Corporate Governance: The Sweedish Solution

The optimal allocation of authority among executives, directors, and shareholders of public companies has been debated as long as there have been public companies, and the issue now seems further from resolution than ever. In recent years Sweden has changed its corporate governance system by delegating the nomination of corporate directors (and thus, in effect, ultimate control) to committees typically comprising representatives of each company’s largest shareholders. This system gives shareholders a degree of power “that only the most daring corporate governance initiatives in the rest of the world could even imagine.” 1 The change is a big success—it has pleased many corporate constituencies without upsetting any. Part I of this Article describes that change and some similar developments in other countries. Part II discusses whether the Swedish model can work in America and concludes that it can. Part III offers two promising ways to move toward shareholder primacy. I. THE TRANSFORMATION OF CORPORATE GOVERNANCE IN SWEDEN (WITH NOTES ON SEVERAL OTHER COUNTRIES) .. 1634 A. Sweden 1634 B. Corporate Governance in Other Foreign Countries ... 1642 II. THE RELEVANCE OF THE SWEDISH EXPERIENCE TO THE UNITED STATES 1644 A. Shareholder Conflicts 1644 B. Investor “Short-Termism” 1649 C. Shareholder Ignorance 1655 D. Self-Dealing by Powerful Shareholders 1657 E. Employees and the Social Welfare System 1658 F. Corporate Governance and Other Constituencies ...... 1661 G. If Shareholder Primacy is Beneficial, Why Haven’t Shareholders Adopted It? 1661  Schott-van den Eynden Professor of Business Organizations Law, Case Western Reserve University School of Law. I thank David Becker, Henry Hansmann, Charlie Korsmo, Lawrence Mitchell, David Porter, and Simon Wang for their helpful suggestions, and Nicholas Lanphear and Daniel Tirpack for their able research assistance. 1. Jesper Lau Hansen, On the Independence of Directors in the Nordic Countries— Where the Shareholder Is King, in 1 SHAREHOLDER CONFLICTS 69, 69 (P. Kruger Andersen et al. eds., 2006). 1 Dent: Corporate Governance: The Sweedish Solution Published by UF Law Scholarship Repository, 2012 1634 FLORIDA LAW REVIEW [Vol. 64 III. TWO WAYS FORWARD 1662 A. SEC Rulemaking 1663 B. Shareholder-Adopted Bylaws 1665 CONCLUSION 1668 I. THE TRANSFORMATION OF CORPORATE GOVERNANCE IN SWEDEN (WITH NOTES ON SEVERAL OTHER COUNTRIES)