs dis-

 Data is for years 2018 (France), 2019 (Fin, DK, EU, Germany, OECD) and for 2020 (S, N, UK, and US).  https://www.weforum.org/agenda/2021/12/global-income-inequality-gap-report-rich-poor/ (Assessed 2022-9-1).

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appeared in connection with the sharp rationalizations. With the stabilization of the labor market from the mid-1990s, the spread in the lower levels has returned to the 1975 level. In recent years, there has been a gradual decline in the higher salaries of salaried employees. Still, the biggest difference, and this appears to be similar in the Nordic countries and elsewhere, is today not the amount of money earned from a job (salaries) but capital gains from wealth growth, where high returns seem to have resulted in increased societal gaps between rich and poor also in Nordic countries even though the poor have increased their income over the last two decades significantly. A further aspect of the Nordics’ often pronounced distinctiveness is the social security system and how it has developed, which will be addressed in the next section.

2.6 Net Replacement Rates for standard workers The Net Replacement Rate (NRR)12 refers to a measure used in economics and social security analysis to assess the level of income replacement provided by a pension or social security system. It specifically focuses on standard workers or wage earners. NRR is calculated by comparing the net income received by an individual during retirement (typically in the form of pension benefits) with the net income they earned while working. The net income is the income after deducting taxes and social security contributions. According to research by Pedersen and Kuhnle (2017), the social security system in most Nordic countries experienced a decline during the 25-year period from 1985 to 2010, often referred to as the “Golden Era”. Figure 2.2 depicts this decrease. Notably, Sweden had the largest decline among the Nordic countries, with a decrease of 17 percentage points, from 78% to 61%, during that time frame. In Norway, on the other hand, these numbers remained stable at around 74% over the same time-period, then about 20 percentage points above the average of 14 non-Nordic OECD countries that fluctuated between 50% and 54% overall. Between these two extremes, the reduction of net replacement rates in Denmark with 10 (from 65% to 55%) and Finland with 6 percentage points (from 65% to 59%) over the same time-period was moderate. Alongside these general tendencies for retrenchment, other aspects of the Nordic social security have, however, over the same time-period been expanded significantly. What mainly has improved the work-life balance in Nordic countries is the parental leave schemes and public child-care. Thus, except for Norway, the Nordic countries have, measured by the net replacement rate, gone against the general trend in Europe but also throughout the OECD since the mid-1980s.

 https://www.oecd-ilibrary.org/sites/75fed0dc-en/index.html?itemId=/content/component/75fed0dcen (Assessed 2023-6-21).

Peter Beusch

65

74

50

54

55

%

59

61

65

74

78

18

SWEDEN

DENMARK

NORWAY

FINLAND

Figure 2.2: Net replacement rates for standard workers in Nordic countries and international.

2.7 The Gini-coefficient – low income-inequality During the early 1980s, the Nordic region was famous for their very low Gini-coefficient that measures economic inequality. The Gini coefficient, based on the comparison of cumulative proportions of the population against cumulative proportions of income they receive, ranges between 0 in the case of perfect equality and 1 in the case of perfect inequality.13 Figure 2.3 illustrates that Sweden and Finland with a Gini-coefficient of 0.20, had the lowest inequality in the middle of the 1980s of all OECD countries, very closely followed by Denmark and Norway. The household income inequality rose in all Nordic countries during the time-period between 1985 and 2017/2018. This trend mirrors that in most OECD countries. Due to the low measure in 1985, the inequality increase has been large in especially Sweden and Finland, performing slightly worse in 2018 than the other Nordic countries with Gini-coefficients of 0.275 (Sweden) respectively 0.269 (Finland), but closely followed by Denmark (0.264) and Norway (0.262). Together, the Nordic countries are in 2017/2018 still situated at the lower end of the economic inequality scale of OECD countries, especially when compared with the United Kingdom (from 0.32 in 1985 to 0.366 in 2018) and the United States (from 0.32 in 1985 to 0.390 in 2017).

 https://data.oecd.org/inequality/income-inequality.htm (Assessed 2022-9-1).

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0,45 0,39

0,4

0,366

0,35

0,32 0,275

0,3

0,269

0,264

0,32

0,262

0,25 0,2

0,2

0,2

0,2

Finland

Norway

0,2 0,15 0,1 0,05 0 Sweden

Denmark

United States

Figure 2.3: Gini-co-efficiency of Nordic countries, the UK, and the US.

2.8 Quality of institutions, corruption, citizen participation and trust Recent data that supports the distinctiveness of a certain Nordic model is illustrated by a measure that has become well known among some academics and the public, but less so among business and finance people, who rather continue talking in terms of monetary measures. The measure in question illustrates the “ranking of happiness” and is presented in the World Happiness Report,14 compiled by the Sustainable Development Solutions Network (Helliwell et al., 2022). The measures used in this report are to a large extent the opposite of the measure GDP as the methodologies behind the metrics applied are based on the belief that “the true measure of progress is the happiness of the people; that happiness can be measured; and that we know a lot about what causes it” (p. 7). Given this knowledge, the authors intend policy-makers to make people’s happiness the goal of their policies, as this should lead to better lives. In all annual rankings from 2013 to date, the five Nordic countries Finland, Denmark, Norway, Sweden, and Iceland have all been ranked in the top ten, which suggests that Nordic citizens are exceptionally satisfied with their lives. In fact, Nordic countries occupied the top three spots since 2017. This does not mean that people smile more in Nordic countries. Rather, peoples’ happiness, however, is strongly related to the quality

 https://happiness-report.s3.amazonaws.com/2022/WHR+22.pdf (Assessed 2022-9-1).

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of institutions with reliable and extensive welfare benefits, low corruption, and wellfunctioning democracy and state institutions (Martela et al., 2020). In addition, the citizens of Nordic countries experience a high sense of autonomy and freedom but also high levels of social trust in each other. The report further states that the mix of material prosperity, liberating people from scarcity, combined with democratic political institutions that liberate people from political oppression, and tolerant and liberal cultural values that provide people space to express themselves and their unique identity, result in high well-being and happiness in the Nordic countries.

2.9 Is there a Nordic corporate culture and leadership style? Of relevance to corporate governance are business culture and leadership style. Andreasson and Lundqvist (2018)15 discuss, based on statistics from the Secretariat to the Nordic Council of Ministers, specific qualities that separate Nordic leadership styles from others around the world. The authors also identify differences between the Nordic countries to avoid stereotypical positive descriptions. According to Andreasson and Lundqvist (2018), the desire to balance various interests within society and to compromise, especially within the labour market, stands out as a common theme across all Nordic countries during the early 20th century. This is also seen as a major reason for the fact that the leadership role in Nordic countries, in general, has a lower status than in many other countries. Also, the leader often functions as a coach for their employees rather than an authoritarian autocrat. Andreasson and Lundqvist (2018) further identified qualities such as consensus and co-operation as important features of Nordic leadership. This in turn allows the usually high levels of accountability one can see within many Nordic organizations. On the negative side, this leadership style is, in international settings, sometimes perceived as being close to the concept of ‘leaderless democracy’ or weak management. To combine economic growth with democratic stability by including many stakeholders rather than to think of financial profit only is, according to Andreasson and Lundqvist (2018), likewise seen as something typical Nordic, thus illustrating a more symbiotic relationship of Nordic companies with the surrounding society than in many other places. The Nordic welfare model has been characterized by a close cooperation between private and public institutions, leading to distinct societal structures. This unique development may have contributed to a broader managerial mindset and a specific cognitive framing of societal needs. It is suggested that these factors could potentially

 http://norden.diva-portal.org/smash/get/diva2:1268235/FULLTEXT01.pdf (Assessed 2022-9-1).

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influence the decision-making process and contribute to a perceived sense of responsibility among Nordic managers when compared to other regions. However, it is important to acknowledge that managerial practices and decision-making can vary across different contexts and are influenced by a multitude of factors. Individuality is, according to Andreasson and Lundqvist (2018), important for employees in Nordic countries, where the early industrial paternalistic relationship between employers and employees started to dissipate at the beginning of the 20th century, being replaced by a relationship between the employee and the welfare state. This means that employees in the Nordic region do not wish to be heavily dependent on the employer, which may explain why organizational structures in Nordic companies tend to be less hierarchical than elsewhere, we suggest. This Nordic type of individualism should not however be confused with high individualism in general, as in the US for example. Nordic citizens have, in general, a stronger relationship with the welfare state, referred to as Nordic collectivism. We suggest that this may also be a driving force behind characteristics such as the flat organizational structure. In one of the most extensive surveys on culture and values, the 2020 World Value Survey,16 all Nordic countries rank among the highest for measures of self-expression and individual freedom. All four countries stand out because they are among the most secularized and the population does not have to focus on mere survival but rather on quality of life and self-realization. This affects the whole of society and has consequences for working life. Sweden scores highest of over 100 countries studied, followed closely by the other three Nordic nations. Andreasson and Lundqvist (2018) provide several national variations between Nordic economies. For example, extremely small power distance and employee dependency characterise Danish companies, whereas Finnish leadership culture appears more focused on competition, achievement of goals, and material rewards, although also with a low degree of formality. The Swedish leadership style, on the other hand, can be described as somewhat more open to change, but also more formal in relation to rules and procedures than in other Nordic countries. Norway is notable for its large emphasis on employees and the promotion of teamwork. Sten Jönsson, a highly respected Swedish researcher within the field of business administration, has researched different management styles in a Swedish and Nordic context, over a period of around 30 years. He has consequently gained valuable insights into the possibility of a typical Nordic leadership style. Apparently, during interviews with managerial leaders in large international companies mostly headquartered in Sweden, the interviewees often emphasized Nordic leadership differences rather than similarities despite the clear prevailing cultural commonalities in the Nordic countries (Jönsson, 2020).

 https://www.iffs.se/world-values-survey/ (Assessed 2022-9-1).

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The findings suggest that Swedish leaders organize themselves differently, and gained different experiences of governance, even though they have similar values in terms of self-determination, working relationships, power, and risk-taking. Rather than Nordic values being the key to the explanation regarding leadership styles, Jönsson (2020) believes that what creates these leaders, and thus their leadership styles, are the traditions and characteristics of the specific industries themselves, and that different (Nordic) management styles are the result of practical experiences made within industries, rather than abstract (normative) theories or the individual leader’s values. Research in the field of international mergers and acquisitions (Beusch, 2007) has shown that Nordic leadership styles differ significantly from the leadership styles commonly observed in Anglo-Saxon or traditional European continental contexts. However, it is important to note that when comparing leadership styles among the Nordic countries themselves, the differences may be relatively small, yet still present. Therefore, while distinct variations exist between Nordic and non-Nordic leadership styles, it is also essential to recognize the nuanced differences within the Nordic region. Since the Nordic countries are small countries, measured in terms of population, it is quite reasonable to assume that individual networks and relatively small industrial clusters throughout the Nordic region are of great importance and thus have an impact on leadership styles, so that differences do not become particularly large regarding Nordic business culture and leadership style.

2.10 Concluding comments This chapter has illustrated how and why a Nordic welfare model has emerged and has highlighted the connection between this model and various aspects that might constitute, and lie behind, today’s design of a Nordic approach to corporate governance. The Nordic welfare model and the Nordic corporate governance model are probably more interconnected in real practice/corporate life than is expressed in formal and regulative frameworks/codes. Although the Nordic countries share large areas of the welfare model and apply, to some extent, similar leadership styles, national variations do exist. However, referring to a ‘typical’ Nordic corporate culture is an exaggeration, even though societal design has given rise to many similarities in Nordic leadership styles.

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References Andreasson, U., & Lundqvist, M. (2018). Nordic leadership. Nordic Council of Ministers Analysis 02/2018. Beusch, P. (2007). Contradicting Management Control Ideologies–A study of integration processes following cross-border acquisitions of large multinationals. Bokförlaget BAS. Economist (2013). The next supermodel, The Economist Historical Archive, 1843–2015, p.9., https://www. economist.com/leaders/2013/02/02/the-next-supermodel (Assessed on 2022-9-1) Eichhorn, E. (2019). Overview of taxation in the Nordics. https://nordics.info/show/artikel/overview-oftaxation-in-the-nordic-region/ (Assessed 2022-9-5) Giannetti, B. F., Agostinho, F., Almeida, C. M. V. B., & Huisingh, D. (2015). A review of limitations of GDP and alternative indices to monitor human wellbeing and to manage eco-system functionality. Journal of cleaner production, 87, 11–25. Helliwell, J. F., Layard, R., Sachs, J., & De Neve, J-E. (eds.) (2020). World Happiness Report 2020. New York: Sustainable Development Solutions Network. Ilmonen, K. R. (2015). A political narrative of Nordic corporate governance: shareholders, stakeholders and change of control. European Company and Financial Law Review, 12(4), 489–538. Jönsson, Sten (2020). Goda utsikter – Svensk management i perspektiv. BAS: Göteborg. Kautto, M., & Kuitto, K. (2021). The Nordic Countries. In A. Greve (Ed.), The Oxford handbook of the welfare state (2nd ed.). Oxford University Press. Kjeldstad, R. (2001). Gender policies and gender equality. Nordic welfare states in the European context, Routledge, London, pp. 66–97. Kuisma, M. (2007). Social democratic internationalism and the welfare state after the ‘golden age’. Cooperation and Conflict, 42(1), 9–26. Lekvall, P. (2018). The Nordic way of corporate governance. Nordic Journal of Business, 67(3–4), 164–182. Lekvall, P., Gilson, R. J., Hansen, J. L., Lønfeldt, C., Airaksinen, M., Berglund, T., von Weymarn, T., Knudsen, G., Norvik, H., Skog, R., & Sjöman, E. (2014). The Nordic corporate governance model. In P. Lekvall (Ed.), The Nordic Corporate Governance Model (pp. 14–12). Stockholm: SNS Förlag. Martela, F., Greve, B., Rothstein, B., & Saari, J. (2020). The Nordic exceptionalism: What explains why the Nordic countries are constantly among the happiest in the world. World happiness report, 129–146. Pedersen, A. W., & Kuhnle, S. (2017). The Nordic welfare state model. The Nordic models in political science: Challenged, but still viable, Insittute för samfundsforkning, 219–238. Rhodes, M. (1996). Globalization and West European welfare states: a critical review of recent debates. Journal of European Social Policy, 6(4), 305–327. Rothstein, B., & Uslaner, E. M. (2005). All for all: Equality, corruption, and social trust. World politics, 58(1), 41–72. Sjafjell, B., & Mahonen, J. (2014). Upgrading the Nordic corporate governance model for sustainable companies. European Company Law, (11)58. Thomsen, S. (2016). The Nordic corporate governance model. Management and Organization Review, 12(1), 189–204. Walter, J. (2020). Measuring stakeholder capitalism: Towards common metrics and consistent reporting of sustainable value creation, September 2020, In World Economic Forum.

Peter Beusch

3 Nordic stock markets and ownership structures The focus of this chapter is Nordic stock markets and corporate ownership structures, highlighting similarities and differences between the four Nordic countries and also comparing them with significant non-Nordic countries. The chapter begins with a short overview of Nordic countries’ economic strength, in comparison with Europe and the European Union (section 3.1). This follows, in section 3.2, an illustration of the size and total market capitalization of the Nordic economies, which will be described in more detail in the subsequent sections. Section 3.3 therefore provides a closer look at Nordic ownership structures, section 3.4 focuses specifically on institutional investor ownership, and section 3.5 deals with public sector investors’ ownership in relation to total market capitalization. A short summary is provided in section 3.6.

3.1 Nordic countries’ economic strength and relationships with Europe The Nordic countries are rather small in terms of population. In 2022, the entire Nordic region was estimated to have around 27 million inhabitants, split between Denmark (5.8) Finland (5.5), Norway (5.4) and Sweden (10.2). This represents only around 6% of the European Union population or only 3 out of 1000 calculated on the entire world population (7.9 billion people), as illustrated in Table 3.1. The relatively small size of the population is believed to be a major reason why all Nordic countries are open economies, and why trade and cooperation with regional and international economies have been an important part of the region for a long time. Despite the small size and population, the Nordic region plays an important role in Europe and the World from an economic perspective, which is often attributed to the Nordic corporate governance model and how this is practised (Lekvall et al., 2014). The previous chapter described specific features of the Nordic region and especially the link between the region’s socio-political and socio-economic development during the last decades. Table 3.1 illustrates the situation of the Nordics of today in terms of economic factors in more detail. The economic situation within the Nordic region is not entirely homogeneous with Norway playing in a specific league mostly due to its oil and gas reserves as described before. In average, the Nordic region still performs very well in terms of GDP and GDP/person, which in 2019 was about 10,000 $ higher than the European average. What stands out, however, is the fact that the Nordic countries are the home to a notehttps://doi.org/10.1515/9783110725346-003

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worthy share of world-leading companies, in Table 3.1 illustrated as number of firms that are listed on Forbes Global 2000 list, assessed in 2021. In total, the Nordics had 55 companies on that list, almost half of them, 26, being Swedish companies. Counted in terms of listed firms per million inhabitants (but also compared to total GDP), this is more than what the US and the UK, with their very large stock exchanges, have. Table 3.1: Overview of descriptives of the Nordics, the EU, UK, US and Global. Denmark Finland Norway Sweden Nordic EU area (total/ average)

UK

US

Global

Population () (millions)

.

.

.

.









,

Country GDP () (billion $)









,

, ,

GDP/Person () in $

,

,

,

,

,

, , , ,

Number of ‚Forbes ‘ companies











ND







Forbes  companies per million population

,

,

,

,

,

ND

,

,

,

Taxes in % of GDP (est. )



.

.

.

.

.

.



ND

Unemployment rate (%) in 



.

.

.





.

.

ND

, ,

ND: No Data

Table 3.1, additionally, shows the estimated taxes in relation to GDP of the Nordic countries, first for each country and then aggregated, but also the number for the EU average, the UK, and the US. Again, this overview shows that Nordic countries’ taxes in percentages of GDP in comparison to other regions in the world are high, thus about 5 percentage points higher than the European average, about 10 percentage points higher than the UK, and over three times higher than the US taxes, which is the

3 Nordic stock markets and ownership structures

27

country that appears to be the big exception overall. In terms of unemployment,17 Sweden and Finland’s labor force without job was in 2021 about twice as high as the one in Norway and Denmark but also the UK and nearly twice the one in the US. Still, the Nordic average of unemployment is only about half of the one of the EU averages, then including the Nordic countries. Overall, the Nordic countries have had differing economic relationships with Europe over time. All Nordic countries played a major role, initially since 1960, in the European Free Trade Area (EFTA) with Austria, Portugal, Switzerland, and the UK. Indeed, the Stockholm convention in 1960 saw the inception of EFTA, which Denmark, Sweden, and Norway joined directly. Finland, for political reasons with the Soviet Union as a neighbor, joined in 1961 as an associated member, and not until 1986 as a full member. During the time following World War II, there were initiatives to increase intraNordic integration, e.g., with the project NORDIC, an idea to establish a Nordic customs union, in the 1960s but also the establishment of Nordic companies (e.g., the airline company SAS, the bank Nordea, etc.). The idea of a closer economic integration led to farreaching plans to develop a common Companies Act in all five Nordic countries (including Iceland). These formal harmonization efforts, however, came to an end around 1970, when co-operation within the European Economic Community (EEC) seemed more appealing than an exclusively Nordic project (Lekvall et al., 2014). Still, from then on, there was strong resemblance between the Nordic countries’ Companies Act. During the 1970s the Nordic region began to break up. Denmark, together with the UK, joined the European Economic Community (EEC) in 1973. Sweden and Finland, however, only signed free trade agreements with the EEC. Finland went ahead similarly, but also signed trade agreements with Comecon, the economic bloc of the socialist countries. In Norway, on the other hand, a referendum in 1972 prevented EEC membership, a situation that prevails today. In 1995, Finland and Sweden applied for full membership of the European Union. To date, only Finland has joined the European Monetary Union (in 1999), when they adopted the Euro as their currency. Norway and Sweden continue to have freely floating currencies, whereas Denmark’s Danish Krona is fixed and pegged to the Euro. An overview of the Nordic countries’ status today is illustrated in Table 3.2.

3.2 Stock markets and publicly traded stock According to the OECD Corporate Governance Factbook 2021, at the end of 2020 there were around 40,000 listed companies in the world with a total market value of $105 trillion, which approximately equals global GDP. Who owns these companies and how they perform is therefore a significant issue, not only because this affects how  https://data.oecd.org/unemp/unemployment-rate.htm (Assessed 2022-9-15).

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Table 3.2: The Nordic countries characteristics in relationship to Europe. Denmark

Finland Norway

Sweden

Member of European Union (EU) and since





Not member



Member of European Monetary Union (EMU) and since

NO

YES

NO

NO

Currency in use:

Danish Krona

Euro

Norwegian Krona

Swedish Krona

Floating or fixed currency

Fixed and pegged to Euro

–

Free floating

Free floating

risk capital is split between independent entrepreneurs and these often very large, listed companies but also because this affects how performance of existing corporations is examined and what decisions are made about their future. In the Nordic countries, the overall importance of the public stock market for the supply of risk capital to companies has decreased since the turn of the century relative to other sources of capital (Lekvall et al., 2014, p.42). Still, the total market capitalization in all Nordic countries is high in relation to the size of its population but also the size of its Gross Domestic Product (GDP) compared to most other European countries but also compared to the average of the European region. Figure 3.1 shows that, in 2021, the total size of the market capitalization of Sweden was $1.216 trillion, almost twice as large as that of Denmark ($638 billion), which in turn also surpasses the Finnish and Norwegian by around 60%, although these three countries have almost the same population. Figure 3.2 illustrates, also for 2021, the market value of certain nation’s/region’s total stock market (market capitalization) in relation to the country’s/region’s value of the total economy (GDP).18 The four Nordic countries’ total market capitalization of $2,607 billion is 1.74 times the regions total GDP (valued at $1,491 billion). This exceeds the European average ratio, which is only around 0.41, more than four times. In fact, the market capitalization of Sweden’s stock Exchange also exceeds the ratio of the United States (2.19 times) in relation to the country’s GDP. The here mentioned num-

 Data is a summary of the following datasets: https://tradingeconomics.com/european-union/market-capitalization-of-listed-companies-currentus$-wb-data.html (Assessed 2022-9-1) https://www.theglobaleconomy.com/rankings/stock_market_capitalization_dollars/Europe/ (Assessed 2022-9-1) https://statisticstimes.com/economy/projected-world-gdp-ranking.php (Assessed 2022-9-1).

29

3 Nordic stock markets and ownership structures

1400 1216

Billion $

1200 1000 800 638 547

600

382

336

400

371

340

268

200 0

Figure 3.1: Size of Nordic countries’ total market capitalization and GDP (2021).

bers, however, must be interpreted with care due to stock price movements, difficulties with shares traded on multilateral trading facilities, but also due the fact that small adjustments were needed to solve problems with incomplete but also outdated data sets within different data sources. Still, the height of the stacks illustrates that the Nordic stock exchanges are very important for the region. In fact, the Nordic stock exchanges are, as a total, not much less important for the region than the extremely important US stock market is to the United States. 2,22 2,00

2,19 1,90 1,74 1,43

Times

1,50

1,19

1,16

1,09 1,00 0,61

0,41

0,50

St at es

ce

d ite

n Ge rm an y

Fr an

Un

No

rd i

cr eg io

No rw ay

nd la Fin

Sw ed en De nm ar k

0,00

Figure 3.2: Total market capitalization of Nordic and other countries in relation to GDP (2021).

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Peter Beusch

However, one should be aware that the relatively modest number for e.g., Norway (1.09 times) does not mean that the stock market is significantly smaller than the one for e.g., Finland. In fact, these two countries’ stock market capitalizations are similar in size (Norway $371 billion and Finland $382 billion). However, the far higher GDP of Norway ($340 billion) when compared with the relatively modest GDP of Finland ($268 billion) contributes to the specific ratio-outcome. The high ratio for 2021 for the United States also illustrates that not only has the country the highest total market capitalization in the world with about $47 trillion but also a total GDP of more than $21 trillion. Thus, Norway and the United States share the fact that the average GDP per capita with more than $62,000 (United States) and $63,000 (Norway) is among the highest of all countries in the world.

3.3 Market capitalization and ownership structure In order to investigate investors in public equity and the landscape of ownership structure across the Nordic countries, we need to classify the owners into different categories. To this end, we use the classification but also the findings of OECD’s capital market series “Owners of the world’s listed companies (De La Cruz et al., 2019). A significant disadvantage with using this source is that the publication is from 2019 and the data sets included from market data are from the end of 2017.19 The overriding advantage, however, is that data have been collected and compiled by a well trusted authority (OECD) and cover over 90% of all market capitalization worldwide. The report splits the owners into the following five categories: 1. Private corporations and holding companies. 2. Public sector companies (public pension funds, state-owned enterprises (SOEs) and sovereign wealth funds (SWFs). 3. Strategic individuals and families (either controlling owners or members of a controlling family). 4. Institutional investors (pension funds, insurance companies, mutual funds, hedge funds). 5. The ‘Rest’ (refers to free-float and retail investors, thus investors that do not exceed required thresholds for public disclosure of their holdings). Figure 3.3 shows the distribution of market capitalization weighted average ownership by investor category in the Nordic countries and Germany, France, the United Kingdom, and the United States. Norway is, at 34%, the country with by far the largest public sector ownership of the countries considered here. In fact, Norway’s public ownership is only

 Updated data to use for the specific purpose of illustrating the Nordic setting in terms of market capitalization and ownership structure more in detail has not been available in the format necessary and would have required too big an effort to legitimize its subordinate utility.

31

3 Nordic stock markets and ownership structures

surpassed by a small number of other OECD countries (e.g., Saudi Arabia, China, Malaysia) as expressed in percentages but also expressed in real monetary value. The value of Norway’s public sector investments for 2017 was $777 billion, which was higher than the public sector investments of the United States during the same year ($456 billion) and topped only by the extraordinary volume of public sector investments in China ($5,843 billion). Of the Norwegian public sector investments, 83% where attributable to sovereign wealth funds, the largest of their kind in the world,20 which is the government’s pension funds, financed, to a large extent, by the countries’ oil and gas resources. Also, Finland’s 14% public ownership is relatively high compared to Sweden, Denmark, Germany, France, and the United Kingdom, where this share is between 6 and

22

21

19

31 37

37

39

36

%

29

38

28 35

7

63

34

72

43

11 11 9 7

34

7 6

6 7

2

14 15

14

SWEDEN

7

6

5

8

DENMARK

FINLAND

NORWAY

18

7 7

GERMANY

4 3 2

FRANCE

Figure 3.3: Market capitalization weighted average ownership by investor category.

 https://www.weforum.org/agenda/2021/02/biggest-sovereign-wealth-funds-world-norway-chinamoney/ (Assessed 2022-9-1).

