Tomorrow’s (Swedish) Company

Tomorrow’s Company, the UK-based ‘think and do’ tank on successful, sustainable business yesterday launched their latest study “Tomorrow’s Corporate Governance: Bridging the UK Engagement Gap Through Swedish-style Nomination Committees”, at the opening of the ICGN mid-year conference at the Guildhall in London. The idea for the report came out of discussions with Cevian Capital, the Swedish active owner. 

Coming at a pertinent point in the development of UK governance where debate is firmly focused on the role of investors (especially institutional investors) as company owners, the report’s central argument is ‘let’s learn from them learning from us’. It describes the development and nature of the Swedish Nomination Committee model, outlining the advantages that brings in terms of positive, active ownership on the part of large shareholders.

There is a gentle symmetry to the notion of considering this aspect of the Swedish model for UK plc, inspired as it was as a response to the original Cadbury Report suggestion that non-executive directors should be selected with the same care as executive directors.

The key feature is that a typical Swedish Nomination Committee comprises representatives of shareholders, rather than board members. It is the Nomination Committee (ergo, shareholders rather than board members)that proposes board director elections and remuneration to the General Meeting.

At the heart of the advantage proposal here is that it requires active participation in governance on the part of shareholders, whilst simultaneously challenging perspectives on cronyism that currently exist today surrounding the nomination process at UK plc. Active share ownership, or the absence of it, is of course a recurring theme in the continuing post-mortem and regulatory debate on corporate governance in BOFIs in the run-up to the financial crisis.

In practical terms, what might Tomorrow’s Company envisage stakeholders in the governance process doing to bring about such changes? A multi-facted appraoch is suggested. For issuers, taking the lead in creating such committees; for institutional investors the recruitment by fund managers of suitable representatives who are appropriate for the task and industry-wide promotion and endorsement of the concept; for asset owners, the use of their money management contracts to require more robust active ownership or the pursuit of collaborative engagement opportunities; for regulators such as the FRC, encourage changes of emphasis in the UK’s Corporate Governance Code that have the effect of an expectation for shareholders to be involved in the nomination process.

Seen in the wider context of the debate on addressing accusations of shareholders having been ‘asleep at the wheel’,  this is a timely, interesting and stimulating contribution which goes some way to shedding light on the heart of the problem: asset owners having to identify and put into practice their understanding of the importance of active ownership as a necessary portfolio risk management technique.

Tomorrow’s Company

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