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1 Corporate Governance and Directors Duties 2008/09 Sweden Sweden Ola Åhman, Roschier Corporate entities The main corporate entities are the private limited liability company (privat aktiebolag) (private company) and the public limited liability company (publikt aktiebolag) (public company). A European company (Societas Europaea) (SE) can also be registered in Sweden. Most requirements under the Companies Act (2005:551) apply equally to private and public companies. The most notable difference is that the shares or other securities of a private company are not subject to public trading and that certain limitations apply to placing shares in such companies. Legal framework Exchange Stockholm and NGM, and the multilateral trading facility AktieTorget, have adopted regarding public offers on the stock market (Takeover Rules). The practice of the Swedish Securities Council, which issues statements regarding good stock market practice and which must (through the Swedish Financial Supervisory Authority (Finansinspektionen (FI))), interpret and grant exemptions from the rules on, among other things, mandatory bids in the Takeover Act and the Takeover Rules. Any measure undertaken by a Swedish limited liability company with issued shares that are listed on OMX Nordic Exchange Stockholm or the NGM (or a shareholder in such a company) that relates to, or may be of significance for, shares in such a company may be assessed by the Swedish Securities Council. 1. What is the regulatory framework for corporate governance and directors duties? Corporate governance and director s duties are regulated by: Statute, primarily the Companies Act, the Accounting Act (1999:1078) and the Annual Accounts Act (1995:1554). A company s articles of association (articles). The listing agreement between OMX Nordic Exchange Stockholm and companies listed on it (Listing Agreement) and the Listing Requirements (when used below, Listing Agreement includes the Listing Requirements) that a company must fulfil to be listed on OMX Nordic Exchange Stockholm. Nordic Growth Market (NMG) (Sweden s second authorised stock exchange), as well as the multilateral trading facilities AktieTorget, First North and Nordic MTF, have their own sets of rules. OMX Nordic Exchange Stockholm also issues general advice to listed companies. The Swedish Code on Corporate Governance (Code) applies to all Swedish companies officially listed on the OMX Nordic Exchange Stockholm and other Swedish listed companies with a market capitalisation exceeding SEK3 billion (about US$0.5 billion). From 1 July 2008, the Code applies to all companies listed on the Swedish regulated markets, OMX Nordic Exchange Stockholm and NGM. Its provisions are not mandatory; companies must either comply or explain why they have not. A special report on corporate governance must be attached to the company s annual accounts. The Takeover Act (2006:451) for takeovers of listed companies and the rules that the regulated markets OMX Nordic Ownership policies of different investor groups (see Question 34). These guidelines are informal, but investors can oppose any corporate actions that contravene them. Institutional investors such as pension funds and insurance companies are among the major shareholders in many Swedish listed companies. The regulations of the FI. Board composition and remuneration of directors 2. What is the management/board structure of a company? In particular: Is there a unitary or two-tiered board structure? Who manages a company and what name is given to these managers? Who sits on the board(s)? Do employees have a right to board representation? Is there a minimum or maximum number of directors or members of the managerial and supervisory bodies? Structure. The division of power between the bodies of a Swedish limited liability company is hierarchical and based on a strict division of power and responsibilities between the shareholders meeting, the board of directors (board), the executive management and the auditors. Therefore, the shareholders meeting is the superior body and can instruct CROSS-BORDER HANDBOOKS 207

2 Sweden Corporate Governance and Directors Duties 2008/09 the board on how to act in any matter relating to administration and management. In the same way, the board can instruct the managing director regarding any matter within the day-to-day management of the company. However, the superior bodies cannot exercise their right to give instructions to the subordinated bodies that deprive the subordinated bodies of their responsibilities as assigned by law. Swedish public and private companies have a unitary board structure. An SE formed in Sweden can have a oneor two-tiered board structure. Management. The board has ultimate responsibility for the company s management. A managing director can be appointed for the company (this appointment is mandatory in public companies). The managing director is responsible for the day-to-day management of the company and its business. 