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Peter Beusch

7%. Lowest among the illustrated countries, however, is the United States with only 3% market capitalization held in public ownership. Figure 3.4 shows the distribution of the market capitalization weighted average ownership by domestic and non-domestic investors (all categories together) inclusive others (free-floating, thus not disclosed who the owner is) in the Nordic countries and Germany, France, the United Kingdom, and the United States.

21 31

37

22 39

37

19

36 16

25

%

25

44 28

29

34

27

65 55 45

SWEDEN

36

35

DENMARK

FINLAND

29

NORWAY

GERMANY

36

33

FRANCE

Figure 3.4: Domestic and non-domestic ownership incl. other (free-floating) in 2017.

In 2017, of the Nordic countries, Norway had the largest publicly available figures for domestic ownership (55%), followed by Sweden (45%), Denmark (36%), and Finland (35%). In comparison to this, the publicly available Nordic non-domestic ownership is similar for all four countries, being between 25 and 29%. Again, the United States differs significantly to Nordic countries, as domestic ownership dominates with 65% even stronger than what is the case in Norway and is about twice the domestic ownership of the United Kingdom, where the non-domestic ownership stands for 44% of all market capitalization. In Germany and France, on the other hand, the publicly available figures for known ownership are relatively equally split between domestic and non-domestic.

3 Nordic stock markets and ownership structures

33

3.4 Institutional investors and market capitalization Figure 3.5 illustrates the difference between the countries regarding institutional investors’ share of the weighted average market capitalization, where the Nordic countries’ proportion ranges between 29% (Norway) and 43% (Denmark), with Sweden, 38%, and Finland, 35%, in between. Thus, the Nordics’ share of institutional investors is relatively comparable to the one of the important two continental European countries Germany (34%) and France (28%). The Anglo-Saxon countries, namely United Kingdom with 63%, and the United States with 72%, on the other hand, not only stand out in this crowd but are at the top of the entire OECD in terms of weighted average market capitalization of institutional investors. Thus, institutional investors dominate the ownership of listed companies in the United States and the United Kingdom, whereas this share is considerably smaller in the Nordic countries, but also in Europe overall, where the average is around 38%, and similar when looking at the global market capitalization of institutional owners of 41%. This figure shows that the presence of institutional owners is particularly large in advanced countries, however, with only 7% of total holdings, it is much smaller in emerging markets. When analyzing the holdings of the largest 3, 10 respectively 20 institutional investors at the company level, which is illustrated in Figure 3.5, it is evident from the report that Anglo-Saxon countries rank most highly. In 2017, the 3 largest institutional investors in the United States owned around 24, the 10 largest about 45 and the 20 largest about 55% of all holdings. The United Kingdom displayed similar figures, with percentages of 22, 42, and 54, respectively. In comparison, the Nordic countries, characterized by a comparable concentration, showed more moderate numbers than the two Anglo-Saxon countries. Nevertheless, the Nordic countries still exhibited a relatively high concentration in 2017, ranging from approximately 15 to 29 percent for the three, ten, and twenty largest institutional investors. This concentration level stood out in comparison to most other OECD countries, as demonstrated by Germany (11, 16, and 19 percent, respectively) and France (12, 16, and 18 percent, respectively). The OECD report further revealed that in 2017, the same top 3 from 10 institutional investors in Sweden held 16% respectively 30% in the three largest banks, and 11% respectively 22% in the three respectively 10 largest pharmaceutical companies. No other Nordic country is listed with the same large amount of the same top institutional investors. According to the authors of the OECD report, there is a risk with such high institutional ownership overall (De La Cruz et al., 2019). First and foremost, there is a danger that passive index-based investing is practiced where little attention being given to risks and opportunities in individual companies. This in turn might leave new independent companies without capital that helps them grow.

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Peter Beusch

60

55

54 50

45 42

%

40 28

30 23 20

22 19 16

15 11

16

24

18

12

10

0

Figure 3.5: Holdings of largest institutional investors at company level in 2017.

In addition to this, US-domiciled institutional investors account for 65% of global institutional investor holdings. This concentration shows that more than one in four dollars of the value of the global market is owned by relatively anonymous, and from the companies in the market quite distant, owners from one and the same country. Moreover, in the United States, the United Kingdom and Canada, the 10 largest institutional investors on average own more than 29% of the company’s equity capital, which appears to be a more typical occurrence in Anglo-Saxon countries. Ownership concentration distribution is, on a global scale, relatively high. For example, in 85% of the world’s largest 10.000 companies, a single shareholder owns more than 10% of the company’s capital, and in almost one of three of these large firms, this largest shareholder owns 50% of all capital or more. The three largest shareholders hold more than 50% of the capital in half of all the world’s listed companies. This indicates, globally, a widespread concentration of ownership in individual companies. The OECD report sums this up in the following way (p. 5): This may obviously have the positive corporate governance effect of overcoming the so-called agency problem that is said to be faced by shareholders in companies with dispersed ownership. But it may also increase the scope for abusing the rights of other shareholders and, if not properly regulated, jeopardise market confidence.

Ownership concentration distribution in the Nordic countries, illustrated in Figure 3.6, is lower than the global average and somewhat in-between the relatively high average of continental European distribution and the very low Anglo-Saxon distribution.

35

3 Nordic stock markets and ownership structures

70 61 57

60

50 50 43 40

38

40

%

30 30

25 20

18

20

11 8

10

7

5 2

4

0 Norway

Sweden

Finland

Germany

France

United Kingdom

United States

Figure 3.6: Share of companies where ownership of largest shareholder/s exceeds 50% of equity.

Here, ownership concentration is measured as the share of the total number of listed companies in the country. In Norway, the single largest shareholder holds more than 50% of the equity in around 20% of the largest companies, whereas this share is 38% when including the 3 largest shareholders. For Sweden, this share is 8% (largest shareholder) respectively around 30% (3 largest shareholders), and for Finland it is lower at around 7% (largest shareholder) respectively 18% (3 largest shareholders), holding more than 50% of these companies’ equity. Clearly, Germany and France have high ownership concentrations, measured as share of equity, as more than 50% equity is held in 40 respectively 57% of all large German companies by one respectively 3 owners only. For France, these numbers are even higher with 43 respectively 61% of all large companies then owning more than 50% of the companies’ equity. The opposite is true for the Anglo-Saxon countries, where there is the least ownership concentration with only 5 respectively 11% in the United Kingdom and even lower numbers (2 respectively 4%) for the United States. The OECD report separates institutional investors’ ownership into domestic versus non-domestic ownership, calculated at market capitalization weighted averages. Figure 3.7 shows the relatively modest institutional ownership in total of the Nordic countries, but also continental European, countries compared to the United Kingdom and the United States, which we discussed earlier. Here, the four Nordic countries differ, as institutional investors in Sweden and Denmark have about the same domestic as nondomestic ownership, which is similar as in the United Kingdom in terms of equal split.

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Peter Beusch

%

11

32

18

25

61 24

20

19

11

19 10

25

9

21

30

7

Figure 3.7: Domestic and non-domestic ownership of institutional owners in 2017.

Finland’s and Norway’s institutional investors’ non-domestic ownership, however, is about twice the value of the domestic ownership or more (in Finland), which has strong similarities with the situation in Germany and France, where non-domestic ownership of institutional investors is 2,8 respectively 3 times the domestic one. The United States’ institutional investors ownership differs entirely from the just mentioned countries as the domestic ownership is about 5.5 times the non-domestic.

3.5 Public sector investors and market capitalization The OECD report discloses that about 14% of the ownership of the global stock market capitalization in 2017 is directly or indirectly influenced politically since this share is held by the public sector, either through direct government ownership or through sovereign wealth funds, pension funds and/or state-owned enterprises. In fact, the public sector holds more than 50% of the shares in almost 10% of the 10.000 largest listed companies in the world. More than 8% of the world’s listed companies have public ownership that exceeds 50% of the equity capital. Central and local governments hold 56% of public sector ownership in listed companies, and China’s public sector accounts for 57% of the total public sector investments in global equity markets. As earlier mentioned, Norway is exceptional with, in 2017, the world’s second largest public sector holdings in monetary terms, of which almost all investments made are domestically, which Figure 3.8 illustrates.

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3 Nordic stock markets and ownership structures

%

1

34 2

3

2

4

5

12

3

3

3

4

5 1

2 2

Figure 3.8: Domestic and non-domestic public sector ownership in 2017.

83% of the $7.7 billion public sector investments in Norway are made by sovereign wealth funds, 11% by the government, 4% by pensions funds, and 2% by state owned enterprises. The Norwegian state is the largest shareholder in Norway, which they defend with arguments such as to “correcting market failures, safeguarding important companies and ensuring that head office functions are located in Norway” (Nossum, 2015, p. 11). The market value of Norway’s State in 2021 is 906 billion NOK, of which the Equinor (petroleum and gas) makes out more than a third, followed by Telenor (telecom), Statkraft (Energy), and DNB (banking) with about 10 % each. The total number of employees in Norway’s State-owned companies was 333,906 in 2021. Also, the Norwegian State owns world’s largest sovereign wealth fund, holding about 1.3 percent of the listed shares in the world. In Finland, the other Nordic country with a rather high public sector ownership overall, this holding is also to a large extent domestically (12 of the 14% of total market capitalization). Here, 54% are government holdings, 16% pension fund holdings, and 30% is held by state owned enterprises. The value of the Finnish State’s ownership interest in 2020 was EUR 46.8 billion. 65 % of this value was energy related stocks, 10% within basic industry & industrial goods, 10 % within financing, and in total where 313.500 people employed in state owned companies. Numbers for Denmark’s public sector holding is split between the government (49%) and pension funds (51%) whereas pension funds in Sweden dominate the public holdings with 89% with the government on second place (10%) followed by a very small sovereign wealth fund (1%).

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Peter Beusch

70 60 60

55 50

50 50 40

%

40 30 30 20

20

20

15 10

10

10

10 0 c Basi

rials mate

gy Ener

Fina

ncia

ls

Utili

ties

u omm Telec

tion nica

Figure 3.9: Public sector ownership in % by industry in Nordic countries in 2017.

Among the OECD countries, public sector ownership of some of the Nordic countries is, in 2017, in five industries among the top 20 markets in the world, which is illustrated in Figure 3.9. In none of the investigated markets, Denmark’s public ownership is high enough to end up in the top 20 list of the OECD country and is therefore not part of the illustration here. Of the Basic materials industry (includes the businesses engaged in the discovery, development, and processing of raw material, such as mining and metal refining, forestry and wood, pulp, paper, but also chemical products), the public sector owns e.g., about 10% in Sweden and in Finland, but about 40% in Norway. Within the Energy industry, the public holding is about 20% in Sweden, 50% in Norway, and about 55% in Finland. Within the Financial industry, public sector equity holdings are large in Finland at 15%, and in Norway at above 20%, whereas the Utilities industry (mainly generation and distribution of power) with 50% public sector equity holdings in Finland is the only Nordic country on the OECD list. Within Telecommunication, however, three Nordic countries, Finland with 10%, Sweden with 30%, and Norway with 60%, are mentioned to be part of the top 20 markets, where the public sector holds the largest stakes.

3.6 Concluding comments The Nordic countries are small in terms of population size and therefore benefit from an open attitude regarding trade and cooperation with the outside world. Although they have quite different overall agreements with Europe and the European Union, it is their biggest trading partner. The size of Sweden’s market capitalization is around

3 Nordic stock markets and ownership structures

39

double Denmark’s and around three times Norway’s and Finland’s. In relation to GDP, Sweden’s market capitalization surpasses the other Nordic countries and is in parity with the US. The average market capitalization in relation to GDP of the Nordic region is about four times the average of Europe. This illustrates the relative importance not only of the Stockholm Stock Exchange, which is the trading platform of a high number of large, listed companies, but also the great importance of the entire Nordic region for trade and the capital market overall. When it comes to ownership structures, the Nordic region has more similarities with large continental European countries (e.g., Germany and France) than with Anglo-Saxon countries (e.g., Great Britain and the United States) in terms of institutional investors (around 30–40% compared to about 60 to over 70%). The large public ownership (about 1/3 of all market capitalization) in Norway deviates strongly from all other countries in the overview, which is only partially followed by Finland’s relatively high state ownership. In fact, Norway’s public sector investments in 2017 exceeded the ones of the United States. With a relatively large part of 14% of all market capitalization held by private (e.g., family holdings) corporations, Sweden shows great similarities with Germany and France, whereas the other Nordic countries are more like the UK and USA. All Nordic countries’ distribution between domestic and nondomestic ownership, however, shows more similar patterns with Germany, France, and the UK rather than the USA (Norway is most like the USA), and patterns look about equally when only including institutional owners. In terms of holdings of the largest institutional investors, the Nordics overall are more alike the continental European countries France and Germany than the UK and the USA. In all groupings, thus 3, 10 or 20 largest institutional owners, the two AngloSaxon countries own about twice as much or more compared to the Nordics and Germany and France. In terms of ownership concentration, Nordic countries can be found in between the German-French model (very high ownership concentration) and the Anglo-Saxon model (traditionally very dispersed ownership), which underlines the importance of Nordic countries’ need to, approximately to the same extent, work with corporate governance design mechanisms to reduce agency problems while at the same time being careful that shareholder rights are not abused. In summary, it can be concluded that the Nordic stock markets and ownership structures in around half of the observed areas have greater similarities with the continental European countries Germany and France, while in the other half they have more similarities with the Anglo-Saxon countries the UK and the USA.

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References De La Cruz, A., Medina, A., & Tang Y. (2019). Owners of the World’s Listed Companies, OECD Capital Market Series, Paris, www.oecd.org/corporate/Owners-of-the-Worlds-Listed-Companies.htm. Lekvall, P., Gilson, R. J., Hansen, J. L., Lønfeldt, C., Airaksinen, M., Berglund, T., von Weymarn, T., Knudsen, G., Norvik, H., Skog, R., & Sjöman, E. (2014). The Nordic corporate governance model. In Lekvall, P. (Ed.), The Nordic Corporate Governance Model (pp. 14–12). Stockholm: SNS Förlag. Nossum, J. (2015). Corporate Governance in Oil-Lubricated Norway: Regulation, Practice, Ethics and Incoherence. University of Oslo Faculty of Law Research Paper, (2015–16), 15–11. OECD (2021). OECD Corporate Governance Factbook 2021, https://www.oecd.org/corporate/corporategover nance-factbook.htm. (Assessed 2022-9-2)

Peter Beusch

4 The Nordic countries’ corporate governance model In this chapter, we are going to look more closely at the Nordic Corporate Governance (CG) Model and similarities but also differences between the different countries’ approaches. Section 4.1 starts with an overall description of the three-part institutional framework (statutory regulation, self-regulation, and rules, norms, and practices) that largely forms the basis for the model. Section 4.2 presents the Nordic CG-model as a ‘middle way’ between the ‘two-tier’ and ‘one-tier’ model, outlining some of its pros and cons as well. Section 4.3 elaborates more in detail on similarities and differences regarding the specific issues with a half-independent ‘Board of Directors’ (BoD) before section 4.4 provides concluding comments and a summary of the chapter.

4.1 Nordic corporate governance and institutional framework The most distinctive feature of the Nordic corporate governance model is, according to Lekvall et al. (2014), the strong powers of a shareholder majority to effectively control the company and with that the ability to genuinely engage in and take long-term responsibility for the company. The main idea is that the shareholders should be in command of the company, where the board and management are seen as shareholders’ agents in a strictly hierarchical governance structure. According to the same authors, this consolidated Nordic Corporate Governance model is based on three main categories and four essential pillars. The three main categories that make out the regulatory framework of the model are (pp. 36–41), which is, with updated information from the countries’ different latest corporate governance codes, illustrated in Table 4.1:

4.1.1 Statutory regulation with company laws and security laws Statutory regulation that lays a foundation for the Nordic countries’ corporate governance models, such as companies acts and other laws but also mandatory prescriptions, stem from French and German legislation but are also influenced by Anglo-Saxon judicial traditions. Moreover, the harmonization attempts of the Nordic countries to increase economic cooperation with the help of identical bills during the 1970s especially (see discussion above on Nordic countries’ economic relationship to Europe) helped shape “far-reaching resemblance of the governance regimes of the Nordic countries” https://doi.org/10.1515/9783110725346-004

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Peter Beusch

Table 4.1: The regulatory bodies of the Nordic countries’ Corporate Governance.

Main element of regulatory framework

Sweden

Denmark

Finland

Norway

Company Laws and/ or Securities Law

Companies Act () The EU Market Abuse Regulation () Securities Market Act () Financial Instruments Trading Act () Financial Instruments Trading (Market Abuse Penalties) Act ()

Company Act () Financial Statements Act () Capital Markets Act () EU corporate law rules

Limited Liability Companies Act () Securities Markets Act () EU Shareholder Rights Directive II ()

Public Limited Liability Companies Act () Securities Trading Act ()

Other relevant regulations

Self-regulation (Rulebook for issuers, Corporate Governance Code, Securities Council’s statements) SFSA’s regulations

Law or regulation, Listing rules OECD Principles of Corporate Governance

Law or regulation, Listing rules Listing rules

Approach

Comply or explain

Disclosure in annual company report

Comply or explain Required but can be a Required separate document

Surveillance Stock exchange

Comply or explain Comply or explain Required Required

Securities regulator, Stock exchange

Securities regulator, Stock exchange

Custodians of national codes

Private initiative First code in  updated  times latest in 

Private initiative First code in  updated  times latest in 

Private initiative First code in  updated  times latest in 

Private initiative First code in  updated  times latest in 

Issuing body of Code

Swedish Corporate Governance Board

NASDAQ Copenhagen A/ S and Committee on Corporate Governance

Chamber of Commerce

Norwegian Corporate Governance Board (NCGB)

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Table 4.1 (continued)

Main public regulator

Sweden

Denmark

Swedish Financial Supervisory Authority

Danish Financial Finnish Financial Supervisory Supervisory Authority Authority

Financial Supervisory Authority of Norway

Board of directions ( members);  year terms (reappoinment allowed)

Board ( members); - (chair) and  years for other members

Governing body, number Board ( members);  of members, and number year terms of years appointed (reappoinment allowed)

Finland

Board ( members);  year terms (reappoinment allowed)

Norway

(p. 39). In Sweden this includes the Companies Act (2006), the EU Market Abuse Regulation (2016), the Securities Market Act (2007), the Financial Instruments Trading Act (1991), and the Financial Instruments Trading (Market Abuse Penalties) Act (2017). In Denmark, on the other hand, this includes the Company Act (2019), the Financial Statements Act (2019) and the Capital Markets Act (2020), whereas it in Finland is the Limited Liability Companies Act (2019) and the Securities Markets Act (2020) and in Norway the Public Limited Liability Companies Act (2017) and the Securities Trading Act (2014).

4.1.2 Self-regulation based on the ‘comply-or-explain’ principle Self-regulation is enforced by the business sector itself in the Nordic countries. It can be seen as ‘mandatory’ for the companies/actors involved, even though there is, more or less, no interference from the local governments. This popular form of regulation, due to its greater flexibility and higher acceptability, has a relatively long tradition in a Nordic context. Self-regulation exists in many different forms (e.g., mandatory membership rules of professional organizations to voluntary codes of conduct in various contexts) and Corporate Governance Codes have been the dominant form in the Nordic setting. Self-regulation with Corporate Governance Codes started with the first code in 2001 in Denmark (Norby Committee) and until 2005, the other Nordic countries followed this example with codes based on the idea of the ‘comply-or-explain’ principle. Since then, the code has been updated 6 times in Sweden (latest in 2020), 10 times in Denmark (last update was in 2020), 5 times in Finland (latest in 2020), and 10 times in Norway (last update was in 2021). This means, that the code in all four Nordic countries follows a UKbased principle that requires companies listed on the Nordic stock exchanges to apply the code or explain why they do not apply it in the areas where this is possible.

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For that purpose, the newest Swedish Corporate Governance Code from 202021 contains three sections. First, the code is explained (aims, target group, principles, role of board, structure, and content). The second section outlines the governance model (ownership role, shareholders meeting, BoD, Chief executive officer, statutory auditor). The third and largest section adds the rules, in 10 parts, ranging from the shareholders’ meeting to remuneration and sustainability, for corporate governance. The code is relatively short, at only 32 pages long, and applies, to avoid uncertainty about the requirements regarding ‘comply or explain’, the terms “is to” or “may” throughout the rules presented in section three. The latest Danish code from December 2020, which is only 36 pages long, is similar to that in Finland with 40 recommendations (5 areas divided into 13 sub-areas) where the aim of the committee has been to provide fewer but more relevant recommendations to companies and professional organizations. The five areas of recommendations, which are preceded by principles and followed up with comments, are the following: 1) Interaction with shareholders, investors and other stakeholders 2) Duties and responsibilities of the BoD 3) Composition, organisation and evaluation of BoD 4) Remuneration of management 5) Risk management The Finnish version of the code from 2020,22 which is 72 pages long, is similarly constructed where 27 recommendations constitute the code. The first four recommendations (R1–R4) discuss the general meeting, the next 9 (R5–R13) the board of directors, followed by six recommendations (R14–R19) on the committees and two recommendations each on the managing director (R20 and R21) and on renumeration (R22 and R23). Four recommendations (R24 to R27) discuss internal control, risk management, internal audit, and related party transactions), whereas this document also adds instructions about, and a checklist for, the reporting of renumeration, which was a key change following the EU directive. In total, about 40 ‘shall’ are used compared to only five ‘must’, and some additional ‘may’ as this code is strongly based on EU’s second Shareholder Rights Directive. The newest Norwegian code of Corporate Governance,23 the so called ‘code of practice’, is dated from October 2021, 60 pages long, and separated into 15 sections, each with outlined recommendations, whereas a short explanation of changes to the code of practice since the last code was published in 2018 (in 7 of the 15 sections) has

 http://www.corporategovernanceboard.se/UserFiles/Koden/2020/The_Swedish_Corporate_Gover nance_Code_1_January_2020_00000002.pdf (Assessed 2022-10-07).  https://cgfinland.fi/wp-content/uploads/sites/39/2019/11/corporate-governance-code–2020.pdf (Assessed 2022-09-15).  https://nues.no/eierstyring-og-selskapsledelse-engelsk/ (Assessed 2022-08-22).

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been placed before those sections. This report contains around 80 ‘should’ areas, thus describing requirements, and about 10 ‘must’ areas, which means that the requirement in question is already the subject of legislation. Overall, the main public regulator in all Nordic countries’ is the respective Financial Supervisory Authority. The issuing body of the code is in Sweden the Swedish Corporate Governance Board (8 members, appointed for 3 year terms, reappointment allowed), in Denmark the Committee on Corporate Governance (8 members, 2 year terms, reappointment allowed), in Finland the Chamber of Commerce, in cooperation with the board of Securities Market Association (6 members, 3 years terms, reappointment allowed), and in Norway it is the Norwegian Corporate Governance Board (5 members, 4–6 years term for chair and 4 years for other members) that issues the recommendation on corporate governance. Overall, a soft attitude is adopted towards the compliance to the code “with individual provisions as long as non-compliance is duly reported and explained” (Lekvall et al., 2014, p. 40). To report a different solution/in a different way than what the code asks for, is occasionally seen as positive by the Nordic code administering bodies, if you explain your reporting, because these codes are “tools for on-going improvement of corporate governance practices by setting a higher standard than the minimum level required by law” (Lekvall et al., 2014, p. 40). The latest Danish Code summarizes this ‘soft law’ the following way (p.5): Soft law is characterized by its voluntary nature and its ability to easily adapt to trends and developments in society. When managed effectively, soft law may further contribute to not adopt hard law in certain areas where greater flexibility to adjust to ongoing developments and trends in the society is required on an ongoing basis.

Therefore, the Nordic countries Corporate Governance Code in general is believed to generate a high standard rather than full compliance simply because the Committees believe that implementing guidelines through soft law is more efficient to establish trust among the companies and their stakeholders without hindering how companies want to operate their businesses.

4.1.3 Rules, norms, and customary practice Rules, norms, and customary practice are largely governing the way corporate governance is pursued in reality in the Nordics. Although there are differences in the way these three categories are applied in each and one of the different Nordic countries, they all “play a crucial role as determinants of the way corporate governance is carried out in practice”; and it is especially the third category that makes out the strongest element in the Nordic region “due to the relatively homogeneous norms and value system prevailing in these societies in combination with a high degree of social control, which is typical of small communities” (Lekvall et al., 2014, p. 37).

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A key element of the code implementation in the Nordic region is how the corporate governance code monitoring and enforcement is organized and how duties are split. According to Lekvall et al. (2014, p. 41), the ‘law-makers’ are the national corporate governance committees, whereas the stock exchanges, all operated by privately owned companies, supervise the appropriate application of the code with the duty to act if listed companies deviate significantly. The market and investors are the judges, deciding if trust exists in the information provided but also the behavior overall of the listed firms.

