9.3.2.1 Board structure and composition

This part of the composition/structure building block is a weak link in the independence chain of Sweden. The board of directors consists solely of SNEDs, but at most one member of the executive management may be a member of the board. That particular member of the executive management is the managing director in almost all companies. The weak point is that the board of directors can issue directives to the managing director, which he should execute. The board of directors therefore has considerable power over the managing director and the company’s executive management. This is, from an independence viewpoint, a bad practice, because the board of directors issues directives regarding the strategy and daily business and its duty is also to monitor the strategy and daily business.

Furthermore, the composition of the board of directors might have a negative influence on independence. First, at most three employees may have a position on the board. They are non-independent due to their employment and therefore the independence requirements do not apply to them. Second, a majority of the other members must be independent of the company and its executive management. And of this group of independent directors, two directors should also be independent of the major shareholders. Therefore, there are at most three members who are not independent due to their employment, there are nonindependent board members and there are board members who are independent of the company and its executive management, but not of the major shareholders. Actually, therefore, only two board members have to be independent of the company and its executive management and of the major shareholders. This is an undesirable corporate governance practice from an independence viewpoint and should be reconsidered. Board composition numbers show that in practice a majority are already doubly independent, which makes it more convenient to codify this practice in the Companies’ Act and the SCCG.