6.2 Country choice

Four reasons underpin the choice for the United Kingdom, the Netherlands and Sweden. First, each of the three countries has a different board structure. The Netherlands has a dual board structure with a separate management board and a separate supervisory board, whereas companies in the United Kingdom have a unitary board structure. On unitary boards both executive directors and supervising NEDs have a seat. The Netherlands offers a possibility for companies to establish a unitary board as well. Although Sweden has a unitary board structure, it has different characteristics than in the United Kingdom. A unitary board in Sweden only comprises NEDs and representatives of employees and shareholders, but no executive directors.

A second reason is the classification based on the way companies in a particular country are financed (Nobes and Parker 2000: 20-23). Nobes and Parker divide countries in two classes (Class A or Class B countries). Class A countries, including the Netherlands and the United Kingdom, have many outside shareholders and a strong equity market. Shareholders do not have access to internal information, and there will be more pressure for disclosure, audit and fair information. In Class B countries, including Sweden, ownership is kept to a greater extent within banks, families or government; in these countries the need for published information is less clear.

A third reason is the difference in shareholder orientation between the three countries. The United Kingdom has a strong focus on shareholders and protects them heavily. The Netherlands and Sweden have a less strong focus on shareholders and the protection is proportionate. The focus on shareholders can be measured based on the Antidirector Rights of La Porta et al. (1998). Although this model has received heavy criticism (e.g. Cools (2005)) it is used here to make a distinction in the protection of shareholders. On a scale from 0 to 5 the United Kingdom scores 5, the Netherlands 2 and Sweden 3 with respect to shareholder protection (La Porta et al. 1998: 1126-1134). In the same line of reasoning the United Kingdom can be considered to have an Anglo-Saxon orientation, whereas the Netherlands and Sweden adhere to the Rhine Model (Albert 1993). The Anglo-Saxon orientation is focused more on short-term interests, whereas the Rhine model regards collective achievement and consensus as a means to achieve long-term success.

A fourth reason is the difference in legal system. The United Kingdom has a tradition of common law. The principles of common law ‘appear for the most part in reported judgments, usually of the higher courts, in relation to specific fact situations arising in disputes which courts have adjudicated. The common law is usually much more detailed in its prescriptions than the civil law’ (Tetley 2000: 684). The Netherlands and Sweden have a civil law tradition. In civil law countries the law is codified and ‘highly systematised and structured and relies on declarations of broad, general principles, often ignoring the details’ (Tetley 2000: 683). However, both systems have characteristics of each other. Refer to Merryman (1981) for a discussion on the differences, convergence and divergence of common law and civil law traditions.

The inclusion of countries with different board structures, from each of the two groups with respect to corporate finance, from countries with different orientation with respect to shareholders and stakeholders, and from different legal systems enables a broad inference to be made with respect to the impact of the legal framework on independence. In the remainder of this part the United Kingdom is described first, then the Netherlands and thereafter Sweden. This order is based on the size of the GDP of these countries.