4.2 The Nordic corporate governance model as a ‘middle way’ Originally, the Nordic governance model resembled the Anglo-Saxon system, thus the one-tier governance model, with a unitary board accountable to the general meeting, but already with the new Companies Act of 1930, Denmark separated the executive management as an own company organ, then subordinate to the board of directors. This became mandatory for larger companies. The other Nordic countries followed this distinction, with a difference, however, that the executive body was defined as a single-person function represented by the CEO and not as in Denmark where this organ can comprise one or more executives. This was the starting point for today’s Nordic governance structure illustrated by the chain of command, in a hierarchical governance structure with four pillars (Lekvall et al., 2014), from the general meeting through the Board to the executive management function, then either represented by the CEO only or a Management Board, and with a statutory auditor. A further characteristic that often has been outlined as typical for the Nordic corporate governance model is the entirely or predominantly non-executive board, which has important implications. Altogether, the Nordic corporate governance model is something in-between the typical Two-Tier Model that is mostly based on a German judicial tradition but used with some variations also in other continental European countries, and the mostly Anglo-Saxon One-Tier Model. This is illustrated in Figure 4.1. For example, the Two-Tiered board structure, that is very typical for the German stock corporations but, according to the OECD Corporate Governance Factbook from 2021 (OECD, 2021), similarly applied in e.g., Austria, China, Estonia, Latvia, Poland, and Russia, requires a management board and a supervisory board, where the last one generally is elected by the shareholders’ meeting. In Germany, e.g., the supervisory board is responsible for supervising and controlling the management board and, to this end, the supervisory board is entitled to inspect the corporation’s books and records and may, at any time, request the management board to report on the corporation’s affairs. Also, in Germany, the management board, on the other hand, manages the stock corporation collectively and is jointly responsible for their actions. This board must consist of natural persons who

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are appointed by the supervisory board, where the Corporate Governance Code strictly guides its composition. When a German stock corporation generally has more than 500 employees, onethird of the supervisory board members must be employee representatives. In companies with more than 2,000 employees, half of the supervisory board members must be employee representatives. Also, at least 30 per cent of the supervisory board members of listed companies with more than 2,000 employees must be women. In addition, companies with more than 500 employees must adopt certain target ratios regarding the representation of female members on their supervisory and management boards, and in their senior management. In the case of Germany, the roles of the chairs of both boards, the supervisory board, and the management board, is more administrative rather than executive. The chair of the supervisory board is normally not endowed with any specific powers but with duties, such as to prepare and lead meetings of the supervisory board. Often as well, the chair of the supervisory board chairs the general meeting. The chair of the management board, on the other hand, is responsible for administrative tasks relating to the work of the management board. This includes preparing and chairing meetings and keeping minutes, coordinating, and supervising the work of the management board, liaising with the supervisory board, and representing the management board in public. Two-Tier Governance Model

Ownership level

Oversight and control level (upper tier)

Executive Level (lower tier)

Nordic Governance Model

Shareholders General Meeting

Shareholders General Meeting

Supervisory Board

Board Non-executive Management

One-Tier Governance Model

Shareholders General Meeting

Board

Non-executive and

Management Board

Executive Management

executive

Figure 4.1: The different Corporate Governance Models (Source: To a large extent after Lekvall et al., 2014).

Although the chair of the management board has a prominent position among the other members of the management board in this dual board system of Germany, com-

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pared to e.g., the role of a chief executive officer (CEO) of a US corporation, this role is weak. From a legal perspective, the chair has no right to give instructions to other management board members and is not entitled to decide matters against a majority of the other members of the management board. Proponents of the Dual-Board system, e.g., Germany, argue that this approach results in, and better serves the objectives of, a social market system as it enhances monitoring and leads to less aggressive performance targets. In Germany, e.g., one of the notable responsibilities of the supervisory board is to enforce damage claims by the stock corporation against members of the management board. The German corporate governance review e.g., believes that this (dual) system has, especially in the wake of the global financial and economic crisis of 2008, helped corporations to increase the number of lawsuits against former management board members. Opponents of this system, on the other hand, accuse it to be less efficient from a financial market perspective but also that financial efficiency may be hindered due to less communication and higher costs involved when running a Dual Board. When compared, the Nordic Board is an entirely independent body where it hierarchically is strictly subordinate and accountable to the General Meeting. The board has within this framework far-reaching authority to manage the company’s affairs to fulfill its fiduciary responsibilities to the shareholders. Due to its non-executive nature, the Nordic board is assumed to have no integrity problems regarding the company management. In a Nordic setting, the Chairman of the Board and the CEO shall always be separated, with a strict separation of duties and responsibilities for the board and the CEO. Generally, the Nordic boards are relatively small boards, e.g., in Sweden on average 6.5 annual general meeting elected members. Therefore, in this model, there is less need for specific board committees to deal with potential conflicts of interests towards company management and requirements for formal director independence. Thus, under the Nordic corporate governance structure, there is, with the exception of a few companies, no two-tier model with a supervisory board overseeing the administration of the company as traditionally can be found in continental Europe. In summary, it seems that, over time, there has been a trend in all four Nordic countries to be more and more in line with the One-Tier model, which is today in use in twice as many OECD/G20 countries as the Two-Tier system (OECD, 2021). However, there is a growing number of corporate governance jurisdictions, today 14, that allow both structures. The OECD (2021) report classifies Denmark, Finland, and Norway, as countries with the freedom to choose what structure to use, whereas Sweden, in the same report, is classified as a typical one-tier country. This requires a closer explanation, which is what the next section is about.

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4.3 The Nordic setting with half-independent ‘Boards of Directors’ (BoD) The Nordic countries’ board of directors (BoD) is seen as the shareholders’ steward that must look after their common assets. This board is normally re-elected annually by the General Meeting but can in between be dismissed at any time without stated cause. The board consists entirely or predominantly of non-executives, except employee representatives where this is applicable. However, differences exist in the formulations of the different countries’ codes. In Sweden, the code recommends that the board “must” consist of not fewer than three members, one of which is to be appointed chair. Not more than one of the directors “may be” on the executive management team of the company or one of its subsidiaries. Sweden’s Companies Act recognizes a Board and a CEO, and the Corporate Governance Code recommends a maximum of one executive to sit on the Board. Under the Companies Act, the CEO (if not a Board member) has the right to attend (but not vote at) all board meetings unless otherwise decided by the board of directors in any specific case. About one-third of Swedish listed companies have one executive on the Board, which is the CEO in nearly all cases. Also, most of the directors elected by the shareholders’ meeting are to be independent of the company and its executive management. The chief executive officer and an executive chair of the board may thus not both be members of the board if the latter is also a member of the company’s executive management. Thus, boards of Swedish listed companies are composed entirely or predominantly of non-executive directors. In addition, a majority of the members of the board are to be independent of the company and its management, and at least two members “must” be independent of the company’s major shareholders. In other words, it is possible for major shareholders of Swedish companies to appoint a majority of members with whom they have close ties. Denmark’s Committee, on the other hand, writes that the BoD of a public limited company “shall” consist of a minimum of 3 members and recommends that members of the executive management “shall not” be members of the board of directors and that members retiring from the executive management “shall not” join the board of directors immediately thereafter. Further the code recommends that at least half of the members of the BoD elected in general meeting are independent for the board of directors to be able to act independently, avoiding conflicts of interests. Finland’s listed companies are, as above mentioned, normally using a one-tier governance model, which, in addition to the general meeting, comprises the board of directors and the managing director. According to the Limited Liability Companies Act, a company may also have a supervisory board. Only four listed companies have supervisory boards, whereas 125 companies do not have supervisory boards.

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In Finland, the BoD mainly consists of non-executives and in some cases, apparently in seven companies during the time the last code was published, the managing director was a member of the board as well. The code states that a majority of the directors ‘shall’ be independent of the company, at least two directors who are independent of the company “shall” also be independent of the significant shareholders of the company, and the managing director ‘shall not’ be elected chair of the board. This board typically consists of approximately five to eight directors. In Norway, the majority of the members of the BoD “should” be independent of the company’s executive personnel and material business contacts, and at least two of the members of the board “should” be independent of the company’s main shareholder(s). Also, the BoD “should not” include executive personnel, however, if the board includes executive personnel, the company “should” provide an explanation for this. Norway’s code recommends that the board of directors should not include executive personnel. If the board does include executive personnel, the company should provide an explanation for this and implement consequential adjustment. The majority of the members elected to the board of directors by shareholders should be independent of the company’s executive personnel and its main business connections. The Norwegian Public Companies Act stipulates that the chief executive cannot be a member of the board of directors. This Code of Practice recommends that neither the chief executive nor any other executive personnel should be a member of the board. Also, in Norway, both supervision and management of the operations of the company are the responsibility of the board of directors, while the companies have a possibility to elect an extra supervisory organ. As the first country in the world, Norway adopted in 2004 a section in the Public Companies Act that secured a right for both genders to be represented on boards with at least 40 % in limited liability companies. While the Act has succeeded in getting women on the board, still today, the percentage of women in high-level positions in public companies is low also in Norway.

4.4 Sustainability in the Nordic corporate governance codes What is visible in a Nordic setting as well is the fact that sustainability has appeared in some of the new corporate governance codes, but there are big differences. For example, the latest Swedish code is still vague in terms of expected contribution to society and what that means for sustainability/sustainable development. The new code has not been updated at all since the last code was issued in 2016, when it formulates the aim as follows (p.2):

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Good corporate governance means ensuring that companies are run sustainably, responsibly and as efficiently as possible on behalf of their shareholders. The confidence of legislators and the public that companies act sustainably and responsibly is crucial if companies are to have the freedom to realise their strategies to create value.

Similarly, the Finnish code’s objective is, among other things, to support (p.9) “the value creation of Finnish listed companies and their attractiveness as investment objects” and in addition to increase “transparency of corporate governance and the ability of shareholders and investors to evaluate the practices applied by individual companies”. Thus, there is still not a word about stakeholder or societal value creation, or how sustainability comes into this picture overall. Norway, on the other hand, as one of several major changes since the last code was published in 2018, mentions in the new code from October 2021 a reformulation regarding ‘the purpose of the business’. The earlier version of ‘should have guidelines for how it integrates considerations related to its stakeholders into its value creation” has now been replaced with businesses “should create value for shareholders in a sustainable manner” (p.10). This phrase, of course, is still rather vague and focuses on the shareholders more than anything else but there is at least a first hint of sustainability in this sentence. The new Danish CG code, however, is much more explicit in this issue as a special section is providing explanations of terms where, beside ‘management’, the three words/expressions ‘society’, ‘sustainability’, and ‘The company’s purpose’ are outlined. Regarding society they write (p.7): Therefore, the Committee believes all companies have a duty to mitigate any potential negative impact on society as a whole, regardless of whether it is on a local, national or international level. As companies are closest to their industry and business, each company is best placed to assess its own impact on society.

Sustainability is a new term applied in the Danish CG code and its importance is expressed the following way (p.7): The Committee assesses that it is essential for the companies’ value creation that companies consider sustainability in a broad sense, i.e., not only in the sense of economic sustainability, but also, for instance, by looking at environmental, employee and social society sustainability.

In total, one can see that these two terms have been collected to address ‘the purpose of the company’, also a new constellation in this new code, that has been formulated the following way (p.7): A company’s purpose is the company’s overall aim for long-term value creation, which the company delivers to its shareholders, other stakeholders and society.

As a reason for this specific mentioning of sustainability related issues in the code, the Committee refers to an increased focus on CSR in society overall during recent years. The believe that “society expects that a company understands and considers both the positive and negative effects it may have on society” but also that “all compa-

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nies have a duty to mitigate any potential negative impact on society as a whole, regardless of whether it is on a local, national or international level” (p.7). What impact the various formulations regarding sustainability have on companies’ actual sustainability work is, of course, difficult to say. Today’s trend in terms of climate change, biodiversity related issues and many other rather urgent matters, however, will probably not make the area of sustainability and societal value creation less important for companies in the future as well.

4.5 Concluding comments In summary, the above demonstrates that the four Nordic countries show strong similarities in the way they rather clearly divide duties and responsibilities between a monitoring, safeguarding and strategically executing board of directors and an almost entirely executive management function that works on a more ‘day to day’ basis. Therefore, there is stronger integrity between the board of directors (BoD) and the executive function than what normally is the case in mixed boards of the One-Tier type, habitually since at least half (Denmark), or even a majority of directors (Sweden, Finland, and Norway), need to be independent. Still, in a Nordic setting, independence is described somewhat differently in all the countries’ codes, and if problems arise it is up to eventual internal assessments to solve them as all of this is based on recommendations and not laws. This provides much flexibility for companies’ own interpretations and adaptions of these regulations. Thus, in reality, in all four Nordic countries, norms and customary practices at the end make out very important frameworks, within which the companies act, which non-Nordic investors sometimes could have difficulties to understand or accept.

References Lekvall, P., Gilson, R. J., Hansen, J. L., Lønfeldt, C., Airaksinen, M., Berglund, T., von Weymarn, T., Knudsen, G., Norvik, H., Skog, R., & Sjöman, E. (2014). The Nordic corporate governance model. In Lekvall P. (Ed.), The Nordic Corporate Governance Model (pp. 14–12). Stockholm: SNS Förlag. OECD (2021). OECD Corporate Governance Factbook 2021, https://www.oecd.org/corporate/corporategover nance-factbook.htm. (Assessed 2022-9-2)

Svetlana Sabelfeld and Kristina Jonäll

5 The Swedish corporate governance setting The Swedish corporate governance model has been informed by a combination of laws, rules, and corporate practices over time. This chapter provides an overview of distinctive features of the Swedish corporate governance model and highlights the two historically evolved institutionalized traditions that shaped these features – labor unions and industrial family conglomerates. Section 5.1 discusses the historical development of the corporate governance tradition in Sweden, outlining the developments of labor unions (5.1.1) and industrial family conglomerates (5.1.2). Section 5.2 articulates the elements of the Swedish CG model and discusses its distinctive features (5.2.1).

5.1 Swedish corporate governance tradition and its historical development The Swedish way to govern corporations has been shaped by two powerful institutions over time – labor unions and industrial family conglomerates. These Swedish institutions gained power in the historical context of social-social democratic political development underpinning the values of the Swedish government over many years. In essence, the Swedish social democratic ideology promotes a social contract, the high level of individuals taxes becomes balanced with a high level of government expenditures securing social wellbeing of the individuals (Gwartney & Lawson, 2006). However, corporate tax remains at the levels comparable with the Anglo-American countries, which allows Swedish businesses to compete on the global market and sustain the country’s economy (Sinani et al., 2008).

5.1.1 Labour unions Historically, when the Swedish social democratic party had a continuous power from 1930 to late 1970s, it has created a culture of explicit negotiations of relations between employees and employers in which the state, the industry representatives, and the labour unions were involved (Henrekson & Jakobsson, 2003). For the large business groups and industrial firms, which traditionally dominate in the Swedish economy, and the labour unions have power influencing industrial companies’ decisions related to employees. This influence is also executed through the regulated employee representation in corporate boards. In Sweden employees have right to participate in the work of corporate board equally with other members appointed by general meeting, https://doi.org/10.1515/9783110725346-005

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having about 30% of representation (Sinani et al., 2008). Having responsibility and duties as the other appointed members, employee representatives must not only represent the employee’s perspective but also represent the interest of the company, which helped to create a culture of consensus in the boards, reducing the owner versus employee dichotomy (Sinani et al., 2008). Board-level employee representation is further detailed in Chapter 9 of this book. Trade unions have a long history in Sweden. In 1987, the Swedish Trade Union Confederation (Landsorganisationen, LO) was founded as an umbrella for several blue-collar unions existing at that time. The formation was a joint initiative of the Scandinavian Labour Congress and the Swedish Social Democratic Party. The unregulated nature of labour market at that time led to conflicts between the Trade Union Confederation (LO) and the Swedish Employers Association (Svenska Arbetsgivareföreningen, SAF), sometimes resulting in big strikes, like the one in 1909, leading to significant economic damages in Sweden, which in turn resulted in countering actions from the industrial firms. In 1935, SAF and LO started negotiating solutions for this employee vs employer conflict. These negotiations resulted in the Saltsjöbaden Agreement between SAF and LO organizations in 1938. The Agreement was based on the principles of cooperation, mutual respect, negotiation, compromise, and responsible decisions in the labor market, which was later called “Saltsjöbaden spirit”, a new model for the Swedish labor market and industrial relations for many decades to come. The Saltsjöbaden Agreement was later followed up by the Industry Agreement (Industriavtalet) in 1997, highlighting the salient role of the collective agreements regulated by the labor market parties independently of the State. It is also important to mention that, over time, other segments of unions emerged for different classes of employees on the Swedish labor market. Thus, after the first union for blue-collar workers (LO), the union for white-collar (the Central Organisation of employees, that was later renamed to TSO, Confederation of Professional Employees) was founded in 1931, and Saco (Swedish Confederation of Professional Associations) was founded in 1947 (Heidenheimer, 1976). However, in contrast to the blue-collar union’s self-regulation, white-collar unions preferred a regulated environment, which diverged the original Swedish self-regulation model for the labor market (Kjellberg, 2007). Accordingly, in 1936, the Central organization of employees obtained the Law on rights of association and negotiation, introduced by the Social Democrat Government (Kjellberg, 2013). This historical development of the negotiation and consensus culture on the labor market has influenced the relation of corporate governance and employees in Sweden. This culture can be mirrored in a specific feature of Swedish corporate governance called codetermination (Carlsson, 2007). It has also influenced two pieces of legislation underlying corporate governance in Sweden. The first one is the Act of Board Representation (Lag om styrelserepresentation) and the second one is the Codetermination Act (Medbestämmandelagen), both from 1976. The Act of Board Represen-

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tation is about employees’ rights to be representative members on the corporate board of directors. According to this law, two representatives and two deputy representatives can be appointed as members of board by company’s employees. Participation of employees in the corporate board activities enables employee representatives to engage with the company’s strategic policies and decisions on the one hand, and to balance two perspectives of shareholders and employees (Levinson, 2001; Sinani et al., 2008). The Codetermination Act articulates the right of the trade unions to participate in negotiations with the corporate management regarding employee-related matters and represent employees’ interests during these negotiations (Carlsson, 2007). The culture of codetermination has later fostered dialogic accountability in Swedish companies. According to Dillard and Vinnari (2019), dialogic accountability is a process of dialogue and engagement-based accounting and reporting, characterized by inclusion of pluralistic perspectives and interests that are not always in line with each other. Inclusion of the employee-representatives in the corporate boards is one example of the inclusive dialogic approach to accountability (see Chapter 8 discussing diversity on boards and Chapter 9 focusing on employee representation on corporate boards in Sweden). The long history of a social democratic party government could make one believe that state ownership should be the norm in Sweden. The reality is different, Swedish industry and many of the large Swedish multinational companies are dominated by private owners. The social democratic post-war policies supported the dominance of a few family owners controlling the Swedish industries, which was politically rationalised as an important factor in generating growth in the Swedish economy and creating an economic welfare model (Henrekson & Jakobsson, 2003; Högfeldt, 2005; Stafsudd, 2009; Schnyder, 2012a). The reason was the government’s early ambition to make capital stay in the country by supporting large industries. The capital would then be distributed in society based on the prevailing political values and thereby finance the public sector on which welfare was largely based (Randøy & Nielsen, 2002). The government therefore had to make some concessions that benefited the major capitalists. It can be said that it became a kind of contract between the state and the unions on one hand and the employers and companies on the other. The “contract” intended, that jobs would be secured, and capital would stay in the country. As a result, many of the investments in the companies became long-term, which further strengthened the companies’ position and power. From the political agenda, companies were used to safeguard the interests of society rather than to favor capitalists who invested in them. Accordingly, concentrated ownership structure was favored while a dispersed market-based financing disadvantaged (Högfeldt, 2005), mainly through a tax system that favored investment companies since investments could be written off directly while dividends were taxed. The reason behind the tax policy was that profits should remain in the companies, reinvested in the business and in the long run benefit society. Swedish corporate governance has a strong tradition of cooperation between the government, labor unions, and corporate management, which has developed over the

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past century. Contracts between the government and labor unions are important influencing factors for Swedish corporate governance because they have formed the basis for a long-standing model of social dialogue and negotiations-based solutions to labor market issues (Styhre & Bergström, 2019). This model has contributed to a high degree of industrial peace and stability, which in turn has created a favorable business climate for entrepreneurship in Sweden. Contracts have also formed the basis for a culture of cooperation and trust between corporate management, employees, and government, which has contributed to a high standard of Swedish corporate governance. This culture has supported a longstanding practice of sustainable business, which has meant that companies take into account economic, social, and environmental aspects in their operations. The state can also have a supportive role in corporate governance during economic downturns. This has primarily been achieved through the government collaborating with labor market stakeholders, including labor unions and corporate management, to find solutions to the challenges that arise during difficult times. It shall be noted that the Swedish government has a policy model that is based on the principle that the labor market parties themselves are negotiating issues such as collective agreements, and the Swedish authorities having only a supportive role and intervening in the process only when requested. (Bergström & Styhre, 2022)

5.1.2 Industrial family conglomerates Historically, there are above all, some owner families who have played a significant role in the development of the business and governance tradition in Sweden. In the 1960s, families were considered controlling the Swedish business community. The one most often mentioned is the Wallenberg family, who for five generations, have been at the forefront of Swedish business for over 100 years. André O. Wallenberg founded Stockholm’s Enskilda Bank (SEB) after ideas from traveling in Scotland. The idea was that the bank borrowed from the public and lend to companies and major projects. As Wallenberg managed the bank, he also took part in deciding how the companies were controlled. Gradually, the bank became an industrial bank, and the family became more and more involved in various industries. Since the Swedish tax system made private ownership unprofitable, the business and capital owners instead exercised control through various types of investment companies and foundations. Investment companies that were also heavily controlled by the banks. In the Swedish model, banks played a significant role because they could allocate capital to both companies and individuals in society. This meant that the banks indirectly became owners of the companies. The banks that also had clear links to spheres of power, such as the Wallenberg family. It became cheaper for companies to borrow money internally from banks and business partners than to raise capital through the capital market.

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This further increased the power of the banks and the “owner families”. Marcus Wallenberg was playing an important role for the Swedish ownership model, a model based on active ownership. His ambition was to be able to be a committed owner in several companies at the same time, which presupposed that the board’s control function was separated from the company management. This is often said to be one of the reasons for the good development of Swedish business and industry and what differed from both the corporate governance models of other European countries and the Anglo-Saxon model. The influence of the owner families lasted until the 1970s when the economy was no longer as prosperous as before. The reasons were, among other things, high inflation, the oil crisis, and the devaluation of the Swedish krona (Nachemsson-Ekvall, 2008). At the same time as these crises, a political opinion grew that was not as positive to neither the commercial banks’ position of power, a concentrated ownership, or large industries. In the wake of this, many of the old owner families disappeared. Today, the proportion of private owners in companies is among the highest in the world. This private ownership includes both several large professional owners but also many Swedish households, of which a large majority own shares, both directly and via funds. In 2015, an overview was made of what the ownership looked like. It was then estimated that 16% of the companies were owned by Swedish private individuals and households, 22% by Swedish institutions, 12% by the state and municipalities and the remaining 50% were foreign owners. Despite the increased presence of domestic and international institutional capital, most of the Swedish business is still controlled by a few private owners. In 56 of the Stockholm Stock Exchange’s large companies, the largest vote holder is a Swedish owner family or physical individual. Today, there are leading Swedish private owners – especially the “spheres” – in most of the large Swedish multinational companies. Above all, you will find 15 leading private owner families on the list, Wallenberg (SEB, ABB and others), Kamprad (IKEA), Persson (H&M), Douglas and Schörling (Securitas), Rausing (TetraPak), Lundberg (Holmen), Stenbeck (Kinnevik), Johnsson (Axfood), Lundin (Lundin Oil), Paulsson (PEAB), Bennet (Lifco), Olsson (Stena), Bonnier and Söderberg (Ratos). In 2017, these family influenced companies were worth SEK 4,935 billion, compared with Sweden’s GDP, which was SEK 4,604 billion the same year. (Kallefatides) Chapter 7 provides more details into the ownership and control mechanisms in Swedish companies.

5.2 The Swedish corporate governance model The Swedish corporate governance model has not only been influenced by the two historically evolved institutions discussed in 5.1, but also by regulations and practices developing over time. It is primarily the Swedish Code of Corporate Governance, the Swedish Companies Act and the Swedish Annual Accounts Act that govern corporate

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governance in Sweden. In addition, there are also rules that apply to the markets on which the companies’ shares are traded. Moreover, there are recommendations and statements from the Swedish Financial Reporting Board, the Swedish Securities Market Council and the Swedish Financial Reporting Supervision’s with which companies need to comply. The Swedish Code of Corporate Governance complements the Swedish Companies Act by setting higher requirements in some areas, while at the same time it is possible for companies to deviate from the Code according to the “comply or explain rule”. Thus, the regulatory framework for corporate governance practices in companies listed in Sweden includes the Swedish Companies Act (Aktiebolagslagen 1975:1385), the Swedish Code of Corporate Governance, specific rules, and requirements for listings at the Swedish stock exchange markets, the principles of Swedish Securities Council on what constitutes good practice in the Swedish securities market. According to the Swedish Corporate Governance Board (2008, p.9), “the Companies Act contains general regulations about the governance of the company. The Act specifies which governance bodies must exist in a company, the tasks of each body and the responsibilities of the people in each of these positions. The Code complements the Act by placing higher demands on companies on certain issues, while simultaneously allowing them to deviate from rules in individual cases if it is deemed that this will lead to better corporate governance”. The Companies Act stipulates that companies must have three decision-making bodies in a hierarchical relationship to one another: the shareholders’ meeting, the board of directors and the chief executive officer. There must also be a controlling body, an auditor, who is appointed by the shareholders’ meeting”. The model is illustrated in Figure 5.1. Overall, placing its focus on the owners’ control of the company the Swedish CG model contains features of both the Anglo-American one-tier model and the continental European two-tier model.

Auditor

Shareholders’ Meeting

Nomination committee

Board of Directors

Remuneration and audit committees

CEO & Executive Management

Figure 5.1: Swedish corporate governance model.

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5.2.1 The distinctive features of corporate governance in Sweden The Swedish corporate governance model displays many similarities with the dominating models, such as Anglo-American corporate governance model. However, specific pattern of ownership structure in Sweden, its culture and regulatory traditions discussed above, shape the features, distinguishing the Swedish model from the other models. First, the ownership structure on the Swedish market of capital differs in a way that Swedish companies are often owned by one of a few major owners, who takes a dominating active role in the ownership by engaging with the corporate board and by taking responsibility for the corporate management of resources. This feature has similarities with the continental ownership model. Second, Swedish limited companies have shares with different voting values. In about half of listed companies, shareholders may strengthen their influence through holdings of shares with greater voting rights. They are often taking an engaging ownership role by having a sit on the board of directors, which implies more responsibility. In general, board members linked to the major owners usually form a majority on the board and only a few board members are independent of the major owners. To protect the rights of minority shareholders, especially owners with low-voting shares, the Swedish Companies Act has provisions requiring qualified majorities for a range of decisions at shareholders’ meetings. Moreover, to protect the rights of the minority shareholders, there is a general rule saying that Annual General Meeting should not make decisions that may give certain shareholders an unfair advantage at the expense of the company or other owners. Third, Swedish corporate governance model has a hierarchical governance structure. According to The Swedish Companies Act, a Swedish Annual General Meeting (the Shareholders’ meeting) has always a sovereign power to decide on all the company’s matters. Hierarchical structure means that superior corporate bodies can issue directives to or take over decision-making for subordinate bodies. Fourth, a particular characteristic of Swedish corporate governance is participation of shareholders in the Swedish companies’ nomination committees, which is a way to engage in and influence the nomination processes for boards of directors and auditors. Fifth, in Swedish companies, the company’s auditor is appointed by the Annual General Meeting. The auditor’s task is not only to examine corporate annual reporting, but also the board’s and executive director’s management. An important purpose of the audit is thus to serve the owners’ need to control the board and CEO. To monitor and evaluate the auditor’s work, Swedish companies have the audit committee, responsible for the preparation of the board’s work to ensure the quality of the corporate reporting. The audit committee should consist of at least three directors, independent of the company’s executive management.

