The Success of the Nordic Corporate Governance Model

To discuss this issue, the Confederation of Swedish Enterprise (SN), the Confederation of Danish Industry (DI), the Confederation of Finnish Industries (EK), and Confederation of Norwegian Enterprise (NHO) have therefore arranged a seminar, on 6 September. This set out to examine how to foster responsible and sustainable corporate governance without the need for regulation within the due diligence proposal.

The Nordic corporate governance model is typified by a preponderance of strong - and often controlling - owners of listed companies. Almost 60% of the companies have at least one owner controlling more a fifth of the votes.

– This provides a time perspective for companies that often stretches for generations ahead. They consist of mainly non-executive boards, which leads to a clearcut division of duties and responsibilities between the board and the CEO. The chain of command also tends to be hierarchal, with a clear division of power, said Per Lekvall, author and former member of the Swedish Corporate Governance Board during his introduction, where he gave some perspectives on the Nordic corporate governance model.

Caroline Fellenius-Omnell, Chief Counsel and Executive Vice-President, Skanska, underlined that there was nothing wrong with climate change action plans or emission reduction objectives. Indeed, many companies were already working towards that goal.

– However, it seems somewhat misguided to include such obligations in a Directive that is supposed to cover a value chain. The model that is currently being proposed seems to conflict with national corporate governance rules. It also threatens to undermine the mandate of the directors in the companies to decide on business strategies. It is assumed that these decisions are being handed over to the authorities of the Member States, yet these authorities have not been elected to lead these companies, nor indeed do they have the required expertise. It may lead to legal uncertainty, and it will certainly not lead to a level playing field.

Ulrik Andersen, General Counsel and Vice President, Carlsberg, also had some criticisms of the proposal.

– We don’t like these suggestions. They may lead to unfortunate consequences from a legal perspective as well as from the point of view of sustainability. Under Danish law, when making decisions a director must use their business judgement in the best interest of the company. This is a sound rule, and if we introduce article 25, it will be disturbed. It will create uncertainty at a time when, in my view, what we need is clarity. Companies need to take brave decisions, which is what the world needs right now. They do not need the paralysis this could induce.

Accountability in corporate decision making is an issue well worth addressing, thought Esa Niinimäki, Deputy Chief Legal Officer (Corporate), Vice President, Nokia.

– From Nokia’s perspective, we feel that this proposal mixes the duties of management with those of the board. This would mean that the same people would be required to put actions in place, be responsible for overseeing themselves executing the actions and then reporting back to themselves. I can be sure that our shareholders would not appreciate such an arrangement. Company law and the Due Diligence Directive need to be decoupled, and then to rely on proper corporate governance.

Finnish MEP Heidi Hautala (Greens), who is a shadow rapporteur for the Corporate Sustainability Due Diligence Directive, commented on the critique.

– We all know that not every company in Europe has developed systems of corporate governance that integrates sustainability. Companies have been held legally responsible for breaking rules on human rights and environmental agreements. Should this not also be reflected in corporate governance? Perhaps the Nordic countries could lead the way for others on how to incorporate sustainability? I think we have a case to continue discussing this. It is also a question of identifying the appropriate authority. The EU does not plan to dictate who this will be, they only propose to establish a network of competent authorities. So what we see in this proposal is actually a mild version.

Watch the seminar on the link below.