3. Are there any age or nationality restrictions on the identity of directors? Age restrictions There is no upper age limit imposed on directors of Swedish companies. However, minors (under 18 years of age) cannot be directors. Nationality restrictions There are no nationality restrictions on directors. However, at least half of the directors (and the managing director, if applicable) must be domiciled in European Economic Area (EEA) member states. If no director is domiciled in Sweden, a representative residing in Sweden must be appointed for the service of process. Board members. The company s directors represent the shareholders. Only one member of the company s management can be a director, and a majority of the directors must be independent of the company (Listing Agreement and Code) (see Question 4, Independence). At least two of the directors that are independent from the company must be independent from the company s major shareholders. Employees representation. Employees of companies employing an average of at least 25 employees during the preceding financial year can appoint two employee representatives and two deputies to the board. Employees of companies operating in several lines of business and employing an average of at least 1,000 employees during the preceding financial year can appoint at least three employee representatives and three deputies. However, the number of employee representatives cannot exceed the number of other directors. The established unions decide whether employee representatives should be elected and who is to be appointed, as well as fix their terms of office. The employee representatives are full members of the board. They have the same responsibilities and duties as the other directors. A deputy employee representative can attend board meetings even if the main employee representative is present. Employee representatives cannot participate in board discussions or resolutions on collective bargaining agreements, strikes, lockouts and so on. Number of directors or members. For a private company, at least one director and one deputy are appointed. For a public company, at least three directors are appointed or, if fewer than three directors are appointed, there must be at least one deputy. The company s articles must specify the number of directors and deputies, if any, to be appointed. In listed companies, the shareholders meeting normally appoints more than three directors to fulfil requirements regarding competence and experience contained in the Listing Agreement and the Code, as well as to enable the board to perform its duties. 4. In relation to non-executive, supervisory or independent directors: Are they recognised? Does a part of the board have to consist of them? If so, what proportion? Do non-executive or supervisory directors have to be independent of the company? If so, what is the test for independence or what makes a director not independent? What is the scope of their duties and potential liability to the company, shareholders and third parties? Recognition. Non-executive and independent directors are recognised, with the requirements for non-executive and independent directors being set out in the Listing Agreement and the Code. The concept of supervisory directors does not exist. Board composition. Not more than one person from the company s management can sit on the board; therefore executive directors are not common on the boards of listed companies (Listing Agreement and Code). In other companies, such as private companies, the directors of the board may include a mix of non-executive and executive directors, having equal rights and duties. Under the Listing Agreement and the Code, both: the majority of the directors elected by the shareholders meeting must be independent of the company and its management; at least two of the independent directors and the company s management must be independent of the company s major shareholders. 208 CROSS-BORDER HANDBOOKS

3 Corporate Governance and Directors Duties 2008/09 Sweden Independence. A director is not independent if he (Code): is the managing director, or during the five preceding years has been the managing director, of the company or associated enterprises; is employed, or during the three preceding years has been employed, by the company or an associated enterprise; receives significant remuneration for advice or services in addition to board work from the company or an associated enterprise or from someone in the senior management; has, or in recent years has had, extensive business ties or other extensive financial dealings with the company or an associated enterprise; is, or in the past three years has been, a partner or employee of the audit firm currently or then auditing the company or an associated enterprise; is part of senior management in another enterprise having a director who is part of senior management in the company; has been a member of the board for more than 12 years; or 6. How are directors appointed and removed? Is shareholder approval required? Appointment of directors The directors are appointed by the shareholders meeting and the candidate that receives the most votes is elected (Companies Act). The employee representatives are elected by established unions, which also fix their term of office. The board appoints the managing director. The Code recommends the establishment of a nomination committee; a body established by the shareholders meeting, which either appoints the committee members directly or specifies the manner for their appointment. The appointment of a director or a managing director does not come into effect until the Swedish Companies Registration Office receives registration of the appointment. Removal of directors A director s assignment expires at the end of the annual shareholders meeting (annual general meeting (AGM)) held during the financial year following the year the director was appointed (unless re-election takes place). In rare cases, the articles may provide that the term of assignment is longer (however not more than four years). The Code recommends that directors be appointed for one year at a time. is a close relative or family associate of someone in the senior management or of some other