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Sixth, a feature that significantly differs from the Anglo-American model is the composition of the board. The Swedish Companies Act requires that the company’s governing and executive power are separated in person. Thus, in public companies the CEO and the Chairman of board cannot be the same person. Furthermore, in most listed companies in Sweden, there are no board members who are part of the company’s top management except for the CEO. In addition to the CEO and those employees’ board representatives (see below) Thus, the board of directors in Swedish listed companies normally consists of exclusively “Non-executive directors”, except of the CEO and employee representatives. Seventh, according to the Swedish legislation, listed companies can have an employee representation in corporate boards. The rule is that in companies with at least 25 employees, the employees have the right to appoint two board members and two deputies to these, while those in companies with operations in several industries and at least 1,000 employees may appoint three members and three deputies. However, the employee members can never form their own majority in the board (see more details in Chapter 9). Finally, it is important to emphasize the procedure of selection of statutory auditor and the audit committee in Swedish companies. Differently from the Anglo-Saxon tradition, where the corporate management together with the board are actively involved in selection of the auditors, in Sweden this task is performed by the nomination committee. It means that auditors of Swedish companies are given the assignment by the owners, and they are not allowed to be influenced by the executive managers or the board.

5.2.2 Final note Discussing the historically evolved local traditions influencing the specific corporate governance model provides some explanations behind the distinctive features of the Swedish way of governing a corporation. This chapter offered a general level overview of these features, some of which are detailed further in Chapter 7–9 of this book. According to Hopwood and Miller (1994) shaping the interdisciplinary tradition of accounting research, accounting and governance can be understood as a social and institutional practice. It means that the local socio-political context in which organizations operate, including formal and informal institutions, shape the ways of governing corporations by using accounting and governing practices in specific countries. We suggest that future studies focus more on analyzing the interconnections between corporate governance and accounting practices, and the local and global socio-political contexts in which these practices are performed.

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References Bergström, O., & Styhre, A. (2022). It takes change to remain the same: The transformation of Swedish government policy making in economic crises and the involvement of social partners. Economic and Industrial Democracy, 43(4), 1564–1587. Carlsson, R. H. (2007). Swedish Corporate Governance and Value Creation: owners still in the driver’s seat 1. Corporate Governance: An International Review, 15(6), 1038–1055. Dillard, J., & Vinnari, E. (2019). Critical dialogical accountability: From accounting-based accountability to accountability-based accounting. Critical Perspectives on Accounting, 62, 16–38. Gwartney, J. D., & Lawson, R.A. (2006). The impact of tax policy on economic growth, income distribution, and allocation of taxes. Social Philosophy and Policy, 23, 28–52. Heidenheimer, A. J. (1976). Professional unions, public sector growth, and the Swedish equality policy. Comparative Politics, 9(1), 49–73. Henrekson, M., & Jakobsson, U. (2012). The Swedish corporate control model: convergence, persistence or decline? Corporate governance: an international review, 20(2), 212–227. Hopwood, A.G. & Miller, P. (1994). Accounting as social and institutional practice. Cambridge University Press. Hogfeldt, P. (2005). The history and politics of corporate ownership in Sweden. In R. Morck (Ed.) A history of corporate governance around the world: Family business groups to professional managers (pp. 517–580). University of Chicago Press. Kjellberg, A. (2007). The Swedish trade union system in transition: High but falling union density. Trade Union Revitalisation. Trends and Prospects, 34, 259–285. Kjellberg, A. (2013). Union density and specialist/professional unions in Sweden. Studies in Social Policy, Industrial Relations, Working Life and Mobility, Research Reports, 2. Levinson, K. (2001). Employee representatives on company boards in Sweden. Industrial Relations Journal, 32(3), 264–274. Randøy, T., & Nielsen, J. (2002). Company performance, corporate governance, and CEO compensation in Norway and Sweden. Journal of Management and Governance, 6(1), 57–81. Sinani, E., Stafsudd, A., Thomsen, S., Edling, C., & Randøy, T. (2008). Corporate governance in Scandinavia: Comparing networks and formal institutions. European Management Review, 5(1), 27–40. Schnyder, G. (2012). Varieties of insider corporate governance: the determinants of business preferences and corporate governance reform in the Netherlands, Sweden and Switzerland. Journal of European Public Policy, 19(9), 1434–1451. Stafsudd, A. (2009). Corporate networks as informal governance mechanisms: A small worlds approach to Sweden. Corporate Governance: An International Review, 17(1), 62–76. The Swedish Corporate Governance Board (2008). The Swedish Code of Corporate Governance, Kollegiet för Svensk Bolagsstyrning. Styhre, A., & Bergström, O. (2019) The benefit of market-based governance devices: Reflections on the issue of growing economic inequality as a corporate concern. European Management Journal, 37, 413–420.

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6 The Swedish corporate governance code and its development The Swedish Corporate Governance Code (hereafter called “the Code”) was first published in 2005. The code is based on the Swedish Companies Act (Aktiebolagslagen) which provides the code with a number of rules within the framework of Swedish business community’s self-regulation. The starting point was, as for other countries, the need to improve corporate governance. Many corporate scandals internationally, that have attracted public attention and a general critique of how companies are governed, contributed to this need. In the beginning of the 21st century, there was a growing interest and attention, both in Sweden and internationally, for corporate governance issues. Many countries already had established codes for corporate governance and Swedish decision–makers considered that Sweden should have its own corporate governance code. The work with the corporate governance code was initiated by the governmental commission, “Commission for Trust.” The commission itself was established in order to analyze the need for measures that would ensure confidence and rebuild trust in the Swedish business community and the financial markets, trust that was eroded in the aftermath of several international and national business failures (Jonnergård & Larsson 2007). Even though there was previously no code of corporate governance in Sweden, this did not mean that there were no rules and guidelines in the area. Many of the issues that in other countries were regulated in a Corporate Governance Code had previously existed in the Swedish Companies Act (Aktiebolagslagen). In particular, the changes introduced after the Kreuger crash in 1932. Changes concerning the accounting, the exercise of the administration, the relationship with the shareholders and the responsibility for the administration, the procedure for the formation of limited companies, the manner of payment of the share capital and changes thereof (SOU 1941:8 s 3–29). In October 2003 a working group whose purpose was to produce a Swedish code of corporate governance was appointed. The members were assigned by the Swedish government and several bodies and organizations in the business community. The basic principles were that the Swedish code would contribute to good conditions for an active and responsible ownership. At the same time there should be a well-balanced equilibrium of power between owners, board, and corporate management. The roles and the responsibilities between the corporate bodies should be clear. Openness and transparency were an important prerequisite. Likewise, was the principle “comply or explain” because not all rules can suit everyone at all times. This principle was intended to create flexibility in application and enable companies to apply the Code even though certain rules in the individual company may seem less appropriate. One can argue that the

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institution of “trust in controlling shareholders” has influenced this development of the code (Jonnergård & Larsson-Olaison, 2016). The aim of the code was therefore to contribute to a positive development of corporate governance in listed companies and over time contribute to economic growth and increased confidence in business community (Swedish Corporate Governance Board, 2020). The Code was intended to be applicable by all listed companies on a regulated market in Sweden and would not be designed only for the largest but rather to suit all stock market companies. The Code was also intended to be of benefit to other companies with a dispersed ownership, directly or indirectly, for example state, municipal and cooperative companies.

6.1 Origin and development of the code The Code was developed in a three-stage process. In October 2003, the working group whose purpose was to produce a Swedish code of corporate governance was appointed. The work at the first stage was carried out between Oct 2003–Apr 2004 in a working group consisted of three members appointed by the Swedish government and six members from professional bodies and organizations representing the business community. The work during this stage was to produce a proposal for a code. At the second stage, between April and October 2004, a proposal prepared by the working group became subject to a public consultation process and broad societal debate. The proposal was submitted to open referral that anyone who wanted could comment on. Several seminars, conferences and public debates were held where the proposal was discussed. At the time, there was also an extensive discussion in the media about the Code and its content. In the third stage during Oct-Dec 2004, the working group, based on the views articulated during the consultation process and in the public debate, made the necessary changes in the proposal and presented the final Corporate Governance Code that was applied from 2005. As articulated by the working group in the foreword to the Code, the motivation behind the initiative to regulate corporate governance in Sweden was the following: the Code Group considers that there is a need to further improve corporate governance in Swedish companies. Sweden, like a number of other countries, has been hit by a number of corporate scandals, which attracted much attention and caused justified criticism. A large majority of the Swedish people are now shareholders, directly or indirectly, and they are significantly influenced by how the listed companies are managed. Our society is extremely dependent of a dynamic and value-creating business, trusted by the public. (Swedish Corporate Governance Board, 2004)

The Code is based on the Swedish Companies Act (Aktiebolagslagen), and the tradition of self-regulation, which rests on social trust relations between the government, business, and society. The idea was that the Swedish business community would manage

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and develop the Code and corporate governance practices in the future and thus establish a good practice (“god sed” in Swedish) and advance it over time. The need to improve corporate governance through a developed and harmonized self-regulation corporate governance practices in Swedish companies, emerged as previously mentioned in the backdrop to the corporate scandals threatening the long-established tradition of trust in Sweden. But the Code can also be seen as a response to an increased international interest in corporate governance issues and in the recently introduced corporate governance regulations in other leading European countries. From 2005, when the Code was introduced, the OMX Nordic Exchange Stockholm required all listed companies with a market value exceeding 3 billion SEK to apply the Code. At that time, this was more than 70 companies. However, the intention was to extend the requirement to the smaller size listed companies within a few years. The Code has since been regularly revised over time and the most recently revised version was published in 2020, where new rules for remuneration of the board and executive management as well as incentive programs were introduced. A more detailed description of the development of the code over time can be found in section 6.3.

6.2 The Swedish corporate governance board Since 2010, the Code is managed by the Swedish Corporate Governance Board. The role of the board is to promote the development of Swedish corporate governance and to ensure that Sweden has a relevant, modern, and effective Corporate Governance Code for Swedish stock exchange listed companies. Required and appropriate amendments to the Code are one of the tasks of the board, to communicate and explain the changes to stakeholders is another. The board also works for increased knowledge and understanding of Swedish corporate governance both in national and international markets. Another task is to ensure that Swedish interests are safeguarded. The board closely monitors both how the Code is applied and how the general debate in the area is. Another important role of the Swedish Corporate Governance Board is as a referral body for legislation and the work on committees of inquiry in the field of corporate governance. The Swedish Corporate Governance board consists of a chairman, a vice chairman and several other members, all appointed by the board. The Corporate Governance Board regularly holds roundtable discussions with a large number of stakeholders. These discussions, together with the Corporate Governance Board’s own investigative work, form the basis for any changes of the Code. There is a consensus between the Corporate Governance Board and the stakeholders that changes and adjustments to the Code are made only when the need arises and only when there is a good reason to do so. Each change is preceded by a consultation round where universities, businesses, specialists, lawyers, fund managers and investors are given the opportunity to comment

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on the Code and the proposed changes. This creates stability and an important predictability in the Code and its content for users and other stakeholders. In the Swedish Corporate Governance model, self-regulation is a central element. This means that the board, stakeholders, and others that are active in and knowledgeable about the areas of the Code, jointly formulate, develop, and decide on the Code and its rules. The self-regulation also enables speed in the process of rule development and assures that the rules are effective and adapted to the market.

6.3 Changes in the Swedish corporate governance code over time Each version of the Code begins with a number of sections in addition to the rules. In the first version in 2005, these sections consisted of a foreword where the chair of the Swedish Corporate Governance Board describes the work with the Code, in introduction where the aim of the code, the target group, the comply or explain principle and the content and dorm are presented and described. Thereafter follows a text that describes Swedish corporate governance in an international context and finally, from a corporate governance perspective, a section on the ownership role and ownership responsibility. The first version of the Code adopted in 2005 consisted of, in addition to the introductory sections mentioned above, five chapters that dealt with rules about: 1. The shareholders’ meeting 2. The election and remuneration of the board of directors and the auditor 3. The board of directors, tasks, size, and composition, working methods, etc. 4. Management and CEO 5. Information on Corporate Governance What characterized the original Code was the detailed descriptions and repetitions that were already regulated by law. In the following years, after the introduction of the Code in 2005, several modifications were made, partly because of new legislation and partly to correct certain problems that arose in the Code’s practical application. These modifications were made as board-instructions and did not result in new versions of the Code.

6.3.1 Changes in the Swedish corporate governance code 2008 After the implementation, it turns out that the Code contributed to an improvement in the quality of Swedish corporate governance. This led to increased trust for Swedish listed companies among both the Swedish public and the Swedish and interna-

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tional capital markets. Since the first evaluation of the Code showed promising results, it now became a requirement for all companies whose shares are listed in Sweden. In conjunction with this significant expansion of target group, the original Code needed to be adapted to a wider audience of Code users in the revision process in 2008. The Corporate Governance Board highlights three important reasons change of target group. First, Good corporate governance was considered just as important for smaller listed companies as for large ones. Second, The Code could, if all companies were taken into consideration, be a genuine alternative to legislation. Third, Sweden would be in line with other EU countries, where national corporate governance codes normally apply to all listed companies. In addition, changes were made to resolve weaknesses and problems that had emerged during its practical application by companies, and to adapt the Code to the circumstances that also smaller listed companies should be included. As stated in the preface to the Revised Code of Corporate Governance 2008: The Board has therefore reviewed the Code with the aim of shortening and simplifying it as much as possible without relaxing the criteria for good corporate governance in Swedish listed companies. The Board has also focused on eliminating weaknesses that have come to light in the application of the Code so far and on preparing the Code for continued discussions on harmonising corporate governance norms in the Nordic countries. (Swedish Corporate Governance Board, 2008)

In the same way, as for the first process, open referral, discussions, and debate in the media and elsewhere, was held before the Swedish Corporate Governance Board presented a finalised and revised code. This to ensure an open process that also embraced the opinions expressed on the public comments and debates. The new version of the Code came into force in 2008 and now covered all Swedish companies with shares traded on the Swedish regulated market. Just as in the previous version, the new version begins with a foreword from the chair of the Swedish Corporate Governance Board and a number of explanatory texts. These texts are in the new version revised and include an introduction where the aim of the code, the target group, guiding principles, the role of the Corporate Governance Board, the content and form of the code and which companies must apply the Code are presented and described. Thereafter follows a text about the Swedish model of corporate governance. In the new version of the Code rules 2008 the structure and division into chapters were changed and now consists of eleven chapters that dealt with rules about 1. The shareholders’ meeting 2. The nomination committee 3. The task of the board of directors 4. The size and composition of the board 5. The task of directors

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The chair of the board Board procedures Evaluation of the board of directors and the chief executive officer Remuneration of the board and executive management Audit committee, financial reporting, and internal control Information on corporate governance

In the first edition of the Code, the text was characterized by detailed descriptions which in the second version, 2008, were simplified, shortened, or removed. Some parts that were already regulated in other existing corporate legislation have been removed. This especially applies to such amendments to the law that came into force after the first code was implemented. Other parts have been removed as it is expected that companies themselves have incentives to provide the information or service that was specified in the previous version of the Code. New formulations have been added and clarifications have been done. Among other things, these are formulations aimed to make it easier for foreign owners to prepare for the annual general meeting or to be able to take a decision on the nomination committee’s proposal. Clarifications have also been made in the new version in order avoid misunderstandings in the meaning of certain conditions and processes. As the new version of the Code cover a broader target group and now apply to all companies whose shares are admitted to trading on a regulated market as discussed above, a clearer structure was needed. This is reflected in the new division of chapters listed above. Six new chapters have been added and text from previous sections has been moved from the previous chapters into the new ones. The revised code is shortened and simplified without lowering the requirements for what constitutes good corporate governance in Swedish listed companies.

6.3.2 Changes in the Swedish corporate governance code 2010 The next revision was made in 2010. The introductory sections where, among other things, the code’s purpose, target group and working methods are described and the Swedish model is presented are basically unchanged. The structure introduced in the 2008 is mostly the same as previous year. The revised code for 2010 contains clarifications and simplifications compared with the previous code. For instance, details about the board’s mission in chapter three have been deleted. Particularly comprehensive are the clarified criteria for independence contained in chapter four The Size and Composition of the Board. The entire chapter on Audit Committees, Financial Reporting and Internal Control has been removed.24 Some parts from the chapter are moved to

 Chapter 10 in previous version 2008.

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chapter seven Board procedures, other parts are completely abolished because companies no longer need to report, for example, deviations in the corporate governance report. Instead, reference is made in footnotes to the requirements contained in the Swedish Companies Act. Clarifications have been made primarily about formalized routines for financial reporting and internal control. Chapter nine Remuneration of the board and executive management has been completely revised. This is due to the European Commission’s new recommendation on remuneration to senior executives. Clear criteria for principles for remuneration, members’ knowledge, and experience as well as conflicts of interest have therefore been added. There have also been clarifications and new formulation about how and where companies should inform about corporate governance. A difference from previous codes is that in the version for 2010, references to the regulations contained in the Swedish Companies Act and the Annual Accounts Act are, throughout the Code, made in footnotes. (Swedish Corporate Governance Board, 2010)

6.3.3 Changes in the Swedish corporate governance code 2015 Since the introduction of the new version of the Code in 2010, there has been an ongoing review of the Code by the Swedish Corporate Governance Board, several roundtable discussions, opportunities for stakeholders to submit comments and there has been a symposium to identify if and where there is a need for rule changes. Minor changes to adapt to new legislation or to correct problems in the practical application of the Code have, just as before, been made continuously in the so-called instructions which are published several times a year. Since the previous code the European Commission has established a recommendation on the quality of company reporting, the so-called “comply or explain principle” and this is now implemented in the new code. Previously, the comply or explain principle has been addressed in the introduction of the document where the content and form of the Code are discussed, 2015 is the first time it is explicitly included in the Code itself. The addition is made to clarify that a deviation with an accompanying explanation is completely compatible with the Code and can mean equally good or better corporate governance. Some other changes, important for the Code are for example directives regarding shareholder rights, non-financial information and the regulation on auditors and auditing. In the revised version of the Code for 2015, these areas have been considered and are now updated. The instructions that were added since the last version of the Code were all incorporated into the new version. One change is that good corporate governance should no longer only ensure that the company is managed as efficiently as possible, but the demand from investors that issues such as sustainability, diversity, equality, and the company’s trust are from this version added into the aims of the Code and seen as a

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prerequisite for the companies’ business success. Changes were also made to clarify that the Code should be sufficiently ambitious to prove an alternative to legislation in areas where self-regulation is preferable. Many owners, for example the government, have long demanded that companies owned by them must apply the Code in relevant parts. The revised code from 2015 states that the Code could be applied on a voluntary basis by both listed and unlisted companies that were not previously included in the circle of companies that previously had to follow the Code. Another change concerns which companies that should apply the Code; clarification is made about how foreign companies admitted to trading on the Swedish market must apply the Code. Clarifications and additions have been made in the section on the task of the board of directors, it is made clear that control of risk is one of the board’s important tasks. It has also been clarified that each member of the board must act independently and with integrity, it is also pointed out that each member must attend to the interests of the company and all shareholders. Yet another clarification is linked to the comply or explain principle, where it in a footnote it is stated that there are certain mandatory rules in, for example, the Companies Act, where compliance cannot be avoided and therefore it is not possible for companies to explain any deviations as these are not permitted. A further clarification that is new in the 2015 version of the Code is that the rules in chapter ten, “Information on corporate governance”, must be followed by all companies that apply the Code, the comply or explain principle is not possible to use regarding the rules in this chapter. (Swedish Corporate Governance Board, 2015) As in previous versions some text has been moved to sections where it fits better and matters that are; already regulated by law, regulated by law according to rule change, too detailed to belong in the Code or not compatible with other parts of the Code have been removed.

6.3.4 Changes in the Swedish corporate governance code 2016 The changes made to the Code in 2015 were made after extensive revision work. Since the Code was executed in 2015, several directives and regulations have been implemented in Swedish law. These and the content of the three board-instructions that were added during the year have been implemented in a new version of the Code in 2016. Among other things, the changes dealt with how the auditor is chosen and how nonfinancial information should be presented. The changes also meant that sustainability aspects were addressed into the Code. Chapter 10 changed its name to “Information on corporate governance and sustainability” and from now on contained the same requirement to annually submit a sustainability report, as is in the revised Annual Accounts Act. This requirement includes the duty of the board of certain companies to provide shareholders and the capital market with the sustainability information needed to be

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able to understand the company’s development, position, and results, as well as the consequences of the operations. This information should be published annually in a sustainability report and on the company website. (Swedish Corporate Governance Board, 2016)

6.3.5 Changes in the Swedish corporate governance code 2020 A central task for the Swedish Corporate Governance Board is to ensure that the Code is relevant, effective, and up-to-date. As the revisions in previous years the board has, för the revision 2020, conducted several round table discussions with stakeholders to identify the need for and the content of possible changes. There has also been an open referral procedure of the new text. Since the previous revision of the Code in 2016, it was concluded that there was no need for major changes, but there was still a reason to review the Code. Some of the changes in the 2020 Code are transitional rules because of legislation change that will come into effect later. Just as before, the work to remove rules that are unnecessary or that repeat what already applies by law is central. Above all, clarifications have been made in the new code such as that the board must protect and promote a good company culture and identify how sustainability issues affect the company both in terms of risks and opportunities. Another clarification is that directors of the board are responsible to ensure that they have enough time to spend on the assignment and that they have the skill and expertise so they can perform their respective duties to the company in a satisfactory way. In addition, rules have been added in chapter ten on how compensation to executives and members of the board must be reported.

6.3.6 Overview of changes in content and scope Over the years, the code has gone from initially being a detailed and comprehensive document that largely repeated what was already regulated by law to become a flexible framework based on legal regulation in combination with a self–regulatory system based on norms and a social contract. After evaluation of the first version, a thorough review of the structure was carried out during the first revision, and code’s rule section went from five chapters in 2005 to consist of ten chapters in the 2020 version. Although the code has changed composition and length, see table 6.1, the topics covered remain quite similar. One of the differences over time is that sustainability issues have increased in importance.

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Table 6.1: Overview of the content of the Swedish Code over time (2005–2020).       I.

Introduction













II.

The Swedish corporate governance model













III.

Rules for corporate governance Number of chapters













.

The shareholders’ meeting







,



,

.

The nomination committee









,



.

The task of the board of directors



,

,

,

,

,

.

The size and composition of the board

,









.

The task of directors

,

,

,

,

,

.

The chair of the board





,





.

Board procedures

,









.

Evaluation of the board of directors and the chief executive officer

,

,

,

,

,

.

Remuneration of the board and executive management

,



,

,

,

,











,

,



,

,















. Audit committee, financial reporting, and internal control . Information on corporate governance Total number of pages

6.4 The Swedish corporate governance code 2020 The Code has, as seen in previous sections, changed over time. The Code is a principle-based framework that has a “comply or explain rule”, which means that the framework is said to be flexible. A company can comply to the Swedish corporate governance code as well deviate if the company – informs about NOT complying, WHY it deviates and WHAT it does instead. This is something that the Swedish Corporate Governance Board believes creates more transparency for external stakeholders than a more formally regulated system. The Swedish Corporate Governance Code is a system based on legal regulations in combination with a self-regulatory system based on norms and a social contract. From January 2020 the Swedish Corporate Governance Code includes an introduction in five parts, an explanation of the Swedish corporate governance model, and rules for corporate governance divided into ten chapters.

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6.4.1 The introduction The introduction of the Code explains the aims, describes the target group, sets up the guiding principles, delineate the role of the Corporate Governance Board in Swedish self-regulation, and explicates the structure and the content of the Code. The Code acts as a complement to legislation, such as the Swedish Companies Act, the Annual Accounts Act, and other regulations. The overall aim of the Code is to improve confidence in Swedish listed companies by promoting a positive development in these companies. The target group is all listed companies whose shares or depositary receipts are listed on a regulated market in Sweden, currently Nasdaq Stockholm and NGM Equity. The Code may also be applied voluntary by other listed and nonlisted companies. The guiding principles is that the Code should provide a clear and principle-based norm for good corporate governance with a sufficiently high level of ambition so that the Code can be an alternative to legislation in areas where self-regulation is preferable. The Code should also contribute to the harmonization of corporate governance in the Nordic countries. The role of the Swedish Corporate Governance Board is to promote the development of Swedish corporate governance. This assignment includes to ensure that Sweden has a relevant, modern, and effective corporate governance code for listed companies. The structure and content of the Code deals with the system, with which the shareholders directly or indirectly control the company. The focus is mainly on the board of directors, as these are key players in how the company is managed and governed. The Code sets the standard for good corporate governance and is at a higher level than the requirements of the Swedish Companies Act or other rules. It is based on the principle of comply or explain, which means that the companies can choose to follow the Code or come with another solution that fits better in the current case as long as the company reports the deviation and describes what it has done instead. (Swedish Corporate Governance Board, 2020)

6.4.2 The Swedish corporate governance model This section of the Code explains the ownership role, the conditions of the shareholder’s meeting, the duties of the board of directors and the chief executive officer, as well as how the statutory auditor is chosen, and what the auditor should report. All described and/or explained based on the Swedish corporate governance model. Much of what is covered and explained in this part of the Code is treated and discussed in individual chapters in this book. The Swedish corporate governance model and the conditions of the shareholders meeting are discussed in Chapter 5, the ownership structure is dealt with in Chapter 3, 5 and 7, and the composition of the board of

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directors is treated in Chapter 8 and 9 in this book. These parts are therefore not discussed or described in this section.

The Chief Executive Officer (CEO) The chief executive officer is to be seen as the board’s person in the day-to-day operations. The chief executive officer’s task is to run the day-to-day administration according to the guidelines and instructions given by the board. In the day-to-day management, the CEO is responsible for the daily decisions of the business, but also responsible to ensure that the accounting is prepared in accordance with the laws and recommendations that apply to the company. The CEO can be member of the board, but this is not always the case. However, the CEO always has the right to attend and speak at board meetings, unless the board decides otherwise in certain special cases.

