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One of Europe’s leading industrialists has lambasted proxy adviser ISS for attacking a central plank of Swedish capitalism, accusing it of misusing a law to take aim at unequal voting rights.
Jacob Wallenberg, whose family investment vehicle owns large stakes in companies such as Ericsson, Nasdaq, Electrolux and Saab, told the Financial Times he was troubled by a proposal from ISS that from next year it will recommend voting against directors at businesses that have different classes of shares with unequal voting rights.
“If they’re successful, it would mean a significant change to the Swedish stock market,” he said. “There is a reason why all shareholders have agreed to this set-up. I don’t see why a third party should force through a change because they have a different view.”
Almost three-quarters of the market capitalisation on Stockholm’s stock market is for companies with dual-class shares, which give higher voting rights to holding companies such as Investor, the Wallenberg investment vehicle.
ISS, which provides voting recommendations for mostly international shareholders, has said that from February it will suggest voting against individual directors or against the discharge from liability of board members if there are unequal voting rights.
Wallenberg conceded that dual-class shares were a legitimate topic to discuss but that it was an issue to take up with shareholders, not board directors whose job is to oversee companies’ management.
Wallenberg said being denied discharge from liability was meant to be “a punishment” that opened up the board to damage claims.
“It’s misusing a tool to make noise. It’s an obvious and deliberate attempt to circumvent the purpose of the law to make noise.” In the worst case, he argued, it could hamper recruitment of board members in Sweden.
Georgina Marshall, global head of research at ISS and chair of its global policy board, disagreed, saying three-quarters of investors in a survey the proxy adviser conducted wanted it to consider issuing “adverse voting recommendations” over unequal voting rights and other poor governance structures.
Wallenberg claimed that A and B shares worked well “for those who want to be a long-term shareholder and maintain control”, such as Investor. But he said the dual class of shares only made a difference at a few of its holdings, such as Ericsson, Electrolux and Investor itself. At Investor, Wallenberg foundations own 22 per cent of the capital but enjoy 47 per cent of the voting rights.
Wallenberg stressed that under the “freedom to contract”, other investors had agreed to the different voting rights.
He added that he found nobody to talk to at ISS about the issue and that it had decided on this issue without “free discussion”.
“There’s no oversight of proxy advisers. I find that troubling. They have very significant impact.”
Marshall underscored that ISS was a registered investment adviser subject to oversight from the US Securities and Exchange Commission.
She added that data showed ISS did not wield too much power, as it had recommended voting against about 21 per cent of large European companies’ remuneration reports in 2022 but just 1.6 per cent failed to pass, “demonstrating that investors make up their own minds”.
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