person as provided in the preceding clauses, if this person s direct or indirect dealings with the company are sufficiently extensive and important that the director is not considered independent. See also Question 2, Board members. Duties and liabilities. All directors (including employee representatives) are subject to the same duties and liabilities (see Question 14). The appointment can end prematurely at the wish of the director himself or the corporate body that has appointed the director (generally the shareholders meeting). The assignment as managing director is regulated by an employment agreement which generally can be terminated by either party. The removal or resignation of a director or a managing director does not enter into force until filing for registration of the removal or resignation has been received by the Swedish Companies Registration Office. 7. Are there any restrictions on a director s term of appointment? 5. Are the roles of individual board members restricted? For example, can one person be the chairman and chief executive? Other than the restrictions above (see Question 6), there is no legal limit on a director s term of appointment. However, see Question 3 in relation to independent directors. In a public company, the managing director cannot be the chairman of the board. Only one person from the company s management can be a director (see Question 4) (Listing Agreement and Code). Therefore, the managing director cannot be a board director if the chairman of the board is employed by the company at management level or is part of the management of a subsidiary of the company. If the chairman of the board is employed by the company or in addition to his responsibilities as chairman has duties assigned by the company, these may not involve tasks that are part of the managing director s responsibilities in the day-to-day management of the company (Code). 8. Do directors have to be employees of the company? Can shareholders inspect directors service contracts? Directors employed by the company Directors do not have to be employees of the company. Shareholders inspection Directors generally do not have service contracts. CROSS-BORDER HANDBOOKS 209

4 Sweden Corporate Governance and Directors Duties 2008/09 9. Are directors allowed or required to own shares in the company? Directors can (but are not required to) own shares in the company but must not deal in those shares in certain circumstances or at certain times in the company s announcement s calendar (see Question 20). Resolutions on directed share issues in listed companies to directors and managing directors must be passed by the shareholders meeting, observing certain strict information and majority requirements (Companies Act). 10. How is directors remuneration determined? Is its disclosure necessary? Is shareholder approval required? Determination of directors remuneration The shareholders meeting passes resolutions on director s remuneration. The board decides on the remuneration of the managing director and other members of senior management. Disclosure The board s rules of procedure must contain information on (Companies Act): The frequency and location of its meetings. The timeframe and method for convening the meetings. The content of the notice to attend the board meetings. The extent to which deputies must participate in the board s work and receive notice to attend its meetings. The board s rules of procedure should specify the duties and decision-making powers that the board has delegated to committees and indicate how the committees must report to the board (Code). The instruction for the managing director usually indicates that the tasks of the corporate bodies are divided in the manner set out in the Companies Act. Any deviations from the division of functions between the bodies prescribed by law must be indicated. For the board to make resolutions, all directors must have been given both: The opportunity to participate. The aggregate remuneration paid to, or receivable by, directors and the managing director, must be disclosed in the annual accounts (Annual Accounts Act). Notices to shareholders meetings as well as annual accounts from the previous three years must be made available on the company s website (Listing Agreement). Shareholder approval The shareholders meeting must give general directions on the remuneration of senior management in listed companies (Companies Act). The Code recommends that: The board establishes a remuneration committee to prepare proposals on remuneration and other terms of employment for senior management. The shareholders meeting should decide on all share and share-price incentive schemes for senior management. The nomination committee make recommendations on the division of board fees between the chairman and other directors. Satisfactory information to decide the matter. If a director is excused and a deputy has been appointed, the deputy must be notified. Quorum is reached when more than half of the total number of directors (or a higher number as prescribed in the articles) is present. Unless the articles prescribe a specific voting majority, resolutions are adopted by a simple majority of the present directors. In the event of a tied vote, the chairman has a casting vote. 12. Can directors exercise all the powers of the company or are some powers reserved to the supervisory board (if any) or a general meeting? Can the powers of directors be restricted and are such restrictions enforceable against third parties? Directors powers The board is responsible for the organisation of the company and the management of its affairs (Companies