The statutory auditor The shareholders meeting appoints the company’s statutory auditor. The auditor’s task is to review end examine the company’s annual accounts, accounting practices and the boards as well as the CEOs management the company. Auditors must be independent; their opinion should be rendered after an inspection of company’s annual accounts, annual practices and a review of the boards and CEO’s management reports and be based on professional scepticisms (Eklöv Alander, 2019). The auditor must therefore not be controlled by either the board or the company’s management. All decisions regarding auditor tenure, such as appointment, removal, and reappointment, are made by the shareholders at the annual shareholders meeting. Decisions on auditor compensation are also made by the shareholders at the annual meeting (Eklöv Alander, 2019). The auditor reports to the owners through the audit report, this takes place at the annual shareholders’ meeting.

6.4.3 Rules for corporate governance The rules in the Swedish corporate governance code consist of ten chapters. Each chapter begins with an introductory text that summarizes the content of the chapter. The text is intended to express the principled approach or legal provisions underlying the rules in the chapter. For Swedish companies that are listed on the Swedish stock exchange, it is good practice to apply the code. Foreign companies that are traded on the Swedish stock exchange must, to follow good practice, apply the code or the regu-

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lations that apply in the county where the shares are listed or the country where the company has its registered office. (Swedish Corporate Governance Board, 2020) The code follows the comply or explain principle. This applies to the entire code except for chapter ten “Information on corporate governance, sustainability and compensation” which must be followed by all companies that apply the code. It is not possible to deviate from the rules in chapter ten through the comply or explain principle. (Swedish Corporate Governance Board, 2020) The first chapter of the rules deals with the shareholders meeting, the company’s highest decision-making body. The rules in chapter one is about ensuring that shareholders receive information at the right time so that they can attend and have time to submit matters that they want dealt with at the general meeting. The chapter also contains information on the conditions for who must be present for the board to be quorum, how the nomination committee must submit a proposal for chairman to the general meeting and who should adjust the minutes from the general meeting. (Swedish Corporate Governance Board, 2020) Chapter two in the rules for corporate governance describes the nomination committee and how its work should provide conditions for well-founded decisions to be made. The nomination committee’s only task is to prepare and motivate proposals for the general meeting about members of the board and compensation for the board members, about the election of and remuneration for the auditor. The chapter also regulates how the nomination committee is to be appointed and how many members the committee is to consist of. (Swedish Corporate Governance Board, 2020) In the next chapter of the rules, chapter three, the conditions for the board of director and its tasks are described. The main mission is to manage the company’s affairs in the interest of the company and all the company’s shareholders. The board of directors are obliged to ensure and promote a good company culture. The size and composition of the board is regulated in chapter four of the rules. The size and composition of the board must be sufficient so that the board’s ability to manage the company’s affairs is ensured. The majority of the members must be independent in relation to the company and company management. (Swedish Corporate Governance Board, 2020) In chapter five of the rules, the task of directors is clarified. Directors of the board are to devote the necessary time and care for the assignment. They also need to ensure that they have the knowledge, competence and information needed to safeguard the company’s and shareholders’ interests. The rules that deal with the chair of the board can be found in chapter six. The chair is elected by the shareholders’ meeting. The chair is responsible for ensuring that the board’s work is carried out in a wellorganized and efficient manner. (Swedish Corporate Governance Board, 2020) The rules of corporate governance in chapter seven describe board procedures. The board must have a working order that is clear and well documented. The chief executive officer needs to provide the board with necessary and sufficient documents to be able to prepare for meetings but also to be able to carry out work between meetings. The board must ensure that there are routines that guarantee that the financial

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reporting is produced according to current accounting rules and that the internal controls are applied in accordance with these established routines. (Swedish Corporate Governance Board, 2020) In the rules of corporate governance chapter eight, rules about evaluation of the board of directors and the chief executive officer are collected. In principle, the chapter states that the work carried out by the board must be evaluated systematically and structured once a year to ensure that the board works effectively. The board must also regularly evaluate the CEO’s work. (Swedish Corporate Governance Board, 2020) The rules that deal with remuneration of the board and executive management are found in chapter nine of the rules. As in the other chapters, the regulations express that formalized and identified processes are needed, in this case in how decisions are made about compensation and incentive programs that are directed to the CEO and to members of the board. The general meeting is the one that makes decisions on remuneration-based information and suggestions compiled by a remuneration committee. The compensation must be designed so that the company’s long–term value creation is promoted and that it has the intended effect for the company’s operations. (Swedish Corporate Governance Board, 2020) The rules of corporate governance chapter ten regulate information on corporate governance, sustainability, and remuneration. Chapter ten is the only chapter that all companies following the code need to comply, it is not allowed to deviate from any rules in this chapter. The chapter describes how shareholders, and the capital market annually must be informed about the company’s governance and how it applies the code. The information must be published: – In a corporate governance report – On the company website – Some companies need to submit a sustainability report – There must also be a report on the company’s remuneration to the company’s management and board.

6.5 Summary The Swedish Corporate Governance Code was first published in 2005 and is based on the Swedish Companies Act. It was established to improve corporate governance and restore trust in the Swedish business community following international and national business failures. The Code was created by a government commission, “Commission for Trust,” and a working group appointed by the Swedish government and several organizations in the business community. The Code aims to contribute to good conditions for responsible ownership, balance power between owners, board, and management, and promote transparency and openness. It follows the principle of “comply or

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explain,” to allow flexibility in application. The Code is intended for all listed companies in Sweden, including state, municipal and cooperative companies, and to contribute to economic growth and increased confidence in the business community. The chapter describes the Swedish corporate governance model and its development over time, it explains the ownership role, conditions of the shareholder’s meeting, duties of the board of directors and CEO, and the appointment and responsibilities of the statutory auditor. The chapter also describes the Swedish Corporate Governance Code as it looks today, its content and form.

References Eklöv Alander, G. (2019). Clash of corporate governance logics obscuring auditor independence. International Journal of Auditing 23(2), 336–351. Jonnergård, K., & Larsson-Olaison U. (2016). Stubborn Swedes: The Persistence of the Swedish Corporate Governance System under International Reform. Nordic Journal of Business 65, 13–28. Jonnergård, K. & Larsson U. (2007). Developing Codes of Conduct: Regulatory Conversations as Means for Detecting Institutional Change. Law & Policy 29(4), 460–492. Swedish Government. (1941). SOU 1941:8 Lagberedningens förslag till Lag om Aktiebolag m.m. Stockholm, Sweden: Regeringen. Swedish Corporate Governance Board. (2004). Swedish corporate governance code. Stockholm, Sweden: Swedish Corporate Governance Board. Swedish Corporate Governance Board. (2008). Swedish corporate governance code. Stockholm, Sweden: Swedish Corporate Governance Board. Swedish Corporate Governance Board. (2010). Swedish corporate governance code. Stockholm, Sweden: Swedish Corporate Governance Board. Swedish Corporate Governance Board. (2015). Swedish corporate governance code. Stockholm, Sweden: Swedish Corporate Governance Board. Swedish Corporate Governance Board. (2016). Swedish corporate governance code. Stockholm, Sweden: Swedish Corporate Governance Board. Swedish Corporate Governance Board. (2020). Swedish corporate governance code. Stockholm, Sweden: Swedish Corporate Governance Board.

Derya Vural

7 Ownership and usage of control-enhancing mechanisms In this chapter, one of the unique features with the Swedish governance system is discussed, namely the large presence of controlling owners and the frequent usage of socalled control-enhancing mechanisms (CEMs), i.e., control devices that allows separation of ownership and control. The chapter is divided into four sections, where Section 1 presents a theoretical background to agency conflicts in firms with concentrated ownership. Section 2 continues with defining commonly applied CEMs and provides data on the usage of CEMs in Sweden and other European countries. Section 3 reviews accountingand finance-oriented research studies with evidence on the effects of CEMs in Sweden. Last, Section 4 discusses the challenges with an EU-level corporate governance system.

7.1 Sweden offers a unique setting The corporate governance setting in Sweden is rather unique compared to AngloSaxon models. A significant difference between the Swedish and Anglo-Saxon corporate governance system is the strong owner-orientation in the Swedish model. In the Anglo-Saxon countries, ownership is often widely dispersed, and the CEO has a central role in the management of the firm (Berle & Means, 1932; La Porta et al., 1999). When ownership is dispersed the ability and incentive to control the firm by one single owner is limited, which can create conflicts between the manager and the owner of the firm – so-called “agency conflicts” (see Jensen & Meckling, 1976) for a detailed presentation on the issue of separation of ownership and control in the publicly listed firm). In the absence of an owner with a significant ownership stake, a common way to run the company is by appointing a manager/CEO that is delegated to take charge of the daily business operations. Frequently occurring in these constellations are agency conflicts between the owners and managers who develop differing interests, and the agent, i.e., the CEO of a firm, start acting according to his or her own desires. In order to ensure that the manager runs the firm in the interest of the shareholders and to minimize agency problems between these two parties, minority investor protection and appropriate incentives, are central in obtaining efficient governance systems. Such incentives could for instance include performance-based compensation agreements, stock programs or bonuses. In large parts of the world, including Sweden and in most of Europe, the main agency conflict in the publicly listed firm looks different. Instead, many listed firms are still in the hands of the founders (and/or their heirs) or there is a large owner https://doi.org/10.1515/9783110725346-007

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controlling the firm (e.g., LaPorta et al., 1999; Faccio & Lang, 2002). In these settings, the founder or the controlling owner have both the incentive and ability to monitor the manager, and consequently can decrease agency conflicts between the managers and the owners. Thus, as the ownership and control by the largest shareholder increases simultaneously, so does his or her willingness and ability to monitor the manager. A controlling shareholder can therefore at the shareholders’ meeting exercise control to remove managers who do not act in accordance with a value-maximizing strategy. To illustrate, Table 7.1 presents data on ownership structure among Swedish firms listed in the Stockholm Stock Exchange during the years 2001 to 2013. Notably, the largest owner, on average, controls 33% of the voting rights in a firm and the five largest owners’ control about 56% of the voting rights. In other words, on average, in the Swedish listed firm the five largest owners have absolute control. Table 7.1 also reveals that about 21% of the firms have an owner that possesses more than 50% of the voting rights, making him or her the majority owner in the firm. Further, 57% of the firms have an owner with at least 20% of the voting rights and only 10% of the firms are widely held (i.e., no owner possesses more than 10% of the voting rights). Ultimately, the ownership data presented in Table 7.1 clearly demonstrates that Swedish listed firms are highly concentrated in terms of ownership and that the average firm has a clear controlling owner in place. Table 7.1: Ownership structure in Sweden. Corporate ownership structure in Sweden Voting rights held by the largest owner Voting rights held by the five largest owners Share of firms with an owner >% of voting rights Share of firms with an owner >% of voting rights Share of firms with dispersed ownership 1,000 employees), Luxembourg (>1,000 employees), and Germany (>500 employees). The lowest threshold is found in Sweden (>25 employees), followed by Norway (>30 employees), and Denmark (>35 employees). There are also differences in how much influence the employee representatives get on the board, and employees are granted either a fixed share of the board seats or a fixed number of seats. As described above, in Sweden employees are granted two representatives in firms with 25 employees or more, and three representatives in firms with at least 1,000 employees. Other countries that set a fixed numbers of employee representatives in the private sector include Croatia, France, Greece, Norway, and Poland; the number of seats ranges from one to four, and sometimes with an upper limit of the share of seats (Conchon, Klugen, & Stollt, 2015). It is more common that regulators indicate a proportion of seats that should be held by employee representatives, and that share could be between 1/5 (Finland) and ½ (e.g., in German firms with more than 2,000 employees), and where there can be a limit of the number of employee representatives (ibid.).

9.3 When do employees appoint representatives to the board? As BLER is an option, not an obligation, it follows that not all firms have employee representatives on their board. In fact, less than half of the firms listed at the Stockholm stock exchange (Nasdaq OMX) have BLER (Berglund & Holmén, 2016; Overland & Samani, 2021). As described above, under the Company Act employee representatives

 Though Poland only grants employee representation in private firms where the state is still a shareholder.

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share the duties and responsibilities as shareholder elected directors, and thereby they face a certain litigation risk. This could also partly explain why not all firms with collective agreements have employee representatives on their boards. When examined empirically, Berglund and Holmén (2016) conclude that the number of eligible employees is the main variable in explaining the variation in BLER in Swedish listed firms, and where firm risk (stock volatility), lack of sales growth, and internationalization (if there is at least one foreign director of the board) also are decreasing the probability of having BLER. Overland and Samani (2021) partly confirm these results, as they find that employee representatives are more common in larger39 and low-growth firms. Moreover, Overland and Samani (ibid.) document that the probability of having BLER is higher if there is a larger fraction of female directors, if the firm has previously experienced losses, if it is an older firm, or if the firm is located outside the capital region. The authors do not find, however, that the probability of BLER is related to common risk metrics (i.e., the standard deviation of stock returns, sales and cash-flows from operations, respectively, and leverage), though multicollinearity could possibly partly explain the lack of a visible effect. Outside Sweden, it is worth mentioning the study by Gregorič and Poulsen (2020) on employees’ choice to appoint representatives to the board of directors in Denmark (with the employee representation system closest to the Swedish system). The authors analyze a sample of both public and private Danish firms between 2001 and 2006, with 35 employees or more, and they match data on the workforce composition (e.g., tenure, wages, job function, directors’ family relations) with accounting data as reported to the Danish tax authority. The results confirm that employee representation is more common in larger and older firms. But results also indicate that BLER is more commonplace when firm-specific human capital is higher (measured by average employee tenure, average length of education, and the occurrence of top-level employees and experts), and the share of employee union membership is higher. While some of the findings can be explained by the larger availability of eligible candidates (e.g., the effect of size and union membership), the authors point to the employees’ expectations on whether they will be able to influence board decisions – employees with more firm-specific human capital can rationally expect to have their proposals taken more seriously by other board members, which in turn makes them more inclined to participate. Moreover, Gregorič and Poulsen (ibid.) report that BLER is less likely if the CEO or family members are present on the board.

 The number of employees and the total assets capture are highly correlated, and for this reason including both in regressions gives rise to a multicollinearity problem. Hence, Berglund and Holmén (2016) exclude total assets in their regressions, whereas Overland and Samani (2021) exclude the number of employees. Both studies establish that firm size is positively related to the probability that employees will be presented on the board.

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9.4 How are the employee representatives perceived by managers, chairpersons and shareholders? Levinson (2001) investigates how employee representation in Sweden is viewed by managers and chairpersons. Specifically, he surveys how managers and chairpersons, as well as employee representatives, perceive the board work in large Swedish firms with employee representatives. When asked about their overall impression of employee representatives, 61% (69%) of responding managing directors (chairpersons) answered that their experiences of employee representative was either “very positive” or “rather positive” – and only 9% (5%) indicated a “rather negative” or “very negative” experience (Levinson, 2001). The author also notes that the perception among managers of employee representatives grow more positive with the size of the company. The same survey also reveals that the perceived advantages of having employee representatives on board is that they contribute to a co-operative climate (64% and 61% for managers and chairpersons, respectively), and that board decisions become more anchored among employees (as affirmed by 59% of managers and 65% of chairpersons). Moreover, roughly half of the respondents believe that it becomes easier to make tough decisions. Among the potential disadvantages that can follow from employee representatives, respondents seem to be the most worried about increased information leakage (40% of managers and 37% of chairpersons think so). In addition, almost every fifth manager and chairperson indicate that too many irrelevant issues are brought up in meetings. A similar share (20% of managers and 21% of chairpersons) state that it is either “rather imperative” or “very imperative” to cut down on employee representatives on boards (ibid.). In a follow-up study to Levinson (2001), Wallenberg and Levinson (2012) document that the overall positive attitudes towards employee representatives persist ten years later. 60% of the responding managers state that their experiences of employee representative were either “very positive” or “rather positive”. Further, a majority of the managers indicate that employee representatives contribute to a better co-operative climate, and that board decisions become more anchored among employees. Thomsen, Rose and Kronborg (2016) study how shareholders perceive employee representatives in Denmark, Norway, Finland, and Sweden. Their research strategy is to identify shareholder preferences by looking at the number of shareholder-elected directors. If shareholders view employee representatives as an impediment to value creation, they could alter the number of shareholder-elected directors to dilute the relative power of employee representatives. In Denmark and Norway, where employees have the right to a proportion of the total number of seats with explicit rules for rounding to an integer number of employee representatives, boards tend to be formed against cutoffs, so that the relative voting power of employee representatives is smaller.

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For instance, in Denmark employees are entitled to half as many representatives as there are shareholder-elected directors – rounded up so that they get to appoint an additional representative if they have less than a third of all seats. That means, for example, that if a Danish company goes from having six shareholder-elected directors to seven, employees have the right to appoint a fourth representative. Therefore, the authors expect to (and do) find increased frequencies of directors around such cutoffs (6, 9 and 12 directors for Denmark, and 8 and 12 directors for Norway) as compared with Finland. In Sweden employees are instead entitled to a fixed number of representatives, and for this reason the authors expect boards to be larger in Sweden compared to Finland, to reduce the proportion of employee representatives. Their results are largely in line with these predictions. One could argue, of course, that shareholders find employee representatives valuable but still want to limit their voting power. This, however, is contradicted by the fact that in Finland, where firms can block employee representation, only 1% of firms have decided to include them. The authors therefore conclude that shareholders, in Sweden and elsewhere, seem to be averse to employee representation.

9.5 How is employee representation related to firm outcomes? 9.5.1 Employee representation and firm performance A central theme in the corporate governance literature is how board structure is related to firm performance, based on measures rooted in accounting and finance. Here, such features like board size, director independence, and gender composition have been thoroughly analyzed. Later, employee representation has gained interest in research as well. Codetermination, i.e., employee or union involvement in corporate decisionmaking, is often argued to be associated with lower firm value. With monopolistic trade unions, part of the firm value is redirected away from investors as wages are driven above competitive market levels (Blanchflower, Oswald & Sanfey, 1996; Christofides & Oswald, 1992). Alchian and Demsetz (1972) show how resources are allocated inefficiently when control resides with groups other than owners. Jensen and Meckling (1979) concur and argue that if codetermination adds value, one should also expect to see shareholders appoint employees to the boards when it is not required by law; thus, the absence of non-mandatory employee representatives suggests that they do not add value, in line with the conclusion of Thomsen et al. (2016). However, codetermination could also provide value-enhancing functions. Freeman and Lazear (1995) argue that work councils promote cooperative labor relations

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and facilitate information transfer, e.g., in the form of more expedient decisionmaking, moderation of worker demands in tough times, and contributions in the form of offering solutions to firms’ problems. Child and Rodrigues (2004) further stress that the lack of employees’ trust in their companies could lead to a governance failure. The information transfer that follows from codetermination encourages employees to invest in firm-specific skills, which increases firm value (Furubotn & Wiggins, 1984). Moreover, the influence on managers exercised by incentivized employees, and especially by subordinate managers, could serve as a value-enhancing internal governance mechanism (Acharya, Myers & Rajan, 2011). Furthermore, advocates of codetermination argue that the absence of BLER in countries without legal BLER requirements does not prove that this is negative for performance – employers could simply be reluctant to give up power, and frictions (including legal constraints) could prevent voluntary adoption (Jäger, Noy & Schoefer, 2022). Any effects of codetermination should be particularly visible when codetermination comes in the form of BLER. On the one hand, employee representatives bring to the board an informed monitor with an interest in reducing agency costs induced by either managers or large shareholders (Fauver & Fuerst, 2006). On the other hand, any tendencies to extract rents should be augmented when employees are given more influence. The value effects of employee representation in Sweden, specifically, has been analyzed in only a few studies. For instance, Adams, Licht and Sagiv (2011) analyse employee director priorities in Swedish firms, where they present brief descriptions of court cases to respondents to construct an index of how strongly directors prioritize shareholder wealth maximization. The researchers document that employee directors are more inclined to consider non-shareholder interests, compared to shareholder elected directors. This could indicate a drift away from value seeking, with worse operating performance or returns. However, that employee representatives are less concerned with pursuing shareholder value does not necessarily mean that also the boards they sit on will deviate from shareholder value seeking to a larger degree than other boards. In fact, there is little evidence that BLER in Swedish firms is associated with worse firm performance. Berglund and Holmén (2016) study a sample of 226 Swedish listed firms between 2001 and 2007 and find no actual effect of BLER on firm performance, positive or negative. They use three alternative measures for the dependent variable of firm performance: Tobin’s Q (the sum of market value of equity and the book value of debt, over the book value of assets), ROA measured as EBITD, and ROA measured as net income over assets. Running both OLS and a treatment effect model BLER returns insignificant in all estimated models. Moreover, Gregorič and Rapp (2019) report how BLER is related to firm performance around the 2008 financial crisis. Based on a sample of Scandinavian (Danish, Norwegian and Swedish) publicly listed firms between 2006 and 2010. They find that BLER firms made fewer workforce dismissals in times of crisis compared to non-BLER

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firms, and that the holding on to employees was made possible in these firms by implementing other cost saving measures so that labor costs per employee were lowered instead. Interestingly, the authors find no difference in stock returns between BLER and non-BLER firms for the crisis period, if anything BLER firms perform slightly better. These results provide support for the proposition that crisis adjustments require negotiations between employers and employees to come up with alternative solutions, and that BLER contributes to a more collaborative climate, which facilitates such negotiations without necessarily sacrificing value. To compare, the international evidence on how BLER relates to firm performance is mixed. Although extensive BLER seems negatively associated with firm value (Gorton & Schmid, 2004; Eulerich, Fligge, & Imdieke, 2020), the findings are mixed on the performance effects of moderate employee representation, i.e. when employees have a clear minority of board seats. Some studies indicate that moderate BLER has neutral (Ginglinger, Megginson, & Waxin, 2011; Jäger, Schoefer & Heining, 2021) or even positive (Fauver & Fuerst, 2006; Harju, Jäger & Schoefer, 2021) effects. However, there is also some evidence for a negative association between moderate BLER and firm value in Norway (Bøhren & Strøm, 2010), which is fairly similar to the Swedish setting. One obvious possible explanation to the mixed results regarding how BLER affects firm performance is that the studies are done in different research settings (countries) using slightly different measures and methods. BLER could affect performance differently in different countries simply because the rules for employee representation differ between countries and using different measures could also produce different results (cf. Mavruk, Overland & Sjögren, 2020). Moreover, the effect of BLER on firm performance is a second-order effect. That is, BLER is one out of several determinants of board performance, which in turn is one of several drivers of firm performance. This bids the question how BLER affects firm performance, i.e., what decisions do BLER influence that in turn are related to firm performance? In line with this, some studies investigate how BLER affect firm decision making directly, e.g., regarding leverage (Lin, Schmid & Xuan, 2018), wage effects (Blandhol et al., 2020; Jäger, Schoefer & Heining, 2021) and, as mentioned above, employee dismissals in times of crisis (Gregorič & Rapp, 2019). Below we account for some findings on how BLER is related to accounting quality and non-financial reporting (NFR) in Sweden.

9.5.2 Employee representation and accounting quality Employee representatives could have an influence on the quality of earnings reported by the firm as financial reporting is one of the areas that fall under the direct board monitoring. Drafts of reports are distributed to the directors and discussed by the board before publication, and there is also a direct communication between the auditor and the board of directors in the preparation of the audit report. Finally, the annual report is not considered to be completed until all board directors, including the

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employee representatives, have signed the document. Earlier research confirms that the composition of the board of directors has an influence on the quality of earnings (Chen, Cheng & Wang., 2015; Cheng, 2004; Garcia Osma, 2008; Kim, Mauldin & Patro, 2014). Overland and Samani (2021) study how BLER affects the earnings quality, based on a sample of Swedish firms listed at the Stockholm Stock Exchange between 2006 and 2014. They argue that employee representatives have incentives to prevent earnings management to prevent the loss of bargaining power in coming negotiations, and that BLER also enhances the functional diversity of boards which also could help improving earnings quality. Overland and Samani (ibid.) find that abnormal accruals are lower in firms with BLER, indicating a higher earnings quality. Further, when using a labor negotiation period (when employers and employees have clear conflicting interests) as an exogenous shock, the study finds that managers in BLER firms steer earnings downwards to a lesser degree than in non-BLER firms. The authors also document that BLER firms are less inclined to engage in real earnings management by cutting R&D expenditures following a loss year, adding further support for a positive BLER-effect on earnings quality. That BLER affects financial reporting is supported in subsequent studies in other settings. Glaeson et al. (2021) document that employee representatives in German firms lessen real earnings management to counter wage cuts or job losses (but not when it leads to payroll maximization or job security). They also report that BLER reduces tax aggressiveness in firms with higher likelihood to move operations abroad (measured by the share of foreign sales). Chyz et al. (2022) corroborate that codetermination is related to lower levels of earnings management in German firms, and report that the effect is the most pronounced when employee representatives are members of the audit committee.

9.5.3 Employee representation and non-financial reporting BLER in Sweden has an effect also on non-financial reporting. Overland, Sabelfeld and Samani (2023) study how the implementation of the EU Non-Financial Reporting Directive in 2017 and BLER are related to the extent and quality of employee related disclosures in Swedish listed firms between 2014 and 2019. Based on textual analysis the authors find that firms with BLER provide more and higher quality disclosures on employee related matters compared to non-BLER firms. They also report that the disclosure by BLER firms are more precise and less uncertain. Moreover, the effect of BLER seems to be independent from the effect of the implementation of the Directive, as there is no significant difference in the increase of employee related disclosures in BLER firms and non-BLER firms. That is, BLER do not act as a complement nor a supplement to the Directive.

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In their robustness analyses Overland, Sabelfeld and Samani (ibid.) replace their disclosure variables with total (Refinitiv) ESG scores and the ESG scores related to the Environmental (E), Social (S), and Governance (G) pillars, respectively. The authors report that BLER is positively and significantly related mainly to the social pillar, whereas the relationships to the environmental and governance pillars are weak. This further stresses how the inclusion of stakeholders can enhance decision making and disclosures first and foremost related to the stakeholder group’s core interests. However, it should be noted that Lopatta et al. (2020) in their cross-country study report that BLER is related to both better CSR performance and better environmental performance.

9.6 Conclusions Though there are signs that shareholders modify the size of boards to limit the employee representatives’ relative voting power, which could be an indication of expected value losses, there is no evidence that BLER actually destroys value in Swedish firms. In fact, the study that exists on the value consequences of BLER shows that there are none. Instead, existing empirical studies tend to point to the positive aspects of employee representatives in Sweden; managing directors and chairpersons are mostly positive towards employee representatives, BLER firms keep a larger fraction of the work force during crisis (without sacrificing value), and both earnings quality and the quality of the disclosures on employee related matters seem to be enhanced by having employees on the board. All in all, given the social goods that follow from BLER and the absence of evidence for any negative value effects there seems to be little reason to limit workers’ right to appoint representatives to corporate boards in larger Swedish firms.

