Corporate Governance: The Swedish 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.” 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.