Act). This encompasses everything that is not exclusively allocated to the shareholders meeting. Matters that are exclusively allocated to the shareholders meeting include: Management rules and authority 11. How is a company s internal management regulated? For example, what is the length of notice and quorum for board meetings, and the voting requirements to pass resolutions at them? A company s internal management is mainly regulated by the board s written rules of procedure and the written instruction for the managing director, as adopted by the board. Election of directors and auditors. Reduction of the share capital or the statutory reserve. Amendments to the articles. Dividend distribution. The board represents the company in relation to third parties. The shareholders meeting cannot represent, or appoint representatives (other than directors of the board) of the company. 210 CROSS-BORDER HANDBOOKS

5 Corporate Governance and Directors Duties 2008/09 Sweden Restrictions The shareholders meeting can, in principle, instruct the board on how to act in any matter, even those which lie within the board s competence (see Question 2). In addition, according to good stock market practice and the Listing Agreement, certain transactions between a company and related parties are subject to decisions by the shareholders meeting, observing strict information requirements. In relation to third parties the board represents the company and is authorised to sign on behalf of the company. The competence of the board coincides with its right of administration of the company. The board can enter into agreements in all matters that are not exclusively reserved for the competence of the shareholders meeting. An authorised signatory has the same authority. If any of these individuals exceed their competence the company is not bound by their actions in relation to third parties. The authority of the board and of the managing director is limited by: The articles. Instructions from superior bodies. The rules for the board s decision-making. Rules regarding conflict of interests. The principle of equality. The Code recommends that the board establishes special committees (such as audit committees and remuneration committees) to prepare its decisions in specific areas and, if appropriate, delegate certain decision-making powers to such committees. The nomination committee is a body elected by the shareholders (see Question 6). Duties and liabilities of directors 14. What is the scope of a director s duties and personal liability to the company, shareholders and third parties? Please distinguish between civil and criminal liability under each of the following (if relevant): General duties. Theft and fraud. Securities law. Insolvency law. Health and safety. Environment. Anti-trust. Other. Fiduciary duties. The so-called omnibus clause in Swedish corporate law, according to which measures may not be taken if they would imply that someone (shareholder or someone else) would get an undue advantage to the disadvantage of the company or its shareholders. If the board or another representative of the company exceeds its authority, the company is not bound if it shows that the counterparty realised or should have realised that the representative acted outside its authority. However, this does not apply in situations where the board or the managing director has exceeded its authority by violating the articles or instructions from another corporate body. In those situations, the company is bound even if the counterparty realised that the representative exceeded its authority. 13. Can the board delegate responsibility for specific issues to individual directors or a committee of directors? Is the board required to delegate some responsibilities, for example for audit, appointment or directors remuneration? General duties. A general duty of loyalty applies, which means that the board and the managing director must, at all times, act in the best interests of the company and avoid damaging the company. If a director or managing director, in the performance of his duties, intentionally or negligently causes damage to the company, he must compensate for the resulting damage (this can apply specifically if the director causes the company to breach its obligations in relation to health and safety, environment and anti-trust law (see below)). This also applies where damage is caused to a shareholder or other person if the company violates the Companies Act, the applicable annual accounts legislation or the articles. If the company has prepared a prospectus or an offer document, a director or managing director is liable for damage to shareholders and third parties caused by him in the performance of his duties as a consequence of a violation of the relevant provisions of the Financial Instruments Trading Act (1991:980) and Regulation (EC) No. 809/2004 implementing Directive 2003/71/EC as regards prospectuses and dissemination of advertisements (Prospectuses Regulation). Delegation of tasks from the board to an individual director or a committee of directors requires consent from all directors. The authority to make decisions of major importance or of a principal nature cannot be transferred to an individual director or a committee of directors. Delegation of the board s tasks to a person that is not a director is subject to the same limitations as delegation to an individual director. The board retains the overall responsibility for the work carried out under delegation. A director or a managing director can be held criminally liable for breach of trust. In addition, breaching certain provisions of the Companies Act can lead to criminal liability, including, among other things: divesting shares in a private company by advertising or trading on a stock market or other organised marketplace; CROSS-BORDER HANDBOOKS 211