References Acharya, V. V., Myers, S. C., & Rajan, R. G. (2011). The internal governance of firms. Journal of Finance, 66(3), 689–720. Adams, R. B., Licht, A. N., & Sagiv, L. (2011). Shareholders and stakeholders: How do directors decide?. Strategic Management Journal, 32(12), 1331–1355. Alchian, A. A., & Demsetz, H. (1972). Production, information costs, and economic organization. American Economic Review, 62(5), 777–795. Berglund, T., & Holmén, M. (2016). Employees on corporate boards. Multinational Finance Journal, 20(3), 237–271. Blanchflower, D. G., Oswald, A. J., & Sanfey, P. (1996). Wages, profits, and rent-sharing. Quarterly Journal of Economics, 111(1), 227–251.

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Blandhol, C., Mogstad, M., Nilsson, P., & Vestad, O. L. (2020). Do employees benefit from worker representation on corporate boards? NBER Working Paper Series, 28269, National Bureau of Economic Research. Bøhren, Ø., & Strøm, R. Ø. (2010). Governance and politics: Regulating independence and diversity in the board room. Journal of Business Finance & Accounting, 37(9‐10), 1281–1308. Chen, X., Cheng, Q., & Wang, X. (2015). Does increased board independence reduce earnings management? Evidence from recent regulatory reforms. Review of Accounting Studies, 20(2), 899–933. Cheng, S. (2004). R&D expenditures and CEO compensation. Accounting Review, 79(2), 305–327. Child, J., & Rodrigues, S. B. (2004). Repairing the breach of trust in corporate governance. Corporate Governance: An International Review, 12(2), 143–152. Christofides, L. N., & Oswald, A. J. (1992). Real wage determination and rent-sharing in collective bargaining agreements. Quarterly Journal of Economics, 107(3), 985–1002. Chyz, J., Eulerich, M., Fligge, B., & Romney, M. A. (2022). Codetermination and aggressive reporting: Audit committee employee representation, tax aggressiveness, and earnings management. Journal of International Accounting, Auditing and Taxation. Conchon, A. (2011). Board-level employee representation rights in Europe: Facts and trends. Brussels: Etui. Conchon, A., Klugen, N., & Stollt, M. (2015), Table: Worker board-level participation in the 31 European Economic Area countries. European Trade Union Institute. Dotevall, R. (2008). Bolagsledningens skadeståndsansvar, [Liability of members of the board of directors and the managing director] (2nd ed.), Stockholm: Nordstedts Juridik. Eulerich, M., Fligge, B, Imdieke, A. (2020) Does codetermination reduce shareholder value? Board-level employee representation, firms’ market value, and operational performance (November 12, 2020). Available at SSRN: https://ssrn.com/abstract=3729150 or http://dx.doi.org/10.2139/ssrn.3729150 Fauver, L., & Fuerst, M. E. (2006). Does good corporate governance include employee representation? Evidence from German corporate boards. Journal of Financial Economics, 82(3), 673–710. Freeman, R. B., & Lazear, E. P. (1995). An economic analysis of works councils. In Works councils: Consultation, representation, and cooperation in industrial relations (pp. 27–52). University of Chicago Press. Furubotn, E. G., & Wiggins, S. N. (1984). Plant closings, worker reallocation costs and efficiency gains to labor representation on boards of directors. Zeitschrift für die gesamte Staatswissenschaft/Journal of Institutional and Theoretical Economics, (H. 1), 176–192. García Osma, B. (2008). Board independence and real earnings management: The case of R&D expenditure. Corporate Governance: An International Review, 16(2), 116–131. Ginglinger, E., Megginson, W., & Waxin, T. (2011). Employee ownership, board representation, and corporate financial policies. Journal of Corporate Finance, 17(4), 868–887. Gleason, C. A., Kieback, S., Thomsen, M., & Watrin, C. (2021). Monitoring or payroll maximization? What happens when workers enter the boardroom?. Review of Accounting Studies, 26(3), 1046–1087. Gorton, G., & Schmid, F. A. (2004). Capital, labor, and the firm: A study of German codetermination. Journal of the European Economic Association, 2(5), 863–905. Gregorič, A., & Rapp, M. S. (2019). Board-level employee representation (BLER) and firms’ responses to crisis. Industrial Relations: A Journal of Economy and Society, 58(3), 376–422. Gregorič, A., & Poulsen, T. (2020). When Do Employees Choose to Be Represented on the Board of Directors? Empirical Analysis of Board‐Level Employee Representation in Denmark. British Journal of Industrial Relations, 58(2), 241–272. Harju, J., Jäger, S., & Schoefer, B. (2021). Voice at work, No. 28522, National Bureau of Economic Research. Jensen, M. C., & Meckling, W. H. (1979). Rights and production functions: An application to labor-managed firms and codetermination. Journal of Business, 469–506. Jäger, S., Schoefer, B., & Heining, J. (2021). Labor in the Boardroom. The Quarterly Journal of Economics, 136(2), 669–725.

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Jäger, S., Noy, S., & Schoefer, B. (2022). What does codetermination do?. ILR Review, 75(4), 857–890. Kim, K., Mauldin, E., & Patro, S. (2014). Outside directors and board advising and monitoring performance. Journal of Accounting and Economics, 57(2–3), 110–131. Levinson, K. (2001). Employee representatives on company boards in Sweden. Industrial Relations Journal, 32(3), 264–274. Lin, C., Schmid, T., & Xuan, Y. (2018). Employee representation and financial leverage. Journal of Financial Economics, 127(2), 303–324. Lopatta, K., Böttcher, K., Lodhia, S. K., & Tideman, S. A. (2020). The relationship between gender diversity and employee representation at the board level and non-financial performance: a cross-country study. The International Journal of Accounting, 55(01), 2050001. Mavruk, T., Overland, C., & Sjögren, S. (2020). Keeping it real or keeping it simple? Ownership concentration measures compared. European Financial Management, 26(4), 958–1005. OECD (2021), Ownership and Governance of State-Owned Enterprises: A Compendium of National Practices 2021, Retrieved from: https://www.oecd.org/corporate/ownership-and-governance-of-stateowned-enterprises-a-compendium-of-national-practices.htm Overland, C., & Samani, N. (2021). The sheep watching the shepherd: Employee representation on the board and earnings quality. European Accounting Review, 1–38. Samani, N., Overland, C., & Sabelfeld, S. (2023). The role of the EU non-financial reporting directive and employee representation in employee-related disclosures. Accounting Forum, 47(2), 278–306. doi: 10.1080/01559982.2022.2158773 Vitols, S. (2010). The European Participation Index (EPI): A tool for cross-national quantitative comparison. European Trade Union Institute. Available at: http://www.worker-participation.eu/About-WP/EuropeanParticipation-Index-EPI Wallenberg, J. & Levinson K. (2012). Anställdas styrelserepresentation i svenskt näringsliv – Vad har hänt mellan 1999 och 2009? Arbetsmarknad & Arbetsliv. 18(3), 67–80.

Susanne Arvidsson

10 Sustainability governance This chapter focuses on a specific kind of governance namely sustainability governance. Combatting climate change and social inequalities calls for governance systems specifically directed to corporate sustainability. Today our companies are fiercely working on setting up efficient systems for sustainability governance. In this chapter, the reader will learn what a sustainability governance system is and what different parts it entails. By building on Swedish longitudinal data, we identify how large-listed companies work with sustainability governance. Drawing on this data, the chapter highlights some of the challenges, opportunities and lessons learned for the future development of sustainability governance practices.

10.1 Introduction Sustainability is a topic that is climbing higher on corporate agendas (see KPMG, 2019). A decade ago, sustainability was often an activity that was carried out by a few enthusiasts working lower down in the corporate hierarchy. Engaging in sustainability activities were an activity that seldom was endorsed by the management team. Today, most companies have appointed a head of sustainability. Some are already today part of the management team. Building an efficient sustainability governance system where sustainability is integrated in organizational routines and processes is vital for enhanced corporate sustainability performance. This trend is triggered by an increased awareness and interest among stakeholders in how companies work with sustainability and if and how they contribute to the reaching of Agenda 2030 (Arvidsson & Dumay, 2022; Khan et al., 2020; Thijssens et al., 2015). Stakeholders – ranging from customers, investors, employees, NGOs, business partners and authorities – are requesting more information and details on how a company is performing in the different sustainability arenas. For various reasons external stakeholders need to understand and assess how a company is performing when it comes to, for example, emissions, resource efficiency, biodiversity, anticorruption, diversity, inclusion, and human rights. Also, internally in the company, it is important to be able to observe and assess progress in the different sustainability areas. This information is critical for making efficient strategic and financial decisions within the company. For some sustainability areas (e.g., emissions, water, and energy consumption), performance is easier to trace, understand and assess, while other sustainability areas (e.g., biodiversity, human rights) still are too complex and therefore often lack a common definition and relevant measures. This makes the pro-

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cess of establishing an efficient system for sustainability governance quite challenging. This process involves a substantial learning loop within the company. In this chapter, we will focus our attention to why sustainability governance has become an intensified corporate practice, what it means to set up a sustainability governance system and what challenges companies face in this process. In the next section, we review the fragmented journey towards integrating sustainability into businesses.

10.2 A fragmented journey towards integrating sustainability into businesses Ever since the Brundtland Report was published in 1987 (UNCWED, 1987), companies have been urged to start integrating sustainability considerations into their operations and decision-making. The road until now has been fragmented. The urge has been stepmotherly treated and not broadly adhered to by the corporate world. The lack of integrating sustainability into day-to-day operations has resulted in a massive critique against management teams failing to transform their companies to more sustainable and, thereby, promote a global sustainable development (Arvidsson, 2019). Some recent studies do, however, indicate that integration of sustainability is attracting more focus not only from external stakeholders but also from within the companies. Management teams appear to have started to acknowledge the need to integrate sustainability into their businesses. Arvidsson and Sabelfeld (2023) find that CEOs lately have adopted an integration frame when they engage in talk of sustainability in the CEO letter. The authors argue that we are witnessing a gradual shift in the corporate, or even management, discourse towards more focus on integrating sustainability into the corporate context. The management teams themselves do, however, not seem to view this process of integration as merely gradual. In the Swedish Corporate Sustainability Ranking (Arvidsson, 2021), 97 per cent of the Swedish MNEs state that sustainability is fully integrated in their routines and processes. This finding raises some vital concerns. The message in the IPCC and IPBES reports (IPCC, 2021; IPBES, 2019) is quite daunting and the science-based evidence these reports rest on clearly shows that we are far from doing enough. If sustainability would be fully integrated in close to all the largest listed MNEs worldwide then we would have come closer to reaching Agenda 2030, solving social inequalities and mitigating climate change. So, why do 97 percent of the Swedish MNEs consider the integration of sustainability into routines and processes to be close to finalized? The problem appears to be that we need to zoom out and calibrate our expectations of what a transformation is. What does it mean to fully integrate sustainability in organizational routines and processes? What is our end goal and where are we in relation to this end goal?

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Unfortunately, I would say that we are closer to the starting pit than the end goal. Andersson and Arvidsson (2022) find that management teams often talk about having undertaken transformational changes whereas they provide examples of adjustments or modest changes. Thus, the authors argue that the corporate world needs to realize that a transformation towards more sustainable businesses calls for substantial changes not incremental adjustments. A transformation is not easy. It is a learning process that involves stumbling and falling before finally succeeding. Succeeding with transforming our companies into more sustainable businesses calls for integrating sustainability into routines and processes in a systematic and structured way. This is what an efficient sustainability governance system can contribute to.

10.3 Setting up a sustainability governance system Throughout the following sections, we illustrate trends in the development of sustainability governance systems by including survey results from the Swedish Corporate Sustainability Ranking40 (see e.g., Arvidsson, 2021). The annual survey is directed to management teams in the largest listed Swedish companies (approximately 140 companies) on NasdaqOMX Stock Exchange in Stockholm, and belonging to the GICSindustries; Materials, Industrial Goods, Consumer Goods, and Financials. While companies have set up corporate governance systems for several decades, they are less experienced when it comes to setting up a system for sustainability governance. Although companies were urged to put sustainability high up on their agendas already in the Brundtland report 1987, it is not until the last decade sustainability has climbed high up on the corporate agendas. Daunting evidence of escalating climate change and aggravated social inequalities paired with increased awareness and interest from various stakeholders for sustainability aspects have compelled companies to scale up their sustainability work. A development most likely underpinned by legitimacy reasons and fear of losing the vital license to operate. Setting up a sustainability governance system initiates a considerable learning process. Some things can of course be learned from how governance systems have been developed and refined over decades. However, when it comes sustainability, the management teams are entering less known territory. We still lack a clear definition of what sustainability is and what different aspects and dimensions it includes. This makes it difficult to set targets and develop relevant KPIs to help assess progress. There are also complex goal conflicts to be identified, understood, and managed. All these things need to be taken into considerations when the sustainability governance

 The author, Susanne Arvidsson, is head of the Swedish Corporate Sustainability Ranking, which is a collaboration project with the business paper Dagens Industri and the sustainability magazine Aktuell Hållbarhet (see Arvidsson, 2021).

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system is developed. Despite the challenges, more and more companies are acknowledging the need for developing an efficient sustainability governance system. In 2018, 66 per cent of the Swedish MNEs responded that they had developed a sustainability governance system (Arvidsson, 2018). 17 per cent answered that they were in the process of developing this system. Three years later, 95 per cent responded that they have developed a sustainability governance system. The quotes below do, however, illustrate that many companies still consider themselves to be in the early phase of developing this system. We have systems for sustainability governance in some areas but none that covers all aspects (Consumer Goods, 2021) Governance for several areas has been developed systematically. Anti-corruption, environment, occupational health, and safety are examples of areas where systematic governance is mature. However, we have not yet sufficiently developed governance that encompasses all material sustainability topics. Resources has been identified to further develop governance for the whole sustainability agenda. (Capital Goods, 2021)

Although the survey results show that the companies are in the process of, or in the early phase of, setting up a system for sustainability governance, it takes time to develop an efficient and well-functioning system. However, it is critical that this process is swift if we are to solve the huge sustainability challenges ahead and reach Agenda 2030. In the next section, we will highlight the intensified regulative environment with the myriad of sustainability related public policies and private initiatives that further put pressure on companies to get their sustainability governance systems up and running.

10.4 An intensified regulative environment – accentuating the need for an efficient system for sustainability governance It is important to acknowledge that the game plan companies must navigate is changing and is changing quickly. The sense of urgency is manifested not the least through the myriad of public polices and private initiatives all aimed at promoting the corporate transformation towards more sustainable businesses. Already in 2015, the 17 Sustainable Development Goals was set by the United Nations in 2015 and the Paris Climate Agreement was signed. The European Green Deal, launched in 2019, has a prime focus on environmental sustainability with its goal of climate neutrality by 2050 (European Commission, 2022a; b). A key component of the Green Deal is the Sustainable Finance Platform (EU Platform on Sustainable Finance, 2021) with its idea that more high-quality information about sustainability impacts, risks, and opportunities can facilitate real change within a company. The Sustainable

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Finance Platform reinforces the policy shift transition finance (see e.g., Caldecott, 2022), which accentuates the need to accelerate and redirect financial flows towards sustainable projects and investments. One policy aim is to turn the financial market into a key player in enabling and driving the sustainability transformation of companies (Andersson & Arvidsson, forthcoming). To succeed with this, the actors on the financial markets need value relevant, credible and comparable information on how companies perform in the different sustainability arenas. Unfortunately, the information on corporate sustainability performance is still fare from meeting these criteria (Arvidsson, 2021). The financial market actors are more or less blindfolded when it comes to assess and compare the sustainability performance of different companies. This reduces the chances of succeeding with the policy aim of transition finance. However, an efficient sustainability governance system can assist companies in setting up routines and processes fit to collect, structure and report on their performance within different sustainability areas ranging from climate mitigation, biodiversity, human rights, anticorruption, and diversity. Developing these routines and processes is vital to be able to satisfy the information needs of external stakeholders – not the least investors, financial analysts, and lenders. However, establishing an efficient sustainability governance system with clear routines for goal setting, division of responsibilities, resource allocation, follow-up and control is critical also for internal management of the company’s sustainability work and its allocation of scarce corporate resources. To support the companies in this process, the EU has revised the Non-Financial Reporting Directive (NFRD) and will soon launch the Corporate Sustainability Reporting Directive (CSRD). Furthermore, the EU Taxonomy on Sustainable Activities will guide companies on how to transform their activities into more sustainable. Along these mandatory regulations, there are a number of private voluntary initiatives that offer additional guidance on how to succeed with the transformation towards more sustainable businesses. These include the Task force on Climate-related Financial Disclosures (TCFD), the Taskforce on Nature-related Financial Disclosures (TNFD), the Global Reporting Initiative’s (GRI) sustainability reporting guidelines and the OECD Guidelines for Multinational Enterprises (on responsible business conduct). Adjusting to the intensified regulative environment calls for getting an efficient sustainability governance system in place. A systematic and structured work process when it comes to sustainability is a prerequisite for being able to comply with the newly launched and upcoming regulations. In the next section, we provide the reader with a better understanding of what a sustainability governance system is and highlight different parts included in an efficient system.

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10.5 The different parts of a sustainability governance system A sustainability governance system is not a fixed system. Instead, companies are setting up their own tailormade versions of systems. These include, for example, a formulated sustainability strategy or agenda, division of responsibilities, Code of Conduct, policies, control mechanisms, routines, and processes for systematic work through, e.g., certified management systems, follow-up of performance and non-conformances, and transparent reporting. In the following sections, we will highlight four parts of an efficient system. 1) The sustainability agenda: Policies and strategies 2) Goal and target setting 3) Division of responsibilities and mandate/resource allocation 4) Follow-up and control Before we start reviewing these four parts, let us consider that in 2018 58 per cent of the survey respondents, i.e., management teams of large listed Swedish companies, responded that they had fully integrated sustainability into their routines and processes. In 2021 (Arvidsson, 2021), the proportion had increased to 97 per cent. This proportion is stunning not the least since it could be interpreted as if the transformation of our companies is close to finalized. The verdict in the IPCC and IPBES reports is, however, quite the opposite. We might have come fare if we are taking a threekilometers-run but not if we are enrolled for a marathon. The results accentuate the need to calibrate our expectations on what a transformation is and is not. Let us agree on that a transformation is not a modest adjustment. It is a powerful transformation. So, are the companies’ sustainability governance systems fit for supporting this transformation?

10.5.1 The sustainability agenda: Policies and strategies The regulative environment sets the frame for a company’s process of developing polices and strategies related to different areas, including sustainability. As shown above, companies are facing an increased number of regulations related to sustainability. To understand how societal norms evolve in tandem with the new regulative landscape and the socio-political debate, companies need to engage in stakeholder dialogue to understand what is important to various stakeholders and what they require to perceive the company as a sustainable business. When developing their policies and strategies, they often conduct a materiality analysis to unravel how the company should perform in the different sustainability areas to be considered legitimate and receive the vital license to operate (Demuijnck

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& Fasterling, 2016; Deegan, 2014; 2002). This is illustrated in the quote below from the ranking of 2018. Our materiality process aims to identify and understand the topics that are important to stakeholders, as well as to the Group’s business strategy. It is an important way of evaluating the ability to create and sustain value. Electrolux draws on insights from global trends and drivers, market intelligence, product research, internal and external dialogue, expert opinion and consumer surveys, and other sources of information to develop an up-to-date understanding of the prevailing business context. (Consumer Goods, 2018)

Already from the start of the ranking in 2018, we learned that the Swedish companies are working with developing strategies and policies for their sustainability work. In 2018, 91 per cent responded in the survey that they had an overall strategy for its sustainability work. One year later, the proportion was 95 per cent. Although the proportion is very high and increasing, the policies and strategies are, however, quite vague in the way they are formulated. Below we will focus on three areas of sustainability: the SDGs, human rights and environmental and climate. Three years after the launch of UN’s SDGs, only 66 per cent had formulated a strategy (or similar) for working with the SDGs. Only 53 per cent of the companies link their work with the SDGs to their overall sustainability work. From the quotes below it appears as if the companies are struggling with defining their strategy in relation to the SDGs. We have aligned our Sustainability Strategy, which focusses on minimizing negative impacts and enhancing positive impacts across our value chain, with the SDGs. The SDGs provided a good match with much of our existing focusses, goals and strategies; while helping to align them with other relevant actors, such as policy-makers on national and international level, other companies, NGOs etc. (Consumer Goods, 2018) [The company] is supporting the SDGs in all its activities (Material, 2018)

Let us consider an area specifically related to the social dimension of sustainability, namely human rights. In the ranking of 2018, 89 per cent responded that they have a formulated strategy (or similar) for its work on safeguarding human rights. In 2021, the proportion of companies with this type of strategy increased to 92 per cent. In the quotes below, we see examples of how these strategies and policies are formulated. [The company] discourage all forms of harassment and discrimination on the basis of gender, ethnicity, age, disability, religion, sexual orientation or any other factor. (Materials, 2018) We will seek to earn the trust of everyone impacted by our operations, demonstrating our commitment to ethics and human rights through our words and actions. We will address adverse human rights impacts if they occur. We carry out human rights due diligence as appropriate to the size, the nature and context of operations, and the severity of the risks of adverse human rights impacts. We will provide or co-operate with, through legitimate processes, the remediation of adverse human rights impacts, if we have caused or contributed to these impacts. (Capital Goods, 2021)

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The company supports and respects the protection of human rights and guarantees, through internal processes and steering documents, that it is not involved in crimes against human rights. Suppliers, distributors, consultants, and other business partners must apply the principles of our Code of Conduct. (Financials, 2021)

Sweden has for decades been a country with high ambitions when it comes to environmental performance. This has resulted in a strong environmental regulation.41 In 2018, 85 % of the companies included in the survey answered that they have formulated a strategy for its environmental and climate work. Three years later, 99 per cent responded that they had this strategy in place. Reducing GHG emissions, resource efficiency, and circular economy. (Consumer Goods, 2021) More efficient use of resources: reduced energy consumption and more green electricity (also from own sources), more efficient recycling and reduction of scrapping in our production, and lower amounts of waste. Reduced climate impact: reduction of CO2e emissions from energy consumption, transportation, and travel. Minimizing VOC emissions. (Capital Goods, 2021)

Formulated policies and strategies are important parts of a system for sustainability governance. Next step is to translate the strategy into an action plan with goals and targets related to different sustainability areas. This is at focus in the section below.

10.5.2 Goal and target setting If we are to reach Agenda 2030 and promote a global sustainable development, a movement from words to action is critical. A company cannot solely rely on policies and strategies. While the policies and strategies point in what direction(s) the company should develop its sustainability work, goals and targets offer guidance on where efforts/resources should be directed and what should be accomplished in short and long term. Goals and targets also enable the company to follow-up on how it performs in the different sustainability areas. This information is not the least vital for future resource allocation. Thus, in a sustainability governance system, the policies and strategies should be translated into an action plan including goals, targets and KPIs for short and long term. The ranking data reveals that the companies are in a learning phase when it comes to setting goals and targets related to different sustainability areas. We find a gradual increase in the proportion of companies that set goals and targets. However, it differs quite a lot between different sustainability areas. The quote below comes from a company, which appears to have a clear structure of how goal and target setting is organized in the company.

 The Swedish Environmental Code, retrieved November 11, 2022, from https://www.riksdagen.se/sv/ dokument-lagar/dokument/svensk-forfattningssamling/miljobalk-1998808_sfs-1998-808.

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We set priorities at Group level and each division responds in the form of targets and initiatives for contributing to achieving the targets. Networks of experts representing Group function support each division in realizing their initiatives. (Consumer Goods, 2021)

We will focus on goal and target setting in three areas of sustainability: environmental and climate work, anticorruption, and human rights. Once again, we turn to the ranking results. We start with environmental and climate work. Let us remind ourselves that this is the sustainability area, which from the start of the ranking in 2018, appears to be the most developed sustainability area in the Swedish sample. In the ranking of 2018, we asked the management team if the company has targets related to its strategy for its environmental and climate work. 81 per cent responded that have targets in place. This large proportion increased steadily in the years to follow. In 2021, the proportion has increased to 97 per cent. Anticorruption has been high up on the corporate agendas for long. However, goal and target setting related to anticorruption does not appear to have received equally as much corporate attention as target setting in the environmental and climate area has. 66 per cent of the respondents in the ranking survey of 2018 answered that they have targets related to their strategy for anti-corruption. Three years later the proportion had increased to 75 per cent. The quotes below are illustrative examples showing that there is a dominance towards zero tolerance targets in the companies. Zero tolerance in all areas. (Capital Goods, 2018) Zero tolerance for bribery, unfair business ethics, and other forms of corruption. (Consumer Goods, 2018) No specific targets but the goal is to have 0 cases. (Consumer Goods, 2021) Zero incidents of bribery or corruption. (Capital Goods, 2021)

From the ranking results, we also see that many companies highlight training as an important target related to this sustainability area. While this was most pronounced in the ranking data of 2018, training has continued to be a target often mentioned in relation to anticorruption in the subsequent surveys. We are measuring how many employees that have completed the e-learning in business ethics (91 % by year end). (Materials, 2018) To raise internal awareness of the integrity risks [the company’s] employees face, we continued to offer the “Integrity Starts with You” training course. We also continued to run a data protection course and our global anti-bribery essentials course, “Don’t Look the Other Way.” There were around 6,000 course completions for each of these courses in 2020, mainly by new joiners, bringing the cumulative completions on these courses since their global roll out to 99, 97 and 98 percent, respectively. (Capital Goods, 2021)

What does goal and target setting look like in the sustainability area, human rights. Again, we posed the question: Does the company have targets related to your strategy for human rights? In 2018, 57 per cent of the survey respondents answered yes. The proportion increased to 71 per cent in 2021. From the quotes below, we see also here a

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dominance towards the zero target and that training is highlighted as a pathway towards meeting the strategy. Indirectly yes. Zero tolerance against discrimination and also zero tolerance against violation against human rights. (Capital Goods, 2021) 100% of staff trained in ethics, core values and engaging with local communities. (Materials, 2021) We aim for zero human rights abuses as a result of our operations. (Capital Goods, 2021)

When strategies are formulated and goals and targets set, next step in developing an efficient system for sustainability governance is to divide responsibilities and allocate mandate and resources.

