1. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Good practice for effective Boards in State Owned Enterprises Lars Johan Cederlund Director, Senior Advisor Ministry of Industry, Employment and Communications Sweden

2. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Overview State Owned Companies – the Swedish structure Administration Tools Board nomination - principles Processes Board members Remuneration Examples Rules of Procedure for the Boards Efficiency evaluation and conclusions

3. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s State owned companies in brief 59 companies – 44 wholly owned and 15 partly owned Four listed companies – the state is the largest single owner on the Stockholm Stock Exchange (approx. EURO 10 billon) Total turnover EURO 37 billion Total assets: EURO 107 billion Average no of employees: approx. 200 000 Estimated value: Between EURO 35 and EURO 45 billion More details at www.industry.ministry.se/inenglish/areas_of/state_owned

4. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s State-owned companies by sector By value Estimated total value: 35-45 USD billion

5. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Ownership Administration – objectives and prerequisites Separated responsibility for sector policy and ownership issues Professional boards and managements Value creation. Companies operating under market conditions are to operate under the same conditions and have the same demands made on their activities as other players. Some state-owned companies are primarily intended to fulfil special societal interests.

6. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Administration the Parliament (Sveriges Riksdag)  The Government appoints the Board  The Board appoints the CEO The Board The Government The Ministry of Industry The Division for State-owned companies Management CEO

7. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Ownership Administration – framework and tools The Swedish Companies Act provides the framework for the companies and the articles of association specify the general direction of the company’s activities. Three tier system and part time board members All legal regulations follow private sector regime, no specific regulations for state owned companies The boards bear full responsibility. Special commissions are decided upon by the Swedish Parliament, the Riksdag, regulated by law or by agreement between the company and the state. Guidelines for external reporting, terms of employment, etc. The Government Offices continuously evaluates the performance of the boards and deals with the ownership matters that arise.

8. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Board nomination – principles Chairman – independent from civil service The Chairman has a key function Relevant competence to fulfil the strategy of the company Independent from the management The person responsible at the Ministry is on the board In companies fulfilling societal interests some special competence may be needed e.g. political Employee representation following the same law as private companies

9. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Processes All boards reviewed every year following a standard procedure Evaluation concerning competence needed, present board structure, competence on the actual board Need for change, competence, age etc Search for names – 59 boards, 400 members

10. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Board member structure and work Total number approx. 400 appointed by AGM 140 employee representatives (64 deputies) 7-9 members and 2+2 employee representatives 42 per cent women Recommended internal work plan in the board Internal evaluation every year

11. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Remuneration Fees in line with private sector – the importance of the company and the responsibility are key factors Between 40-60 per cent of CEO monthly salary, chairman twice as members Employee representatives, reduced fee Few deputy board members, half the normal fee In case the CEO is on the board, no separate board fee

12. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Examples Vattenfall AB, power production and distribution Sveaskog AB, forestry Telia-Sonera AB, telecoms, listed

13. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Board of Directors, Vattenfall AB (50 per cent of domestic power production) Chairman: Mr D Klackenberg, former legal secretary Foreign Office, Managing Director Swedish Trade Association, now private sector Three industrialists Two Ministry of which one from the Division for State Enterprises 3 employee representatives 6 + 3 =9

14. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Board of Directors, Sveaskog AB (18 per cent of Swedish forest land) Chairman: Mr B Dockered, Honorary Dr of Agriculture, Private sector Three, industrialists One Ministry from the Division for State Enterprises One MP One civil servant Swedish Institute of Food Economics One forest manager, Swedish Church 3 employee representatives 7 + 3 = 9

15. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Telia-Sonera AB (Telecom operator, listed in Stockholm and Helsinki) Chairman :Mr T Hintikka, industrialist Vice Chairman: Mr C Bennet, industrialist One public sector, former Prime Minister One academic 5 private sector industrialist/economists 3 employee representatives 9 + 3 = 12

16. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Rules of Procedure for the Boards Division of responsibility Information Board meetings Evaluation Board committees

17. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Efficiency evaluation and conclusions Results Good profitability Openness to restructurings Devoted board members including employee representatives Crucial points Structured nomination process necessary Evaluation and contacts with the chairman before nomination The board members have to be comfortable with state ownership

18. M i n i s t r y o f I n d u s t r y, E m p l o y m e n t a n d C o m m u n i c a t i o n s Success factors Board nominations is the most important tool in combination with transparent and clear financial goals Structured process Competence is the key factor Responsibility – no interference from the owner in day to day business Reasonable remuneration