Corporate governance in 2008
Första AP-fonden is one of the 15 largest holders of equities in the Swedish market. As a result, the Fund takes part in preparations ahead of general shareholder meetings either directly in the nominating committees or in collaboration with other shareholders represented on these committees. In 2008 the Fund participated in 38 shareholder meetings, including 32 annual and six extraordinary shareholder meetings. The Fund was also represented on the nominating committee of Lundin Petroleum.
In favour of self-regulation
The Fund is in favour of the Swedish system of self-regulation and is working actively to preserve it. Together with the Swedish Companies Act this self-regulation, partly through the Swedish Code of Corporate Governance and active ownership, provides a foundation for good corporate governance. In 2008 the Code was revised to require compliance even by smaller listed companies.
Första AP-fonden supports the inclusion of smaller companies in the Code, since it is important for confidence in the companies and the Swedish market as a whole, not least with regard to smaller companies. However, it is natural to expect these smaller companies to explain non-compliance with certain rules to a greater extent.
Evaluation of incentive schemes
For the past few years Första AP-fonden has urged Swedish company boards to evaluate the effects of incentive schemes from a shareholder perspective. For the shareholders and for the boards, which are responsible for ensuring that the companies’ compensation systems are properly structured, it is vital that incentive schemes are well adapted to the individual company’s situation and designed to produce the best possible results for the company and its owners.
The evaluation should answer the question of whether the shareholders, who resolve on these schemes at shareholder meetings and who foot the bill for them, get value for money. Are the incentives effective in enabling the companies to recruit personnel? Is it easier for a company with an incentive scheme to retain competent staff? Do the managements of companies with such schemes work more efficiently and in a manner that benefits the shareholders? Första AP-fonden is aware that incentive schemes are difficult to assess, but because they involve such significant values the Fund nonetheless emphasises the importance of evaluations. A few companies have undertaken very ambitious evaluations that can serve as a model for others. Over time, more companies will carry out evaluations and the quality of these will increase.
Capital structure
During the previous market upswing, many shareholders felt strongly that companies should adjust their capital structure and distribute more money to the shareholders. In current economic crisis the focus has shifted and the drawbacks of excessive debt have become clear. In its role as owner, the Fund has taken part in discussions with the companies about their capital structure. However, it should be pointed out that the boards are best able to determine the best capital structure for their companies. The boards must then convince the shareholders – which have the formal decision-making authority – of the need to make changes, and in such case determine how they will be accomplished. As the preferred alternative, Första AP-fonden advocates the use of general methods such as preferential rights issues, extra dividends and redemption programs to adjust the capital structure. A buy-back of the company’s own shares is one of several available ways of achieving this and can be used when no other means are appropriate.
Participation in general shareholder meetings in 2008
|
Alfa Laval |
SAS |
|---|---|
| Assa Abloy | SCA |
| Atlas Copco | Scania |
| Autoliv | SEB |
| Carnegie | Securitas (2) |
| Electrolux | SHB |
| Ericsson | Skanska |
| Getinge (3) | SKF |
| Hennes & Mauritz | SSAB |
| Husqvarna | Swedbank (2) |
| Investor | Swedish Match |
| Kinnevik | Tele2 |
| Lundin Petroleum | TeliaSonera |
| MTG | TradeDoubler (2) |
| Nordea Bank | Volvo |
| SAAB | Vostok Gas |
| Sandvik |
|
Ethical and environmental compliance
The Ethical Council was established in 2007 and its activities progressed very well in 2008. Early in the year, the Ethical Council decided to raise its level of commitment in the companies with which it is engaged in dialogue. The goal was for a member of the Ethical Council to visit each such company in person as a means for increasing the opportunities to bring about a change. This proved to be a sound decision and enabled the Ethical Council to exert a greater influence. Among other things, the French company Sodexo was removed from the Ethical Council’s dialogue list after taking the action requested by the Council. For more details, see the Ethical Council’s annual report to be published at the end of the first quarter of 2009.
In the past year considerable time was also devoted to analyzing how the new Convention on Cluster Munitions, which has been signed by Sweden, will affect the Fund’s management. The analysis resulted in a decision by the Board to exclude nine companies from the Fund’s investment universe on the grounds that their operations were not consistent with the convention (see fact box).
Companies excluded from Första AP-fonden’s investment universe
- Alliant Techsystems (cluster munitions)
- GenCorp (cluster munitions)
- General Dynamics (cluster munitions)
- Hanwha Corporation (cluster munitions)
- L-3 Communications (cluster munitions)
- Lockheed Martin (cluster munitions)
- Poongsan (cluster munitions)
- Raytheon (cluster munitions)
- Singapore Technologies (antipersonnel landmines)
- Textron (cluster munitions)
Furthermore, the Fund has voted on some twenty shareholder resolutions in foreign companies, some linked to issues touching on their dialogues with the Ethical Council and others related to the companies’ environmental reporting. The ambition for 2009 is to be a more active owner outside Sweden. Among other things, the Fund will exercise its votes in more foreign shareholder meetings and then evaluate the results.
Dialogue has also been initiated with a handful of Swedish companies, both for proactive purposes and as a reaction to specific events. For example, the Fund visited a few of Assa Abloy’s factories and subcontractors in Sweden and the Czech Republic together with other investors and continued its ongoing dialogue with the company regarding its Corporate Social Responsibility (CSR) efforts. Assa Abloy was also contacted when the Fund became aware that the company had a production unit on the West Bank, a facility that the company later decided to move.
As in earlier years, the Fund participated in two international initiatives, EITI (Extractive Industries Transparency Initiative, for greater transparency in expenditure and revenue streams between all stakeholders in contracts related to exploitation of natural resources) and CDP (Carbon Disclosure Project), for greater transparency in corporate disclosure of information on greenhouse gas Emissions). The Fund signed up to the UN’s Principles for Responsible
Investment (UN PRI) in 2007 and took part in the annual conference during 2008 in order to exchange experiences.