10.5.3 Division of responsibilities and mandate/resource allocation To have a clear division of responsibilities is critical in many situations. Take, for example, a soccer team. If responsibilities are not assigned and communicated, it is difficult for players to know their position in the team and when they should go for the football. To evaluate the individual players’ performances is also cumbersome if you do not know if a specific player was expected to be defender or attacker. Integrating sustainability in routines and processes throughout an organization is indeed a challenge. Setting up a sustainability governance system calls for a clear division of responsibilities. The lack of a clear division of responsibilities can result in a slow and fragmented transformation of our companies into more sustainable. In the ranking of 2021, we find that 99 per cent of the Swedish MNE’s have identified and appointed a key person(s) to carry out the corporate sustainability agenda. If we review the results closer, we see variations that are relevant to highlight. Most of the companies have appointed a Head of Sustainability, Chief of Sustainability Officer, Sustainability Manager or similar. In some companies, this person is highlighted as responsible for carrying out the sustainability agenda. The following quotes illustrate that some heavy responsibilities rest on the shoulders of a Head of Sustainability Our sustainability work is managed by a Sustainability Manager who is in charge of the overall strategies, goals, and agenda. (Materials 2021) In November of 2021 was created the position of Global Sustainability Manager to carry out the corporate sustainability agenda. (Financials, 2021)

In other companies, the work with the sustainability agenda is shared between several corporate employees and involves teams at different corporate levels, ranging from top management team to lower levels. This work is often coordinated by the Head of Sustainability.

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NN is the Group Director and Head of Sustainability. We have several global councils with sustainability managers and representatives from all divisions. These structures are replicated down into the organisation and serves as an important network to drive the sustainability agenda as an organic part of how we operate each and every day. (Consumer Goods, 2021) From beginning of 2022, this work is coordinated by a Chief Sustainability Officer who head up the Group’s strategic sustainability work as well as supporting and coordinating the efforts made by the three Group companies. (Materials, 2021)

Appointing key person(s) responsible for the sustainability work is a good first step. However, it is vital to make sure that the responsibility comes with both mandate and resources – otherwise the work will not progress. In the ranking of 2021, we asked if this (these) key person(s) has(have) been allocated resources and mandate for the implementation of the sustainability agenda. 98 per cent responded ‘yes’ to this question. The companies were asked to elaborate on how mandate and resources were allocated. However, the answers were not that illuminating or specific (see quotes below), which reveals that many sustainability governance systems still are in the early development phase. The organization is being implemented and given resources “as we speak”. (Consumer Goods, 2021) Resource needs within the investment business are evaluated on an ongoing basis with regard to all areas of analysis (incl. sustainability). Given that sustainability is a priority area, this area is given special attention. (Financials, 2021) Balco Group has appointed a person responsible for the sustainability work within the Group. This person, with the help from an operative team with the quality director and the quality manager, are empowered to take decisions within this area on all levels within the organization. (Capital Goods, 2021)

All corporate operations need to undergo follow-up and control. This is vital for finetuning and in the next section we will relate this to sustainability governance.

10.5.4 Follow-up and control What gets measured gets done. For this to hold true, it is important to set up routines and processes for regular follow-up and control. Follow-up and control are no uncommon practices in the corporate world. Quite the opposite. Companies are used to monitor, evaluate and finetune their different operations. Even though sustainability might be viewed as a corporate area under development, much valuable lessons can be learned from how follow-up and control are carried out in other corporate areas. Building on this experience when the sustainability governance system is developed is most advantageous. The ranking data reveals that companies do acknowledge this experience as valuable. The quotes below illustrate how they are influenced by the set-up of their corporate governance system.

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[The company] has a defined governance model for Sustainability. Sustainability goals, actions and KPIs are all followed up in the same way and together with other strategic plans and business results by top management and also reported to the Board. (Capital Goods, 2021) The Sustainability Forum evaluates progress and reports to Group Management on a quarterly basis and externally on an annual basis. (Financials, 2021)

In the ranking of 2018, we posed the following question related to follow-up: How do you follow up your performance related to your environmental and climate work? The quotes below illustrate that routines for follow-up appear to be under development. Internal evaluation and follow up – would not be able to call it an internal audit as it is not that formal. (Consumer Goods, 2018) We partly follow up performance by internal and external audits. (Consumer Goods, 2018) Self-assessment and reporting. (Capital Goods, 2018)

Three years later in 2021, the survey respondents provide much more detailed reports for how they follow-up their environmental and climate work, especially the last quote. We have a data base where our sites at global basis report their use of water, energy, chemicals, and waste recycling at different intervals (energy quarterly and the rest annually). These are followed up both locally and at group management level periodically. (Capital Goods, 2021) We have internal reviews on local level as well as Group level. Reporting on progress is done regularly via an external service provider. All the reported information is available to all entities in the group participating in the reporting to enable benchmarking and sharing of best practices. (Capital Goods, 2021) [The company] measures, reports and follow up on the sustainability work on an ongoing basis. Each focus area responsible follow up on continuous work and objectives within their area and continuously report data to the Group Management and Position Green, the group’s datadriven platform for collection, management, visualization and reporting of sustainability data. It entails systematic management of the operations’ sustainability data that ensures high data quality, traceability and follow-up over time. Sustainability Director is responsible for coordinating, supporting and following up on the reporting of sustainability work in accordance with national legislation and international, voluntary standards. We report on all environmental and climate data every six months and are currently implementing climate calculation according to the GHG protocol and the emission disclosure for 2020 will be completed by the end of June this year. (Financials, 2021)

We posed the same question in relation to the companies’ work with human rights (e.g., How do you follow up your performance related to your work on safeguarding human rights?). From the quotes below, we see that the companies provide rather vague reports on their routines for follow-up both in 2018 and 2021. This is a difference compared to environmental and climate work, which the companies had more detailed follow-up routines for in 2021 compared to in 2018. Reasons to why the follow-up routines have not been more developed around human rights could be that it is perceived difficult to set targets related to human rights. In the above section, we could see that only 57 per cent (2018) and 71 per cent (2021) of the companies had set targets for human rights. For the sustainability area; environmental and climate, the proportions where 81 per cent and 97 per cent (2021).

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We are working on developing an efficient process with our suppliers to ensure they live up to our expectations regarding human rights as stated in our code of conduct. (Consumer Goods, 2018) Within our sustainability organisation we evaluate and follow up on how we perform. We also report on some issues to external organisations and annually report on progress in our annual report. (Financials, 2018) We have no procedures for follow up. (Consumer Goods, 2021)

After having reviewed four critical parts in a sustainability governance system, formulating policies and strategies, setting goals and targets, dividing responsibilities and mandate/resource allocation, and follow-up and control, it is time to end this chapter with some concluding remarks.

10.6 Concluding remarks This chapter has focused on a specific kind of governance namely sustainability governance. By relating to daunting evidence of climate change and social inequalities, we have highlighted the need to act. This calls for setting up an efficient system for sustainability governance. We discussed how the intensified regulative environment puts additional external pressure on our companies to develop efficient routines and processes for their sustainability work. The myriad of public policies and private initiatives, including the SDGs, the Paris Agreement, CSRD (the revised NFRD), the EU Taxonomy, TCFD and TNFD, provide guidance to our companies on what to include in their sustainability governance systems. We have discussed the need to formulate policies and strategies, set goals and targets, divide responsibilities, and allocate mandate/resources and finally structure routines for follow-up and control. All these four practices are important parts of a well-functioning system sustainability governance. However, there is one thing that we have not yet discussed: the revision-loop. It is vital to use information, evaluations, and other feedback related to the company’s sustainability work to re-formulate corporate policies and strategies, to refine goals and targets, to change the division of responsibilities and to finetune routines for follow-up and control. This revision-loop must be carried out continuously. Companies are undergoing a learning phase when it comes to developing this new governance system focused on sustainability. The ranking data reveals that most companies are in the middle of this process and that the systems still are evolving. Therefore, it is important that the management teams revise their systems continuously to make sure that they are refined and, in the end, support them in the transformation of their companies into more sustainable businesses. Throughout the chapter, we have drawn on longitudinal survey data from large listed Swedish companies included in the Swedish Corporate Sustainability Ranking, “Hållbara bolag”. The data reveals that it remains some work before we can confirm that companies have set up well-functioning systems for sustainability governance.

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Some specific areas of improvements were identified, for example, lack of detailed routines for follow-up and control (especially related to social dimensions of sustainability) and generally too unspecified goals and targets, as well as unclear division of responsibilities. These areas call for both research and management attention.

References Andersson, F.N.G., and Arvidsson, S. (forthcoming), The EU’s Sustainable Finance Platform: A new game plan in the quest for competitive advantage, In Ghauri, P.N. and Elg, U. (eds). Creating a Sustainable Competitive Position: Ethical Challenges for International Firms. Emerald. Andersson, F.N.G. and Arvidsson, S. (forthcoming),Understanding, Mapping and Reporting of Climaterelated risks among listed firms in Sweden, Climate Policy. Arvidsson, S. (Ed.) (2019). Challenges in Managing Sustainable Business – Reporting, Taxation, Ethics and Governance, Palgrave Macmillan. Arvidsson, S. (2021). 133 börsbolags förmåga att ställa om: En granskning av svenska börsbolags förmåga att kommunicera och hantera risk, möjligheter och framtidsscenarier i omställningen till hållbar utveckling. (The potential of 133 listed companies to transform into more sustainable: An analysis of the ability to communicate and manage risk, opporunities and scenarios in the transformation towards sustainable development.), Stockholm: Bonnier Business Media. Arvidsson, S., & Sabelfeld, S. (2023). Adaptive framing of sustainability in CEO letters. Accounting, Auditing & Accountability Journal, 36 (9), pp. 161–199. https://doi.org/10.1108/AAAJ-11-2019-4274 Arvidsson, S., & Dumay, J. (2022). Corporate ESG reporting quantity, quality and performance: Where to now for environmental policy and practice?. Business Strategy and the Environment, 31(3), 1091–1110. Caldecott, B. (2022). Defining transition finance and embedding it in the post-Covid-19 recovery. Journal of Sustainable Finance & Investment 12(3), 934–938. Demuijnck, G., & Fasterling, B. (2016). The social license to operate, Journal of Business Ethics, 136(4), 675–685. Deegan, C. (2002), Introduction – the legitimising effect of social and environmental disclosures – a theoretical foundation, Accounting, Auditing & Accountability Journal, 15(3), 282–311. Deegan, C. (2014), An overview of legitimacy theory as applied within the social and environmental accounting literature, Sustainability Accounting and Accountability, 266–290. European Commission (2022a). Biodiversity Strategy for 2030. Accessed 30 September 2022. https://environment.ec.europa.eu/strategy/biodiversity-strategy-2030_en European Commission (2022b). EU Responses to Climate Change. Accessed 30 September 2022. https://www.europarl.europa.eu/news/en/headlines/society/20180703STO07129/eu-responses-toclimate-change European Commission (2021). Platform on Sustainable Finance. https://finance.ec.europa.eu/sustainablefinance/overview-sustainable-finance/platform-sustainable-finance_en IPBES (2019). Summary for policymakers of the global assessment report on biodiversity and ecosystem services of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services. IPCC (2021). Climate Change 2021: The Physical Science Basis. Contribution of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, 2391 pp. doi:10.1017/9781009157896.

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Khan, H. Z., Bose, S., Mollik, A. T., and Harun, H. (2020). “Green washing” or “authentic effort”? An empirical investigation of the quality of sustainability reporting by banks. Accounting, Auditing & Accountability Journal, 34(2),338–369. KPMG (2019). KPMG Survey of Corporate Responsibility Reporting 2017: The Road Ahead. Amsterdam: KPMG. Thijssens, T., Bollen, L. & Hassink, H. (2015). Secondary stakeholder influence on CSR disclosure: An application of stakeholder salience theory. Journal of Business Ethics, 132(4):873–891. UNWCED (1987) Report of the World Commission on Environment and Development: Our common Future. Available at https://sustainabledevelopment.un.org/content/documents/5987our-common-future.pdf

Svetlana Sabelfeld

11 Corporate governance in a time of crisis This chapter focuses on the recent global pandemic crisis (COVID-19 crisis) and its effect on corporate governance in Sweden. It builds on a specific case of a large Swedish industrial company. Drawing on this case of governance during the pandemic crisis, the chapter highlights some of the challenges, opportunities and lessons learned for the future development of corporate governance practices.

11.1 Introduction Corporate governance practices have continuously been developed and improved over time, especially when corporations are exposed to a crisis, overcoming its challenges, and learning lessons for the future (Kirkpatrick, 2009). Financial crises of the recent three decades, such as the high-tech bubble in the 1990s, and the 2007/2008 financial turmoil, were observed to be attributed to the systematic weaknesses of existing corporate governance structures and practices, related to lack of audit independence, transparency, risk management, and ethics. For example, during the global financial crisis 2007/2008, corporate boards were unable to prevent the risky and unethical short-term decisions that “jeopardized their firms, devastated their investors, and helped precipitate a financial meltdown that morphed into global recession” (Conyon, Judge & Useem, 2011, p. 399). One of the lessons of this crisis was to globally enhance values and principles guiding the governance practices in corporations. In a longitudinal study of corporate governance in Swedish large companies, Jönsson (2021) highlighted two features of leadership in Sweden – communication and consensus. As Swedish companies are characterized by decentralized (as opposed to strictly hierarchical) structures, corporate managers dedicate a lot of time and energy to communication activities aimed at building a consensus within and between different levels of company (Jönsson, 2021). In times of uncertainty and increased tempo and complexity in organizations, there is a larger room for corporate governance to simplify things and make shortcuts in their decision making, which may result a domination of some interests over the others. At the times of crisis, taken for granted (institutionalized) ideas, guiding society and organizations, become crucial in defining the way to manage the crisis. As Friedman (1962/1982, p.7) articulated it, “when the crisis occurs, the action taken depends on the ideas that are lying around.”

Acknowlegments: I would like to express my deep gratitude to Maria Elm Olsson for her invaluable input to the empirical evidence collection for this chapter. Her expertise and engagement connected me to the relevant people with which I could discuss the topic of corporate governance in times of crises. https://doi.org/10.1515/9783110725346-011

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The pandemic spread of COVID-19 (Coronavirus) became the main global concern and the topic of global news landscape after being identified in December 2019 in Wuhan, China. With this global outbreak, the world faced urgent concerns with safety and health, which had a significant impact on societies around the world (Leoni et al., 2021; Sjölander-Lindqvist et al., 2020A). In many countries, including Sweden, governments implemented various limitations to prevent the virus spread, which also had enormous social, psychological, and economic consequences (Giallonardo et al., 2020; Ahrens et al., 2021). Public speeches and communications by governments and related public authorities were used as governance technologies (Sjölander-Lindqvist et al., 2020a) to create awareness for actions and manage a situation of emergency (Argenti, 2002), but also to legitimize government intervention and stabilize the system for decision making at various societal levels (Shipunova et al., 2014). They also help to convey rationalities guiding individual and collective actions (Sjölander-Lindqvist et al., 2020B). Moreover, communications of national governmental approaches to COVID-19 crisis management had a significant influence on managerial rationales of local businesses and corporations during the years of pandemic crisis (Passetti et al., 2021).

11.2 The Swedish context and rationales accompanying the crisis In Sweden, the government framed the COVID-19 crisis by articulating people’s lives, health, and jobs being at stake. In his early speech, the Prime Minister of Sweden, Stefan Löfvén emphasized the duty of each citizen to show responsibility and take actions with awareness about risks of virus spread (Sjölander-Lindqvist et al., 2020a). The Swedish government took a long-term perspective on the pandemic crisis and suggested that everyone in Sweden needed to learn how to live with COVID-19, articulating that each citizen who follows governmental recommendations during the pandemic is a solution to the problem. This approach assumes that everyone is responsible for his/her decision and action as well as for the citizens in society, thus building on trust relations between the government and the citizens, instead of imposing strict regulations and controls (SjölanderLindqvist et al., 2020a). Such a soft approach was also adopted by the governance of Swedish corporations. In what follows, I discuss the case of how the pandemic crisis was managed in a large industrial Swedish corporation.

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11.3 Governing the COVID-19 crisis in a Swedish corporation This section outlines an empirical case of how the crisis was managed by the corporate governance of the Case company during the pandemic. The below presented story is an outcome of a qualitative case study, based on interviews and regular dialogue with governance team members from a Swedish multi-national industrial corporation. The case study was conducted within the Executive Faculty program at School of Business, Economics and Law, a platform for collaboration and experience exchange between researchers and corporate governance members of Swedish companies.

11.3.1 From a long term to a short term perspective The beginning of the pandemic (March-April 2020) involved an atmosphere of total uncertainty, nobody knew how things would develop in the society and business. Decisions needed to be made quickly and the speed of decision-making process increased dramatically and the short-term perspective of “here and now” perspective got a priority over the long-term perspective for decision-making. This shift of the time perspective brought different people from corporate governance together, which made a dialogue and collaboration between them more informal and effective. For example, before the pandemic, the executive managers’ team met once a month, but from the start of the pandemic crisis they established routines to have informal but intensive meetings once a week. As the tempo screwed up, there was no time for business-as-usual evaluations of annual plans and budgets, nobody was interested in questions whether the company was performed according to goals articulated in the annual plan or not. Rather, the focus was on a few selective goals and results, aiming at the company’s survival on the market. In these conditions, periodic cycle-related activities, like plans and budgets, earlier developed in the discussions with the Board of directors, suddenly dropped out of the agenda, because nothing could be forecasted or planned during the time of crisis and uncertainty anymore. Instead, the question in focus was “What is most important to do now?” As a result, the following points are examples of short-term oriented decisions, made by the company during the pandemic: (1) Major investments were paused or stopped (such as investments in factories, automatization); (2) Ongoing consulting services and IT projects were significantly reduced; (3) Recruitments stopped. Consequently, the company had to give up their normal cycle and flow of activities, such as planning and budgeting activities. These activities were not perceived by cor-

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porate governance members as relevant in the time of crisis. The short-term financial issues got a top priority, while the long-term issues moved down on the priority list. Such a re-design of priorities can potentially have problematic long-term financial outcomes. For example, stopping investments into factories and robotization may lead to lower efficiency and lower financial returns in a longer run. The same applies to the stop of product development projects and new competence recruitments. Being aware of these potential problematic consequences, the corporate governance still prioritized the short-term survival strategy. On the other hand, an interesting observation was that during the crisis the company was looking back and analyzing its own survival during the crises the company experienced back in time. One of the corporate governance members acknowledged that, when looking back on earlier crises, the critical situation usually calms down quickly and, even if the short-term effect is often dramatic, the recovery after the crisis can be quick and, moreover, the recovery process can open new future opportunities.

11.3.2 Delegation of power and responsibility In line with the Swedish Corporate governance code, the governance structure of the case company consisted of the three levels of subordination, starting with the most powerful Shareholders through the shareholder meeting, and followed by Board of Directors and finally, Group management led by the president and the CEO (Figure 11.1). Nomination Committee

Shareholders through sharholders’ meeting

External Audit

Remuneration Committee

Board of Directors

Audit Committee

President and CEO Group management

Internal Audit

Group staff units

Sales/Operations

Figure 11.1: Governance model of the Case company.

As decisions needed to be made quickly during the COVID-19 crisis, the power was moved from the shareholders and board of directors over to the Group management, which possessed crucial knowledge and insights into the operational levels and units.

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It is at the operational levels and units that the activities needed to be quickly adapted to the crisis. In this situation, the management team of the group management became the main actors making strategic decisions during the crisis. Structurally, nothing really changed inside the board. The board task pillars have always been and remained unchanged: Setting up the strategy, hire or change the CEO, and ensure compliance within the company. However, in the time of the COVIDcrisis, there was a clear consensus among corporate governance members prioritizing the company’s survival in a short-term perspective. There was a common understanding that some “normal” strategic plans just needed to be “frozen” for a while without any discussions because they were not perceived relevant at the time of crisis. There was a clear understanding on the board that the management team can govern the new adaptive strategy and delegate the crisis strategy to the team. Here, the logic of the board members can be reduced to: “We did not need to waste time to discuss because it was clear that we needed to prioritize short-term oriented decisions and management”. At this point, such a priority was not an active decision made by somebody, but it emerged from a consensus that the short-term survival should go first. At the level of operational management, the cooperation became very intensive both within and between the teams responsible for various operations. The operational meeting schedule changed from monthly meetings to weekly and daily meetings. However, the board work did not change the schedule, in which the meetings were booked a long time in advance. A management team member articulated it the following way: “. . . almost as if the board withdrew a little and gave management the scene for decisions and actions. Now, time should not be spent on unnecessary meetings and activities”.

11.3.3 Internal and external communications During the COVID-19, the atmosphere of crisis was prevailing both inside and outside the company. The fact that most of the companies were affected by this crisis, makes the situation different from other types of crises, where the public attention was rather on the specific industries, such as banks in financial crisis or oil and coal industries in the climate change crisis. Communication was the key activity during the first intensive phase of the pandemic crisis. As one of the corporate governance members articulated it “. . . decision to stop spending money is not like turning off the tap but is rather about sensitive communications to all people that from tomorrow were not allowed to spend money at all”. Such a communication was perceived as a hard work that required a lot of time and energy. Luckily for the Case company, the worst phase of the crisis was between March 2020 – July 2020 and therefore did not last for long. From August 2020 and onwards, “there was an atmosphere completely different from the first critical phase, even though not completely normal”.

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Communications with the media – “questions out of nowhere” From the external communication perspective, the stakeholder pressure on the company did not increase during the COVID-pandemic, because everyone knew that this was a global crisis for most societies and businesses around the world. However, the company’s CEO had been contacted by the local popular press, requesting the management’s general opinion about the pandemic, and trying to reveal the corporate leader’s opinion about COVID-19 and whether the CEO agrees with the way the pandemic is managed by the Swedish authorities. The CEO refused participating in such interviews, and the company received critique in media for this refusal. A corporate governance member commented “This pattern suddenly appeared out of nowhere. Usually no one had been interested in what the management thought about other diseases, how cancer is handled, for example, but now it suddenly became very important about what the company’s CEO thinks about COVID”. But when all companies were in the same situation, this critique did not become a big medial scandal affecting the image of the company.

Communications with shareholders The external communication with shareholders did not change in intensity or type of questions, compared to pre-pandemic time, except for the Annual General Meeting (AGM), which is an important formal function within listed companies. During the pandemic, the corporate governance members had a long discussion focusing on whether to arrange the general meeting physically or not. As the company had been maintaining a traditional approach and always preferred physical meetings with its major shareholders, the AGMs were normally arranged in a way that “everyone gets a cup of coffee and talks in the same room”. So, the decision – whether to invite everyone physically or arrange AGM digitally – was not easy to make. The result was that in March 2021, the company had an AGM in hybrid format with two alternatives: to join online or to come physically. The majority of participants joined online, and since that, an online meeting format became the new normal in the company, “a shift that would otherwise take us at least 10 years”, as one of the corporate governance members articulated it. However, at the AGM without physical contact, there was no dialogue. It was only formal answers to questions that large shareholders submitted before the meeting. “There was no moment of surprise, when someone from the audience raises his hand and asks a relevant question or starts a dialogue”. Thus, while the online format for the AGM became a new possibility, the challenging part was that the meeting was dominated by protocol-driven formalities, constraining participants’ engagement in the discussions. The same pattern was found in the online communication between the board of directors and the management team. When members of corporate governance do not

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meet in two years (during the COVID19-crisis) and only meet online, there is a loss of human contact, which means that members “loose a feeling of what each other actually wants to say, what each other actually things”. In such circumstances, there is a risk of misunderstanding of each other motives and arguments, which is weakening the network and the engagement in a dialogue between the members.

11.4 Employee representation on board and pandemic crisis management 11.4.1 The role of employee representation The company has three employee representatives on the corporate board guarding the interests of corporate employees. The role of the employee representatives gained relevance in the time of pandemic crisis. Representatives of the employees being involved in board work and having insight into the critical issues related to the staff during COVID-19, could urgently communicate these critical issues during the board meetings. It facilitated the rapid adaptive changes made during the crisis, such as savings, seriously affecting company’ s employees in Sweden (approximately 3% of corporate personnel employed has been terminated during the pandemic crisis). In the process of making such sensitive decisions about employee contract termination, a continuous dialogue between the group management and the Unions’ and employee’s representatives on the corporate board was crucial. In this dialogue both sides could better understand why some critical decisions concerning employment needed to be made and the best possible consensus in the critical situation could be reached. Therefore, the presence of a board mechanism enabling discussions of sensitive issue of employees from both the Group management and the employee representatives’ perspectives, seem to provide a dialogic environment, offering more secured and supportive conditions for the employees in the labor market during the crisis. To summarize, employee representatives’ knowledge of employee-related matters and their situation during the pandemic crisis facilitated the employee crisis management. Without employee representation in the boardroom, corporate management would need to have direct interactions with the Unions. As one of the board members explained it, “this direct interaction would be much more difficult because there would not have been the shared understanding of the problems caused by the crisis”. Interacting with employee representatives within the boardroom means that all negotiators have a shared understanding of why the personnel costs need to be reduced, because they can observe the difference between the normal time and the crisis time in the company. Such a shared experience and understanding facilitated an informal consensus in the process of crisis management. Finally, from a financial perspective, the most critical phase of the pandemic was lasting for a relatively short

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time (March 2020 – July 2020), and the company’s efforts to balance the economic situation reduced the sense of crisis sooner than this was expected inside the company.

11.4.2 Local adaptations The Case company is a global industrial company operating in more than 100 countries. The company is also characterized by a decentralized structure, which is a common structural feature of large Swedish global corporations. The corporate crisis management during the pandemic was clearly a local process guided by the local authorities’ rules and recommendations. On the board level, there was a common strategy and the way to measure and follow up the development, as well as the crisis-related common guidelines, articulated in a very open and gentle way, but each country subsidiary had to adapt them to the local conditions and pandemic policies in each country. “We warned the culture that we do not dictate for each country’s unit exactly how to hold the coffee cup” is how the CEO metaphorically explained the governance approach to the subsidiaries outside Sweden. Thus, adapting to the local cultural environment and pandemic policies and, at the same time, follow the main values and principles of the corporation was the strategic approach to crisis management in different local sites of the global company.

11.4.3 “Actually, it was two different crises at the same time . . . ” In a conversation with a corporate governance member of the company, the respondent acknowledged that they were at the same time facing an urgent environmental crisis, which was very different from the pandemic crisis. While the pandemic crisis was clearly accompanied by governmental decisions to partly shut down society for short periods of time, no such decisions were made in the context of the environmental crisis. However, the company’s management perceived the environmental crisis as a much more serious one, causing significant consequences for the company in a long run. As the respondent commented: . . .the environmental crisis affects us very much, and leads to fundamental future changes in the company, while the COVID crisis, except for some changes in working routines, I do not see any significant long-term consequences for the company.