6 Sweden Corporate Governance and Directors Duties 2008/09 omitting to convene board meetings at the request of an individual director or the managing director; failing to give directors the opportunity to participate in board meetings or to provide them with sufficient material for their decision making; and lending the company s money or putting up collateral in violation of the prohibition against loans to related parties or for financial assistance purposes. Theft and fraud. A director or managing director can be criminally liable under the general laws of theft and fraud. 15. Can a director s liability be restricted or limited? Is it possible for the company to indemnify a director against liabilities? It is not possible to restrict or limit a director s liability to the company in respect of the issues referred to in Question 14. Each AGM deals with discharging the board and managing director of any liability for the management of the company s affairs during the preceding year. It is highly unusual for an AGM to vote against discharging liability of directors if the auditors have recommended it. Securities law. A director or managing director of a listed company can be criminally liable if he is involved in insider offences or an improper attempt to influence stock market prices (Market Abuse Penal Act (2005:377)). Insolvency law. When there is reason to suspect that the restricted equity of a company has fallen below half of the company s registered share capital, the board must establish a balance sheet for liquidation purposes. If the balance sheet shows that the suspicion is justified, the board must refer the matter to the shareholders meeting. If the board fails to provide a balance sheet for liquidation purposes or to convene the shareholders meeting for liquidation purposes, the directors are personally liable for all obligations of the company arising after the point when the balance sheet should have been established or the shareholders meeting should have been convened, until the board has fulfilled its statutory obligations in that regard. Wrongful trading (that is, when directors enter into agreements, for example, purchasing goods on credit, knowing that the company is unable to pay) is a criminal offence. Health and safety. Employers must take all the precautions necessary to prevent employees from being exposed to health hazards or accident risks (Work Environment Act (1977:1160)). If the employer is in breach of health and safety regulations directors may be subject to criminal liability. However, the responsibility for health and safety is usually delegated to the managing director or other management employees. Environment. The person that carries out an operation (typically the company) is responsible for any breaches of environmental regulations (the polluter pays principle). Anti-trust. It is not a criminal offence for individuals to be engaged in cartels in Sweden and individuals can never be held responsible for breaches of the Swedish Competition Act (1993:20). It is the company that breaches the rules that is held responsible. Other. The Supreme Court has held that failing to provide the annual accounts of a limited liability company within six months from the end of the relevant financial year is a bookkeeping crime. Under the Tax Payment Act (1997:483) a representative of a company can become responsible for the company s unpaid taxes and fees. A decision by the AGM to grant discharge only concerns liability towards the company and shareholders voting in favour of discharge. Liability to other shareholders and third parties is not affected. An action for damages in favour of the company can be brought where a majority, or a minority consisting of owners of not less than 10% of all the company s shares, has voted against discharge. Discharge from liability does not prevent the company from bringing an action for damages if the AGM that passed the resolution had not been provided with information that was materially correct and complete concerning the decision or measure on which the action is based. 16. Can a director obtain insurance against personal liability? If so, can the company pay the insurance premium? Directors can (and directors of public companies commonly do) obtain insurance against certain civil liabilities. Companies can purchase the insurance and pay the insurance premiums on behalf of their directors or managing director. The premiums may, however, be considered taxable benefits for the directors or managing director. 17. Can a third party (such as a parent company or controlling shareholder) be liable as a de facto director (even though such person has not been formally appointed as a director)? On rare occasions, the Swedish courts have held that a person that is not appointed director or managing director is liable (when failing to establish a balance sheet for liquidation purposes or to execute certain tax payments). A de facto director can also potentially be held liable on other grounds, such as those under the Torts Act (1972:207). Transactions with directors and conflicts 18. Are there general rules relating to conflicts of interest between a director and the company? A director or the managing director cannot participate in an agreement between him and the company or in which he has a material interest that may conflict with the interests of the company. In addition, a director or managing director is deemed in conflict and cannot participate in matters between the company and another le- 212 CROSS-BORDER HANDBOOKS

