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The Swedish Corporate Governance Board 1 Say on Pay – pro or con good governance? Presentation at the ecoDa/IFC Roundtable, Brussel 2013-12-17 Per Lekvall The Swedish Corporate Governance Board
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The Swedish Corporate Governance Board 2 Brief update on background and current status Say on Pay = “The vote of shareholders at a general meeting on the policy and/or various components of compensation of executives and/or non-executives, depending on the country.” (IFA report, Nov. 2013) Originally conceived by the Cadbury Commission, the concept was introduced into the EU CG agenda through the European Commission’s Recommendation of 2004 on remuneration of directors in listed companies Since then implemented in a variety of versions in many EU Member States and other parts of the world (cf. IFA report). Examples of variations include: ex ante policy/ex post report including/excluding non-executive directors voluntary /mandatory vote binding/advisory decision and others... Expected to be implemented throughout the EU through the upcoming new Shareholders’ Rights Directive, due before the end of the year: Part of a broader agenda to encourage shareholder engagement in their investee companies But also to increase transparency of executive compensation
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The Swedish Corporate Governance Board 3 Is Say on Pay good for governance? PURPOSES / ALLEGED ADVANTAGES e.g. Giving the shareholders control of overall prihciples for executive remuneration, thus tilting the balance of power more in favour of the shareholders Gives shareholders incentives to get more involved in the governance of companies QUESTION MARKS / POSSIBLE DRAWBACKS e.g. Deprives the board of one of its most powerful instruments for carrying out its fiduciary duties to the shareholders – i.e. to hire/fire and remunerate management Who can be held accountable for bad remuneration decisions by the AGM? “Upward delegation” from the board to the AGM does not necessarily imply better corporate governance
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The Swedish Corporate Governance Board 4 Conclusions In jurisdictions where shareholder power is weak and shareholder engagement generally in short supply: SoP may well be a suitable cog in the wheel towards empowering shareholders and incentivize them to engage in the governance of companies In jurisdictions with strong shareholder power and little general lack of shareholder engagement: The drawbacks may well override the advantages, leading to worse rather than improved corporate governance standards Therefore a mandatory Say on Pay requirement should not be implemented indiscriminately across the EU
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