Environmental crisis and pressure coming from the stakeholders are significantly changing the company’s business model, in which digitalization of products and services contributing to significant reduction of emissions, becomes the key in corporate value creation. Acknowledging environmental crisis during the pandemic crisis can be explained by a long history of the company’s engagement with sustainability in

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normal times by integrating environmental aspects in the company’s product portfolio (Beusch et al., 2022). Another aspect is to re-design logistic chains and to get the staff close to the customer to avoid long-distanced logistics and flights between China and Europe. In this context, the pandemic crisis is seen by the management as a catalyst for some internal change of routines, but the environmental crisis is a much bigger catalyst for company’s business model transformation. However, in the time of the pandemic, the COVID related issues were much more visible in the media and society compared to the environmental issues. In contrast to the pandemic, the environmental crisis was not seen as an emergency, despite a clear awareness in the Case company about its significant and long-term oriented impact on the company’s business model.

11.5 Conclusion By discussing corporate governance experiences during the pandemic crisis, the aim was to learn lessons from this crisis, and identify more general patterns and dynamics of changes in the governance and decision-making processes. In the final discussion, it is also worth reflecting over experienced positive and negative effects of the pandemic crisis.

11.5.1 Positive changes experienced during the pandemic crisis First, on a structural level, it is important to emphasize that the COVID-19 crisis resulted in more efficient collaboration between different levels of the governance – the board of directors, the Group management, the group staff units, and the operational sales units. An enabling factor behind this collaboration was an underlying logic of corporate survival and a shared understanding that the crisis required much faster decision-making processes. As a solution, more informal and frequent short meetings facilitated quicker decision-making processes and peeled off the unnecessary long formal discussions. This was an experience that the company decided to keep even after the crisis, because the frequent (and sometimes spontaneous) phone calls, short informal meetings, and interaction formats enabled more fruitful interactions between different corporate governance teams and avoided unnecessary long formal discussions. The company’s corporate governance members perceived that informal and frequent dialogue reduced risk for misunderstanding each other, because keeping each other informed on daily/weekly bases led to a more active and engaging contact with each other. This does not mean that the formal meetings at corporate board level disappeared. They remained unchanged, but it is at the above-described informal meet-

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ings, but it is the communications “between the meetings” that made the whole process of decision making more efficient. Another interesting lesson learned from the time of COVID-19 crisis is that group managers and the board had low expectations regarding corporate performance, and this resulted in less pressure on the management. Thus, throughout the crisis, there was reduced attention and pressure on the future-oriented goals and their achievements. Instead, the focus was entirely on the financial side of the business and the company’s survival. This situation was seen by the company’ s CFO as an opportunity to get rid of some “dust”, extra costs, which otherwise would have taken much longer time to optimize. Prioritizing the financial survival in the time of crisis enabled the company to recover financially, and more importantly, reduced the sense of crisis earlier than expected. The third point is addressing the issue of corporate environmental impact and its continued investments in future environmental business solutions. During the pandemic, the company reduced emissions due to several temporarily closed factories. Despite a seemingly improved environmental performance, the board continued treating the less visible (compared to the COVID-19 crisis) environmental crisis as a threat for the company’s long term survival. Being aware of the long-term effects of the environmental crisis, the corporate governance members viewed continued investments in environmental sustainability to be a vital condition for the company’s long term survival. As a result, despite uncertainty and the worsened financial position during the pandemic, the company continued its environmental investments, following the same pace as before the pandemic and viewed this as an opportunity for future competitive advantage on the global market and increased corporate value. Thus, regardless of the pandemic, the company has largely been investing in environmental products, services and processes investments in the recent three years and is planning to continue doing so. Here, the logic of “sustainability for business”, but also of “business for sustainability” were observed, considering both the market demand for environmental business solutions, but also a societal acceptance of the company and its global and local operations in the future (Bebbington, 2007).

11.5.2 Negative outcomes experienced during the pandemic crisis Among the negative effects during the COVID-19 crisis the most significant one was on the people. First, the stress level of board directors, group managers and other staff was very high during the critical phase of the pandemic. This has affected working capacity and, perhaps, in the long run, it might have negative effects on the company’s financial performance, given that intellectual capital-related problems can significantly impact corporate value (Chen et al., 2005). At the same time, the employee representation on the corporate board has contributed to a smoother and more sup-

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portive process of negotiating the sensitive employee-related matters associated with the need of cost reduction during the pandemic. Second, while the environmental investments continued unchanged during the pandemic crisis, the company’s social commitment became lower during and remained lower after the pandemic. The company had to save money, but also to reallocate time resources of the staff, which resulted in social investments to drop of the priority list. To conclude, the knowledge generated by this case study contributes to the previous literature discussing governance and communications in times of crisis (e.g., Sjölander-Lindqvist et al., 2020a). The study has also practical implications by revealing how the pandemic crisis opened opportunities to change internal communications and decision-making patterns, as well as the dynamics between long-term and shortterm perspectives in various strategic decisions. It is important to emphasize that a short-term crisis (like COVID-19) can significantly dominate over the long-term crisis (like global environmental crisis), and there can be a temptation (and a risk) for corporations to only focus prioritizing financial survival oriented to short-term goals. While the financial survival during the crisis is crucial, the case company’s experience shows that it is also vital to make assessments of what the conditions for the company’s long-term survival are, and to make sure that resources are allocated towards important long-term goals.

References Ahrens, T., & Ferry, L. (2021). Accounting and accountability practices in times of crisis: a Foucauldian perspective on the UK government’s response to COVID-19 for England. Accounting, Auditing & Accountability Journal. doi: 10.1108/AAAJ-06-2020–4449 Argenti, P. (2002). Crisis communication. Lessons from 9/11. Harvard Business Review, 80, 103–9. Bebbington, J. (2007). Accounting for sustainable development performance. Elsevier, London. Beusch, P., Frisk, J. E., Rosén, M., & Dilla, W. (2022). Management control for sustainability: Towards integrated systems. Management Accounting Research, 54, 100777. doi: 10.1016/j.mar.2021.100777 Chen, M. C., Cheng, S. J., & Hwang, Y. (2005). An empirical investigation of the relationship between intellectual capital and firms’ market value and financial performance. Journal of intellectual capital. 6 (2), 159–176. Giallonardo, V., Sampogna, G., Del Vecchio, V., Luciano, M., Albert, U.,Carmassi, C., et al. (2020). The impact of quarantine and physical distancing following COVID-19 on mental health: study protocol of a multicentric Italian population trial. Front. Psychiatry, 11(533). doi: 10.3389/fpsyt.2020.00533 Conyon, M., Judge, W. Q., & Useem, M. (2011). Corporate governance and the 2008–09 financial crisis. Corporate Governance: An International Review, 19(5), 399–404. Friedman, M. (1962/1982). Capitalism and Freedom. The University of Chicago Press, Chicago. Kirkpatrick, G. (2009). The corporate governance lessons from the financial crisis. OECD Journal: Financial market trends, 1, 61–87. Jönsson, S. (2021). När molnen hoppar sig. Svensk företagsledning förr och nu. BAS, Göteborg.

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Leoni, G., Lai, A., Stacchezzini, R., Steccolini, I., Brammer, S., Linnenluecke, M., & Demirag, I. (2021). Accounting, management and accountability in times of crisis: lessons from the COVID-19 pandemic. Accounting, Auditing & Accountability Journal, 34(2), 232–258. Sjölander-Lindqvist, A., Larsson, S., Fava, N., Gillberg, N., Marcianò, C., & Cinque, S. (2020A). Communicating about COVID-19 in four European countries: Similarities and differences in national discourses in Germany, Italy, Spain, and Sweden. Frontiers in Communication, 97. doi: 10.3389/fcomm.2020.594251 Sjölander-Lindqvist, A., Risvoll, C., Kaarhus, R., Lundberg, A. K., and Sandström, C. (2020B). Knowledge claims and struggles in decentralized large carnivore governance: insights from Norway and Sweden. Frontiers in Ecology and Evolution, 8(120). doi: 10.3389/fevo.2020.00120 Shipunova, O. D., Timermanis, I. E., & Evseeva, L. I. (2014). Political system legitimation in network society. Review of European Studies, 6, 69–73. Passetti, E. E., Battaglia, M., Bianchi, L., & Annesi, N. (2021). Coping with the COVID-19 pandemic: The technical, moral and facilitating role of management control. Accounting, Auditing & Accountability Journal.

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12 Corporate governance in the Nordic countries and Sweden – final reflections and outlook In the Nordic macro-level context, well-developed stock markets and corporate ownership structures, as well as significant institutional and public sector investments, successfully promoted economic growth and stability in the region. This context shaped the Nordic corporate governance tradition. Being anchored in a framework consisting of statutory regulation, self-regulation, norms, and practices, the Nordic model is characterized by strong powers of a shareholder majority to effectively control the company and take long-term responsibility for the business, with the board and management serving as agents of the shareholders. In a particular context of Sweden, its unique social and political development influenced the formation of the Swedish corporate governance model over time, characterized by a strong influence of labor unions and industrial family conglomerates (as detailed in Chapter 5 of this book). The Swedish social democratic ideology promotes a social contract, where high individual taxes are balanced with high government expenditures to secure social wellbeing. The culture of explicit negotiations between employees and employers, and the tradition of employee representation on corporate boards, helped to create a culture of consensus in decision-making, reducing the conflicts between the owners’ vs employees’ perspectives (Styhre & Bergström, 2019). Over time, the tradition of family conglomerates and modern influence of Anglo-American capital market ideology together shaped the distinctive pattern of concentrated ownership with a clear separation between ownership and control in Swedish companies. Distinctive characteristics of the Swedish corporate governance are discussed in Chapter 7. The knowledge conveyed in this book has several implications for researchers, policymakers, and managers, including the potential for other countries and regions to adopt and adapt similar approaches to corporate governance. It can inform discussions about the role of the state and institutional investors in promoting economic development, and the importance of transparency, dialogic accountability, and stakeholder engagement in the process of governing corporations. The Swedish corporate governance model has attracted international attention and has been discussed by researchers and practitioners in the field. However, we believe that in the context of dynamically changing global and local political, social, economic, and technological environments, there is a need for researchers and policymakers to further scrutinize potentials and challenges of the Swedish corporate governance model. Below, we articulate some of the potential avenues for future research and policy development. https://doi.org/10.1515/9783110725346-012

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12.1 Corporate governance regulations and practice The Swedish Corporate Governance Code was developed to improve corporate governance in Sweden and to help restore trust in the business community and financial markets after several corporate scandals. The Code is based on the Swedish Companies Act and follows the principle of “comply or explain”. It has been revised and updated several times in a dialogue with various stakeholders and has therefore changed over time, which also influenced corporate governance in practice. In recent decades, especially after the global financial crisis 2008, we witness a significant number of regulatory initiatives addressing governance, transparency, and accountability in corporations. For example, an International Integrated Reporting Council emerged in the aftermath of the financial crisis and launched the International Integrated Reporting Framework in 2013, in which governance aspect is one of the main pillars. In 2014 came the first transnational regulation of non-financial reporting, NonFinancial Reporting Directive in Europe (NFRD 2014/1995/EU), which made the social and environmental aspects part of the corporate board’s strategic agenda. This Directive was incorporated into the Swedish legislation in 2016. In recent years, the NFRD has been developing further into Corporate Sustainability Reporting Directive (CSRD) along with new European Sustainability Reporting Standards. The spread of non-financial reporting regulations placing the issue of corporate governance at the strategic focus is changing the way companies provide information about their economic, social, and environmental performance. Existing studies have looked at the impact of NFR regulations on corporations, with a focus on the quality of corporate social responsibility (CSR) disclosures (e.g., Stolowy & Paugam, 2018; Samani, Overland & Sabelfeld, 2023) and the economic effects of the rules (e.g., Baboukardos, 2017). However, less research has been done on how such regulations influence the practices of corporate governance, reporting and controls in corporations and on how effective the rules and codes are in promoting responsible corporate behaviours. Addressing these research gaps, we call for qualitative and quantitative research investigating relations between corporate governance regulations and practices. Particularly, exploring the ways regulations enhance or constrain environmentally and socially responsible behaviours in organization in Nordic countries would be a meaningful contribution to existing research. Below we outline specific suggestions for future research and practice.

Suggestions for future research 1.

Future research could examine the impact of corporate governance regulations, such as the Swedish Corporate Governance Code, EU Non-Financial Reporting Directive (NFRD), and, most recently, EU Corporate Sustainability Reporting Directive (CSRD). This could include studying how such regulations influence the

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practices of corporate governance, reporting, and controls in corporations, as well as assessing the effectiveness of these regulations in promoting responsible corporate behaviors in Nordic countries. Future studies can explore the impact of corporate governance regulations on the business community and financial markets. This could include studying how such regulations have helped to regain trust in the business community and financial markets after several corporate scandals.

Practical recommendations 1. 2.

3. 4. 5.

Developing strategies for adopting and implementing corporate governance regulations and codes in corporate activities and decision-making processes. Improving internal structures and processes for dialogic accountability and stakeholder engagement enabling trustworthy and comprehensive accounts on what impact corporations have on society and environment and how the company’s activities and businesses align with the Sustainable Development Goals. Regularly reviewing and updating their corporate governance policies and procedures to ensure that the company complies with the latest regulations. Providing training and education to employees on relevant regulations and standards related to corporate governance and reporting. Building relationships with key stakeholders through a continuous dialogue to better understand their concerns and expectations in terms of corporate governance.

12.2 Corporate governance and diversity of perspectives Diversity and different perspectives are vital for corporate boardrooms for several reasons. The presence of various perspectives on corporate boards can bring a wide range of experiences, backgrounds, and perspectives to the board, which can help make better strategic decisions. Having a mix of different ages, genders, ethnicities, and cultures can provide a broader range of views and ideas, and this mix of perspectives can lead to more innovative solutions, and increased creativity. Additionally, diverse boards may also be better able to understand and connect with diverse contexts and markets, and this can be beneficial for corporate performance. Diverse boards can also bring a wider range of skills and expertise. For example, boards that include individuals with different educational and professional backgrounds may have access to a broader range of knowledge, skills and networks. This enables informed decisions and more effective risk management. As discussed in Chapter 8 of this book, Swedish socio-political institutions and legislations actively promoted gender diversity gener-

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ally in the society, and specifically on corporate boards since 2005, which benefitted Swedish corporations in many ways. Significantly, there are ethical and social arguments for diversity on boards. It is important for companies to represent society and embrace the perspectives of different stakeholders. Diverse boards can help to create a culture of inclusivity, encouraging ideas and perspectives from diverse employees, which can enable innovative and effective organization. For example, from the Swedish case, as detailed in Chapter 8 of this book, we can see that employee representation on boards can lead to incentives improving earnings quality (Overland and Samani, 2021) and the quality of employee-related disclosures in annual reports (Samani, Overland and Sabelfeld, 2023). In short, diversity and different perspectives on corporate boardrooms can provide a range of benefits, such as better decision-making, improved connections with customers and stakeholders, and a more inclusive culture. These benefits can ultimately lead to better outcomes for the company and its stakeholders. However, previous research has mainly focused on investigating effects of gender diversity on boards (e.g., Ianotta et al., 2016; Bertrand et al., 2019), while there is significantly less studies exploring other types of diversity (such as diversity in ages, ethnicities, cultures, experiences, and expertise). We suggest this area to be fruitful for future corporate governance research and practice and highlight several suggestions.

Suggestions for future research 1.

2.

3.

4.

Future studies could investigate the impact of diversity on corporate boardrooms, with a focus on different types of diversity such as age, ethnicity, culture, experiences, and expertise. This could include exploring the ways in which diversity leads to better decision-making, improved connections with important stakeholders, and a more inclusive culture. Future studies of the relationship between diversity and corporate performance addressing how diversity in boardrooms can lead to specific outcomes for the company and its stakeholders. This could include studying the economic effects of diversity on corporate performance, as well as the impact of diversity on risk management and innovation. Accounting researchers could explore further how diversity in boardrooms can provide incentives for improving the quality of financial and non-financial reporting and communications. Exploring the role of corporate governance in promoting diversity. For example, what impact corporate governance-related transnational and national regulations and other socio-political discourses and events have on diversity in corporate boards?

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Practical recommendations 1. 2. 3.

4.

Establishing diversity and inclusivity as a priority in corporate governance, such as by setting targets for diversity on boards and in leadership positions. Providing training and education to employees on the benefits of diversity and the importance of different perspectives in corporate governance. Developing a culture of inclusivity, encouraging ideas and perspectives from diverse employees and other stakeholders, and promoting diversity in hiring and promotion. Regularly monitoring and reporting on diversity and inclusivity in the organization to ensure progress is being made and to identify areas for improvement.

12.3 Corporate governance for environmental and social sustainability Corporate governance for environmental and social sustainability refers to the systems, processes, and practices that corporations put in place to ensure that their behavior and decisions align with environmental and social sustainability goals. This can include implementing policies and procedures to reduce the company’s environmental footprint, as well as ensuring that the company’s operations and supply chain do not negatively impact local communities or workers. One key aspect of corporate governance for environmental and social sustainability is ensuring that the corporate governance members are committed to these goals. This includes setting and following up specific targets and metrics for reducing firms’ environmental impact and ensuring that these targets are integrated into the company’s overall business model and strategy. Additionally, it includes establishing internal controls and oversight mechanisms to ensure firms’ compliance with environmental and social sustainability policies and regulations. Another important aspect of corporate governance for sustainability is transparency and communication. This includes publicly disclosing information about the company’s environmental and social performance, as well as engaging with stakeholders, such as shareholders, customers, local communities, and other relevant stakeholders, to understand their concerns and expectations. By being open and transparent about their sustainable transformation journey, firms can build trust relations with stakeholders and demonstrate their commitment to environmental and social sustainability. As discussed in Chapter 10 of this book, even though Swedish companies have been developing effective systems for sustainability governance over time, some important routines, such as target setting, controls, revisions, and internal division of responsibilities still need significant further development.

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Suggestions for future research 1.

2.

3. 4.

Examining the relationship between corporate governance and environmental and social sustainability, specifically how the composition of corporate boards and leadership teams impact the company’s sustainability strategy and performance. Researching the ways companies can engage with stakeholders to understand their concerns and expectations, and how to effectively communicate about environmental and social sustainability efforts both inside and outside firms. Exploring how to integrate environmental and social sustainability into corporate business model, strategy and corporate operations. Examining the role of government and regulatory bodies, as well as corporate internal governance mechanisms in developing routines for target setting, controls, and revisions.

Practical recommendations 1.

2. 3.

4.

5.

6.

Establishing clear targets and metrics for reducing the company’s social and environmental impact, and incorporating these targets into the company’s business model, strategy, and operations. Implementing internal and external controls to ensure compliance with environmental and social sustainability policies and regulations. Building a culture of environmental and social sustainability within the company, by raising awareness, providing training and education, and encouraging employee engagement. Implementing the principle of double-materiality and engaging with various stakeholders, such as shareholders, customers, local communities, and other relevant stakeholders, to understand their concerns and expectations and to communicate about the company’s environmental and social sustainability efforts. Incorporating sustainability criteria in the decision-making process and linking sustainability performance with internal performance evaluations and incentive programs. Establishing partnerships and collaborations with other companies, organizations, and government bodies to promote environmental and social sustainability.

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12.4 Corporate governance and multiple crises Having a well-functioning corporate governance is especially important in the face of multiple global crises, such as the pandemic crisis, the climate crisis, and, recently, the crisis related to the war in Ukraine. These crises have urged the need for organizations to be prepared for and able to manage a wide range of risks and challenges. In the face of the pandemic crisis, corporate governance has been crucial to ensuring that companies are able to respond quickly and effectively to the rapidly changing political, social, and economic contexts. This has included implementing procedures ensuring that the company’s operations can continue despite disruptions caused by lockdowns and other measures. Companies have also had to adapt to the economic downturn caused by the pandemic. Effective corporate governance has been essential in ensuring companies’ abilities to navigate through these challenges. Similarly, the climate crisis has brought increased attention to the need for corporate governance that is focused on environmental sustainability. Companies have had to respond to increased pressure from stakeholders, such as investors, customers, regulators, and local communities, to reduce their environmental footprint and transition to more sustainable business models. Effective corporate governance has been essential in ensuring that companies are able to set and achieve ambitious environmental targets, as well as manage the financial and operational risks associated with the transition to a carbon neutral economy. Furthermore, the ongoing crisis related to the war in Ukraine highlights the importance of corporate governance in managing geopolitical risks. Companies have had to navigate a complex and rapidly changing political and security environment, which has brought an increased risk of disruptions to their operations and supply chains. Thus, the recent crises urge the importance of effective corporate governance in ensuring companies’ abilities to manage and navigate a wide range of risks and challenges. Managing multiple crises simultaneously can have significant implications for corporate governance. One of the key challenges is the need for organizations to be able to respond quickly and effectively to multiple and potentially conflicting risks and challenges. This can include balancing different needs. For example, the need to protect the health and safety of employees during the pandemic crisis, while also addressing the urgent need to reduce the company’s environmental footprint in response to the climate crisis, and, at the same time, maintaining operations and supply chains in the face of political and security risks related to the war in Ukraine. Corporate governance in the process of managing several crises simultaneously requires a clear and robust framework for risk management and crisis response. This includes identifying and assessing the potential risks and challenges that the company may face, as well as developing and implementing policies and procedures to mitigate or manage these risks. It also requires strong leadership and decision-making processes that can quickly respond to rapidly changing circumstances. Thus, managing multiple

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crises simultaneously can have significant implications for corporate governance. As detailed in Chapter 11 of this book, crises can lead to both negative and positive changes in a company. Abilities to quickly change communications and decision-making processes and structures, change time perspectives and strategic priorities defining the way companies manage the crisis situations. Research on corporate governance in times of crises is scarce, and below we outline some suggestions for future research and practice.

Suggestions for future research 1.

2. 3.

Examining the role of leadership and decision-making in crisis management. Here, future studies could examine the effectiveness of different corporate governance models in crisis management. Exploring the impact of multiple crises on organizational financial, environmental, and social performance to understand the long-term implications of crises. Analyzing the role of communication in managing multiple crises simultaneously. How can communication be used to build trust relations with stakeholders?

Practical recommendations 1. 2.

3.

Establishing a comprehensive risk management program designed to identify, assess, and manage multiple risks and challenges. Developing an up-to-date crisis management plan that outlines how the organization will respond to a crisis, including procedures for decision-making, communication, and recovery. Engaging with key stakeholders, such as customers, suppliers, and local communities, to better understand their concerns and expectations in the event of a crisis.

References Baboukardos, D. (2017). Market valuation of greenhouse gas emissions under a mandatory reporting regime: Evidence from the UK. Accounting Forum, 41(3), 221–233. Bertrand, M., Black, S. E., Jensen, S., & Lleras-Muney, A. (2019). Breaking the glass ceiling? The effect of board quotas on female labour market outcomes in Norway. The Review of Economic Studies, 86(1), 191–239. Iannotta, M., Gatti, M., & Huse, M. (2016). Institutional complementarities and gender diversity on boards: A configurational approach. Corporate Governance: An International Review, 24(4), 406–427. Overland, C., & Samani, N. (2021). The sheep watching the shepherd: Employee representation on the board and earnings quality. European Accounting Review, 1–38.

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Stolowy, H., & Paugam, L. (2018). The expansion of non-financial reporting: An exploratory study. Accounting and Business Research, 48(5), 525–548. Samani, N., Overland, C., & Sabelfeld, S. (2023. The role of the EU non-financial reporting directive and employee representation in employee-related disclosures. Accounting Forum, 47(2), 278–306. doi: 10.1080/01559982.2022.2158773 Styhre, A., & Bergström, O. (2019). The benefit of market-based governance devices: Reflections on the issue of growing economic inequality as a corporate concern. European Management Journal, 37, 413–420.

Contributors Susanne Arvidsson, associate professor in accounting and finance at the School of Economics and Management at Lund University, has extensive research experience in sustainability and sustainable finance and leads several successful interdisciplinary research projects. She publishes in impactful accounting and finance journals, including Accounting, Auditing and Accountability Journal, Journal of Business Ethics and Business Strategy and the Environment. She is chairman of the Swedish Corporate Sustainability Ranking, and a Coordinating Lead Author of IPBES Business and Biodiversity Assessment. Peter Beusch is Assistant Professor in the Department of Business Administration at the University of Gothenburg, specializing in management accounting and control. His research today focuses on the connection of this discipline to sustainability in general and circular economy more specifically. Peter Beusch collaborates internationally and has published in peer-reviewed journals and books. He is course director and teacher for management accounting and management control courses at both undergraduate and post-graduate levels, where he also involves and fosters connections with external partners. Kristina Jonäll, PhD, is a senior lecturer at the department of Business Administration, School of Business, Economics and Law, University of Gothenburg. She teaches on most academic levels in financial accounting. Her research is primarily in the areas of accounting communication with focus on integration of biodiversity in decision-making related to accounting, reporting, and risk management in industry and the financial system. Conny Overland is a senior lecturer at the Department of Business Administration, University of Gothenburg. He teaches several courses on industrial and financial management, corporate governance, and corporate sustainability. His research on corporate governance deals with how owners and corporate boards affect firm decision making and outcomes. Svetlana Sabelfeld, PhD, is a senior lecturer at the department of Business Administration, School of Business, Economics and Law, University of Gothenburg. She conducts research on sustainability accounting regulation and practice, integrated reporting, governance, and communication. Her interdisciplinary studies have been published in Accounting Forum, Accounting, Auditing & Accountability Journal and Meditary Accountancy Research. She is currently a member of the Editorial Advisory Board in Accounting, Auditing & Accountability Journal, and a member of Executive Faculty program at School of Business, Economics and Law in Gothenburg, where she engages in knowledge exchange with Swedish industries. Niuosha Samani is a senior lecturer at the University of Gothenburg. She focuses on the usefulness of financial and non-financial information for companies’ stakeholders. Additionally, she conducts research and teaches in courses that emphasize the role of accounting information in assisting governing bodies within firms and enhancing the effectiveness of corporate governance mechanisms. Derya Vural is a senior lecturer at Department of Business Administration and Textile Management, University of Borås. Her main research interest concerns firms’ accounting practices, disclosures, compliance with accounting standards and their effects on capital markets. She primarily conduct quantitative capital market-based accounting research and study Swedish listed and non-listed firms.

https://doi.org/10.1515/9783110725346-013