7 Corporate Governance and Directors Duties 2008/09 Sweden gal entity which the director or managing director is entitled to represent (except when the companies in question belong to the same group). A decision made contrary to the rules regarding conflict of interest is null and void and must not be executed. 19. Are there restrictions on particular transactions between a company and its directors? Limited liability companies cannot lend money to, or put up collateral for the benefit of, its shareholders, directors, managing director and other affiliated persons. The shareholder s meeting must approve certain transactions between listed companies and its directors and other related parties (Listing Agreement). An independent expert must provide the shareholders meeting with a fairness opinion to properly evaluate the transaction and the decision must immediately be made public. There are also statutory limitations relating to conflicts of interest, see Question Are there restrictions on the purchase or sale by a director of the shares and other securities of the company he is a director of? Company meetings 22. Does a company have to hold an annual shareholders meeting? If so, when? What issues must be discussed and approved? A company must hold an AGM no later than six months after the end of each financial year. The AGM must deal with the: Adoption of the: profit and loss statement and the balance sheet; consolidated profit and loss statement and the consolidated balance sheet. Allocation of the company s profit or loss. Discharge of any liability of the board and the managing director toward the company. Election of board. It is a criminal offence for directors (and others) to buy or sell publicly traded securities if they are in possession of unpublished, price sensitive information (Market Abuse Penal Act). In addition, directors of listed companies cannot deal in their company s shares during certain periods (for example, before the announcement of results) (Act on Reporting Obligations for Certain Holdings of Financial Instruments (2000:1087)). Decisions on sale or directed issues of shares and certain other instruments in listed companies to directors and managing directors must be taken by the shareholders meeting, observing strict information and majority requirements. Disclosure of information 21. Do directors have to disclose information about the company to shareholders, the public or regulatory bodies? The board and the managing director must, on request by any shareholder, provide information at the shareholders meeting which may affect the assessment of a matter on the meeting s agenda or the company s (and, if applicable, the group s) financial position (if the board believes that the provision will not cause significant harm to the company). In a public company, this duty only applies at shareholders meetings at which the annual accounts or, where applicable, the group accounts are addressed. Election of auditors (if applicable). Determination of remuneration payable to the board (listed companies). Election of nomination committee (companies that apply the Code). Decision on guidelines for remuneration of company management (listed companies). 23. Can shareholders call a meeting or propose a specific resolution for a meeting? If so, what level of shareholding is required to do this? Shareholders representing 10% of the aggregate number of shares in the company can require an extraordinary shareholders meeting to be held. A shareholder may propose a resolution to be passed by the shareholders meeting if he makes a timely written request with the board in that regard. Minority shareholder action 24. What action, if any, can a minority shareholder take if it believes the company is being mismanaged and what level of shareholding is required to do this? Disclosure obligations relating to public companies include detailed disclosure requirements when offering shares or other securities to the public (the Financial Instruments Trading Act and the Prospectuses Regulation contain detailed rules that apply in these circumstances). Listed companies must inform the market and the FI as soon as possible when there is an event that, if publicly known, would be likely to have a substantial effect on the company s share price. Selective disclosure of potentially share price affecting information is generally not allowed. Shareholders representing 10% of the aggregate number of shares in the company can: Postpone by four to eight weeks a resolution of the shareholders meeting on: adoption of the profit and loss account and balance sheet; CROSS-BORDER HANDBOOKS 213

8 Sweden Corporate Governance and Directors Duties 2008/09 distribution of profit (or how to deal with losses); discharge of directors. Request the County Administrative Board to appoint a minority auditor. Force the AGM to resolve on the distribution of half of the net profits for the previous financial year, after certain deductions. Block a resolution for the discharge of liability of the directors or managing director, and decide to initiate an action for damages in favour of the company against a director or the managing director. Holders of this minority interest can conduct such proceedings on behalf of the company. No settlement of such an action can be made if opposed by holders of such a minority interest. Pass a resolution to have a special examiner appointed (to examine the administration, accounts of the company or any specific measure). Any individual shareholder can bring proceedings for damages on his own behalf against any director, auditor or shareholder. Any shareholder (as well as the board, a director or the managing director) can bring a legal action contesting a shareholder resolution on the grounds that it has not been made in due order or in a way that is otherwise contrary to the Companies Act, the applicable annual accounts legislation or the articles. Internal controls, accounts and audit company after that point in time. Failing to establish the annual accounts of the company within the stipulated six months from the end of the relevant financial year has been held by the Swedish Supreme Court to constitute a bookkeeping crime (see Question 14). 