Swedish Corporate Governance Code Amended – Amendments to the Finnish Code Pending

Changes to the Swedish Corporate Governance Code (the “Swedish Code”) and the Finnish Corporate Governance Code (the “Finnish Code”) have been introduced or are being introduced in 2024. In this alert, we seek to introduce the main amendments recently made to the Swedish Code and how they compare with the Finnish governance rules.

The Swedish Corporate Governance Board (the “Swedish CG Board”) has prepared a revised version of the Swedish Code effective as from 1 January 2024 and reflecting requirements arising from the Corporate Sustainability Reporting Directive (“CSRD”). The CSRD-related rules will be applicable once the corresponding provisions of the CSRD have been incorporated into Swedish law.

Amendments to the Swedish Companies Act, effective as from the same date, allow holding remote general meetings without holding the meeting at a venue enabling shareholders to attend in person, which has already been possible under Finnish law as of 11 July 2022. The amendments prompted the Swedish CG Board to introduce a rule according to which listed companies should always offer the option of attending a general meeting in person.

Updates to the Finnish Code are currently being prepared by the Finnish Securities Market Association (SMA). On 15 December 2023, the SMA published amendment proposals reflecting requirements posed by, inter alia, the directive on improving gender balance among directors of listed companies (Directive 2022/2381, the “Quota Directive”), but also proposing recommendations which go beyond the requirements of the Quota Directive. The second phase of updating the Finnish Code is expected to begin in 2024 and will focus on implementing recommendations relating to sustainability. The CSRD was implemented into Finnish law, effective as of 31 December 2023.

The Nordic Main Market Rulebook for Issuers of Shares applicable both on Nasdaq Helsinki and Nasdaq Stockholm requires that the issuer applies the corporate governance code applicable to the issuer in its jurisdiction of incorporation or establishment. Alternatively, the issuer must apply the corporate governance code applicable in the jurisdiction of the exchange. Thus, Finnish dual or triple listed main list companies normally apply the Finnish Code, although at least one Finnish dual listed company applies the Swedish Code on a voluntary basis in addition to the Finnish Code.

In 2022, Finland exceeded the minimum threshold for the underrepresented gender set by the Quota Directive (the share of female board members in listed companies amounted to approximately 35%). The draft legislative proposal for implementing the Quota Directive has been circulated for comments by the Finnish Ministry of Justice, and the implementation is expected to take place in phases, supported and complemented by the currently proposed amendments to the Finnish Code.

The Swedish CG Board noted in an open letter in February 2023 that the minimum threshold for the underrepresented gender (30%) had been exceeded in Sweden (the share of female board members in listed companies amounted to 36.2%) by the deadline set by the Quota Directive and, consequently, the implementation of the Quota Directive may be postponed. There is no public information from the Board concerning plans to update the Swedish Code in respect of gender balance rules reflecting the Quota Directive.

A new rule in the Swedish Code recommends that general meetings are to be held at a venue that enables shareholders to attend in person, regardless of whether it is possible to attend the meeting remotely. The new rule relates to the amendments to the Swedish Companies Act concerning remote meetings described in the introduction of this alert. According to the Swedish CG Board, shareholders having the possibility of meeting with the company management in person is a key component of the Swedish corporate governance model.

Although many commentators have welcomed the new rule and advocated for hybrid meetings, others have considered the proposed new rule as a risk to the development of the Swedish market and as unnecessary since remote general meetings do not compromise effective corporate governance if they are properly organised. The regulation in other Nordic countries permits general meetings to be held remotely. For example in Sweden, it has been found that the possibility of holding remote general meetings afforded by covid-related temporary regulation did not result in an increase in disputes relating to general meetings.

The new rule in the Swedish Code takes a different approach from recent regulation introduced in Finland, as the Finnish Code has not taken a position on the manner in which general meetings should be held. The Finnish Companies Act allows companies to arrange general meetings as traditional in-person meetings, or with an option to participate remotely (hybrid meetings) or as remote meetings without a meeting venue.

