Developments in corporate governance in Finland
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Volume 3 Number 4
Developments in corporate governance in Finland Eva Liljeblom* and Anders Löflund Received: 14th August, 2006 *Department of Finance and Statistics, HANKEN (Swedish School of Economics and Business Administration, PO Box 479, 00101 Helsinki, Finland; Tel: +358 9 431 33 291; Fax: +358 9 431 33 393; E-mail: [email protected]
Eva Liljeblom is a professor at HANKEN, head of the Department of Finance and Statistics, and a board member of several firms including companies listed at the Helsinki and Stockholm stock exchanges. Anders Löflund is a professor at HANKEN and consultant in customised compensation systems at Corporate Advisor Group, Helsinki, Finland.
ABSTRACT KEYWORDS: corporate governance, ownership structures, board work, executive compensation, corporate payout policy The recent years have seen many reforms in corporate governance and disclosure in the USA as well as in Europe — so also in Finland. Although the reforms in Europe mostly are based on voluntary corporate governance codes rather than laws such as the Sarbanes–Oxley Act 2002, these developments have in many cases quite radically reshaped elements of corporate governance, such as board work, in Finland. This paper sets out to give an overview of the governance framework in Finland, its recent developments, and reports on some empirical findings concerning governance and compliance.
INTRODUCTION Schleifer and Vishny1 define corporate governance as the ways in which suppliers of financing can ensure a return on their investment. Corporate governance mechanisms defined in this way include (1) shareholder
protection provided by the law, and law enforcement, (2) ways in which owners (such as large owners) can control the firm and its management (including board work), (3) management compensation systems designed to align interests of managers with those of owners, and (4) a well-functioning market for corporate control (the takeover market). Empirical research on corporate governance mechanisms indicate that they at least partly are complementing each other. The US market with its highly dispersed ownership has been a leader in shareholder protection laws. In Europe, corporate ownership has been much more concentrated, which has its advantages and disadvantages. Large ownership stakes have enabled better control over management (less agency problems between owners and managers), but on the other hand, opened up other types of control problems: most notably agency costs between large controlling owners and other owners. The Finnish stock market is a typical European market with a history of high ownership concentration. It is a small market with a market capitalisation of about V223bn (June 2006). Also, state ownership as well as bank ownership have been significant, although not as high as in some other European countries. Many changes in ownership structures took place in the 1990s, however. A banking crisis in the early 1990s
International Journal of Disclosure and Governance, Vol. 3, No. 4, 2006, pp. 277–287 © Palgrave M
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