27. Do a company s accounts have to be audited? Annual accounts of all companies must be audited. The Swedish government has declared its intention to abolish the audit duty for small companies. A proposal on how this is to be done is to be presented by 30 April 2008 at the latest (see Question 36). 28. How are the company s auditors appointed? Is there a limit on the length of their appointment? The auditors are appointed by the shareholders meeting. The auditor s assignment expires at the end of the AGM that is held during the fourth financial year following the year the auditor was appointed. If the auditor is reappointed on expiry of the four-year period, the shareholders meeting may determine that the appointment applies until the close of the AGM held during the third financial year after the appointment of the auditor. Good accounting practice provides for the rotation of auditors after seven years in relation to certain auditing assignments. The Swedish official committee report on the implementation of the eighth company law directive (Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts (Statutory Audit Directive)) recommends making it mandatory to change auditors in listed companies after seven years. 25. Are there any formal requirements or guidelines relating to the internal control of business risks? The board must establish a control and reporting system to keep itself informed of the company s financial position. This includes instructions on the nature of the information to be gathered, how and by whom this will be done and how the presentation and reporting of the information to the board will take place. The board should submit an annual report on how the part of internal control dealing with financial reporting is organised and how well it has functioned during the most recent financial year (Code). Proposals for the appointment of auditors and recommendations on audit fees should be made by the company s nomination committee or a nomination committee appointed especially for that purpose (Code). 29. Are there restrictions on who can be the company s auditors? Only auditors that are authorised or (with certain exceptions) approved and therefore supervised by the Supervisory Board of Public Accountants may be appointed auditors for a limited liability company. A registered accounting firm may also be appointed as auditor. An insufficiently independent auditor is ineligible for appointment. 26. What are the responsibilities and potential liabilities of directors in relation to the company s accounts? All directors as well as the managing director, if applicable, must approve the company s annual accounts and are primarily responsible for their accuracy. Copies of the annual accounts and the auditor s report must be sent to the Companies Registration Office no later than one month after the documents have been adopted at the AGM. If the Companies Registration Office does not receive copies within 15 months from the end of the financial year, the directors and, if applicable, the managing director, are personally (jointly and severally) liable for the obligations that arise for the 30. Are there restrictions on non-audit work that auditors can do for the company that they audit accounts for? There is no general ban on non-audit work by a company s auditors. However, such work cannot interfere with the auditor s independence, the statutory rules on conflict of interest or other provisions of the Auditors Act (2001:883). For example, a person who is a shareholder, director or managing director of the company or a subsidiary or is involved in the company s book-keeping, administration of funds or the company s control in that regard is not considered sufficiently independent to be appointed auditor of the 214 CROSS-BORDER HANDBOOKS

9 Corporate Governance and Directors Duties 2008/09 Sweden company. The same applies to a person who in another way is dependent on the company. In addition, an auditor may not be appointed if another person working for or associated with the same accounting firm is insufficiently independent because of the above reasons. Auditors must comply with the ethical standards of FAR SRS, the institute for the accountancy profession in Sweden, as well as with the guidelines issued by the Supervisory Board of Public Accountants and good accounting practice. For the purposes of the notice of the shareholders meeting, information that may be of importance to shareholders in assessing the competence and independence of the proposed auditors should be posted on the company s web site (Code). The information must show what services other than auditing were provided by the proposed auditor to the company over the past three years and, in the event of re-election, the year that the auditor was first appointed and the length of the assignment. 