The Swedish Code includes a new clarification concerning abuse of the protection of minority shareholders’ rights. One example mentioned of such abuse is the denying of the discharge of liability for board members or the chief executive director on grounds not related to the performance of their duties, e.g. by referring to differences in voting rights prescribed in the articles of association. The clarification appears to take aim at the latest voting guidelines published by Institutional Shareholder Services Inc. (“ISS”), recommending, for meetings held as from 1 February 2024, voting against discharging (non-executive) directors from liability if the company employs a share structure with unequal voting rights. The guidelines hence recommend denying directors discharge of liability for reasons unrelated to their individual performance in direct contravention of the reasons for denying discharge described in the Swedish Code.

ISS is not the only one critical of multiple-vote shares. As part of the EU Listing Act, the EU published a proposal for a directive on multiple-vote share structures in companies that seek the admission of their shares to trading on an SME growth market with the aim of allowing multiple-vote share structures and creating a level playing field for the IPOs of European SME companies in this respect (the “MVS Directive”). During negotiations on the draft MVS Directive, the European Parliament proposed safeguards which could complicate or even put an end to the use of multiple-vote shares or similar structures in the EU. Further, the European Parliament proposed broadening the scope of the MVS Directive to also include companies listing their shares on a regulated market or any multilateral trading facility (and not only growth markets).

Currently, the proposal is awaiting Parliament’s position in the first reading. The proposal could cause issues particularly in the Nordic countries where multiple-vote share structures have traditionally been used in listed companies. Some companies listed on Nasdaq Helsinki, e.g. Fiskars, Raute, Stockmann and Wärtsilä, have decided to merge share classes. The reasons behind the proposals to merge share classes have typically included, amongst others, increasing the liquidity of and the markets’ interest towards the share. Approximately one fifth of the Finnish listed companies still have multiple voting share classes.

The revised Swedish Code’s introductory section now features a paragraph clarifying a company’s profit motive with a mention of the company’s responsibility to ensure that society maintains confidence in it. It is further stated that matters concerning sustainability, diversity and gender equality are essential to its commercial success. The update relates to the topical debate on the relationship between the shareholder centricity of corporate governance codes and sustainable business, reinforcing the view on the importance of sustainability factors on the success of a company.

Currently, the Finnish Code does not address sustainability of business or social responsibility and is essentially based on a shareholder-centric model. In this respect, the current Finnish Code differs from the corporate governance codes of other Nordic countries, all of which mention sustainability in one way or another. Still, even though the Finnish Code does not mention sustainability, the Finnish Companies Act can be understood to represent the concept of enlightened value maximization. The sustainability of a company’s operations can be considered a prerequisite for long-term value creation, and management may be expected to consider social responsibility, furthering the long-term benefit of the company, when managing the company’s affairs.

Another difference to the Finnish Code is that the Swedish Code assumes that the board of directors establishes a remuneration committee (unless the board considers it more appropriate for the board to perform the remuneration committee’s tasks) to prepare the board’s decisions on issues concerning principles for remuneration, and to monitor and evaluate the remuneration of the executive management and the application of the guidelines for remuneration to the board and executive management.

In contrast, save for the establishment of an audit committee if the extent of the company’s business so requires, the Finnish Code does not require the establishment of any committees and lets the companies decide for themselves based on their own needs. Nevertheless, the Finnish Code states that the establishment of the remuneration committee promotes the transparency and systematic functioning of the company’s remuneration schemes. Approximately half of the Finnish companies on the main list have established a Remuneration Committee.

The key amendments to the Swedish Code focus on sustainability reporting in response to the requirements of the CSRD. In addition, the amended Swedish Code introduces very general references to diversity questions and comments on the misuse of minority rights of shareholders. In a clear diversion from the development of Finnish governance, the new Swedish Code introduced a rule requiring listed companies to offer shareholders the option of attending general meetings in person, limiting the possibilities to arrange fully remote meetings. Nevertheless, companies that apply the Swedish Code may deviate from the rule based on the comply or explain -principle.

The proposed updates to the Finnish Code in the first phase focus on diversity questions, responding to the requirements set out in the Quota Directive. The second phase of the update will, in turn, focus on sustainability related changes and is expected to begin later in 2024, with the changes currently expected to enter into force in 2026.