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Investor's general counsel on the importance of background checks in board appointments

Each year Petra Hedengran plays a pivotal role in proposing new board members to some of the most well-known companies on the Stockholm Stock Exchange. Background checks have become standard procedure to ensure that candidates live up to the high standards expected of board members.

When Petra Hedengran was appointed general counsel at Investor sixteen years ago, it was decided that she would also assume a special responsibility for ownership governance issues. Since then, she has been involved in many board recruitments in her role as nomination committee chairman for a large number of listed companies.

"...I have a long-term collaboration with Look Closer..." - Petra Hedengran

- I am involved in board recruitment in all our listed companies except ABB, Astra Zeneca and Nasdaq, which have a different type of corporate governance. Most of our listed companies have an owner-controlled model, which means that we, as the largest owner, appoint the chairman of the nomination committee. Part of my work is therefore to be chairman of the nomination committee, and lead and coordinate the work in most of our listed companies.

Petra Hedengran oversees the work in the eleven nomination committees where Investor appoints nomination committee chairpersons and is herself chairperson in eight of these, including for Atlas Copco, SEB and Sobi.

For more than ten years, she has also been a member of the board of the Association for Generally Accepted Principles in the Securities Market, where she is vice chairman. This association has an important role in the Swedish model, with its large element of self-regulation. The association encompasses bodies such as the Swedish Securities Council and the Swedish Corporate Governance Board.

Early summer 2023, this year's general meeting season is largely over, which means a quieter time for the election committees. But the process of finding board candidates is constantly ongoing. Petra Hedengran describes how several different trends have led to a professionalization of the recruitment process in recent years. She gives examples such as the necessity to find completely new candidates, often abroad, an increased regulatory burden which means that a member cannot take on too many assignments, as well as a generally increased competition to attract the best candidates.

"The process has become very professional"

- Fifteen years ago, there was a greater element of searching in different networks, you didn't always involve a recruitment consultant. Whereas today you almost always hire a consultant, which means that you search much more broadly and in larger regions. This in turn means that you have qualified candidates who you are not familiar with from before and who may have worked in companies that you don't know as much about.

- This has led to background checks going from being something that felt very special and odd to do on board members, to being normal. Today there must be a reason not to do it, it has almost become standard.

Petra Hedengran feels that there is a consensus among the other large owners on the stock exchange. Among the candidates, it is also not perceived as a big issue today, especially among candidates who come from an Anglo-Saxon tradition where background checks have been more common historically.

- Our mission is to find a person who is fit and proper, and therefore a background check is justified for candidates that we have not dealt with before. The simple reason is that we cannot appoint someone who turns out to have a criminal record or does not have their academic credentials in order. For us to say "we didn't do a background check because it is perceived as violating privacy", that doesn't fly, not for us as professional owners. So, it's something that you have to put up with as a candidate for a board and I haven't come across anyone who has been upset by us doing that. Most people see it as normal.

Often the recruitment consultants themselves offer background checks, but when it comes to candidates with histories from several different countries and when it comes to particularly important appointments, specialized companies are retained.

- We use different providers for background checks and I have a long-term collaboration with Look Closer. I think they provide a good service with relevant information and advice and they can solve the assignment even if it concerns multiple jurisdictions.

Investor also carries out background checks in other contexts. In general, the review is more limited in the case of board recruitment for a listed company than, for example, in the employment of a senior executive or in the case of a company acquisition.

- We don't do it on all our own staff, but when we hire someone who will be part of the management team or who will deal with risk control, internal control or compliance, we do fairly thorough background checks. I cannot hire a compliance officer who has a partner who has committed a financial crime, for example.

Regardless of scope, the findings of a background check always result in an assessment and a conclusion. In the vast majority of cases there are no major issues, but sometimes adverse findings (red flags) appear - directly disqualifying the candidate. The most difficult ones are those that fall somewhere in between.

- We have several times had to discontinue recruitment processes because of things that have come up in the background check. In one case it related to academic merits. The person's competence was certainly excellent and in a way you might be able to understand how the claim ended up on the CV, it might have been a mistake once a long time ago. But that's a reputational risk we can't take. It could also constitute a risk if the incorrect information was used in different contexts. It could potentially be a violation of, for example, American securities legislation.

Another complex assessment issue relates to a candidate's media footprint, and increasingly also social media.

- Ultimately, we are the ones who have to make the call. And if we can’t be certain, we won't take the risk. For us, it's about nurturing a reputation and minimizing risk. We're quite risk averse, I'd say. The alternative can constitute enormous bad-will for the brand in the specific company.

However, the result of a background check also presents an opportunity to get closer to the candidate. When the review is done openly and with consent, it is easier to sit down with the candidate and address potential question marks. Things that stand out can quickly get a reasonable explanation and be written off, alternatively a communication plan can be agreed upon should questions from outsiders arise.

- It may end with us sitting down with the candidate and together clarifying how to communicate and respond to questions about different matters. What does the individual say, what do we think and how can we justify that the matter in question does not constitute an issue? That way we can come up with a solution that everyone feels comfortable with.


When it comes to trends that affect recruitment, the increased sustainability requirements also indicate that companies will take background checks more seriously in the future. One example is the upcoming EU directive CSDD (Corporate Sustainability Due Diligence Directive), which requires companies to ensure environmental requirements and human rights throughout the supply chain. How far-reaching the requirements should be is currently being discussed.

- This will probably also affect how you look at hiring. When you are charged with responsibility at several levels to check that there is no child labor, for example, it is clear that you do not want to hire someone who has been involved in something like that, even if it was legal in the country where it happened. I think it will matter.


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