31. What is the potential liability of auditors to the company, its shareholders and third parties if the audited accounts are inaccurate? Can their liability be limited or excluded? An auditor is potentially liable to pay compensation to the company if: He, in the performance of his duties, intentionally or negligently causes damage to the company. Damage is caused to a shareholder or other person as a consequence of a violation of the Companies Act, the applicable annual accounts legislation or the articles. In situations in which the company has prepared a prospectus or offer document, the auditor has, in the performance of his duties, through breach of the relevant provisions of the Financial Instruments Trading Act and the Prospectus Regulation, intentionally or negligently caused damage to a shareholder or another person. Damage is caused, intentionally or through negligence, by his assistants. Where a registered accounting firm has been appointed as auditor or special examiner, the firm and the auditor-in-charge for the audit or the examination are liable. Auditors cannot limit their liability in relation to the company, shareholders or third parties for audit work. It is, however, possible for auditors when acting as advisers (and therefore, performing non-audit work) for a company to limit or exclude their liability in relation to the company, shareholders or third parties. In such cases ordinary contract and liability rules apply. Corporate social responsibility 32. Is it common for companies to report on social, environmental and ethical issues? Please highlight, where relevant, any legal requirements or non-binding guidance/best practice on corporate social responsibility. There have not been any initiatives to enact specific legislation on corporate social responsibility in Sweden. Any initiatives taken in this regard in Sweden are on a voluntary and non-binding basis. However, several of Sweden s largest companies are engaged in different corporate social responsibility projects. Public companies, companies with more that 200 employees and companies with a net value that exceeds a certain amount must report on environmental and social issues in their annual accounts (Annual Accounts Act). Companies whose activities require a licence or have a reporting duty under the Environmental Act must account for the impact that the activities have on the surrounding environment in their annual accounts. Role of general counsel 33. Is it common for the general counsel to be on the company s board or to have a formal role in corporate governance? The general counsel may be present at board meetings as board secretary. It is uncommon for the general counsel to be a director, especially in listed companies. Role of institutional investors and shareholder groups 34. How influential are institutional investors and other shareholder groups in monitoring and enforcing good corporate governance? Please list any such groups with significant influence in this area. The influence of institutional investors has grown during the past few years. They are often among the largest shareholders of listed companies and have substantial interest and influence in corporate governance matters. Among the most significant are the following (which have also issued ownership policies): The Swedish Investment Fund Association. Large pension funds, such as AP funds and Alecta. Large fund managers such as SEB Fonder and Nordea Fonder. The Swedish Shareholders Association. CROSS-BORDER HANDBOOKS 215

10 Sweden Corporate Governance and Directors Duties 2008/09 Whistleblowing 35. Is there statutory protection for whistleblowers (persons who disclose criminal activity or other serious malpractice within a company)? Employees who raise legitimate concerns about malpractice and who, as a result, find themselves subject to detriment from their employer, can challenge any unfair dismissal (which may be declared invalid by court) and claim compensation. Reform 36. Please summarise any impending developments or proposals for reform. From 1 July 2008, the Code applies to all companies listed on the Swedish regulated markets, OMX Nordic Exchange Stockholm and NGM. Preparations have started in order to develop a harmonised corporate governance code for the Nordic countries. The revised fourth and seventh company law directives concerning annual and consolidated accounts of limited liability companies (Fourth Directive 78/660/EEC based on Article 54(3)(g) of the EC Treaty on the annual accounts of certain types of companies, as amended and Seventh Directive 83/349/EEC based on Article 54(3)(g) of the EC Treaty on consolidated accounts, as amended) are pending in the Ministry of Justice and may come into force in The directives contain provisions on collective liability of administrators which serve to introduce a declaration on company management as part of the annual accounts of companies listed on the European capital markets and improve the transparency of transactions with connected parties, as well as a declaration on the use of off-balance sheet transactions. In connection with the implementation of the fourth company law directive, the Swedish government has announced its intention to abolish the audit duty for small companies. A proposal on how this is to be done is to be presented at the latest 30 April The Statutory Audit Directive will come into force in 2008, by the latest on 1 July 2008, introducing statutory audit committees, a seven year time limit on the appointment of auditors in listed companies and certain other changes to legislation relevant to auditing (see Question 28). 216 CROSS-BORDER HANDBOOKS

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