Summary of the knowledge area
Board work in private, public, state-owned and municipal-owned organizations
Brief
Board work is fundamentally about governance, control and long-term development of an organization. A board is not there to manage day-to-day operations but to ensure that the organization is led in a responsible manner, follows laws and regulations, and achieves its goals. Although the term ”board” is used in many different contexts, there are significant differences between:
- Boards of private limited companies
- Boards of directors in public limited companies
- Boards of directors in state authorities and state-owned companies
- Boards of municipal companies
The differences mainly depend on:
- Ownership structure
- Legislation
- Purpose and mission
- Responsibility and transparency requirements
To understand board work, one must first distinguish between two key concepts:
Owners and Board of Directors
The owners determine the organization's overall direction and appoint the board of directors. The board then is responsible for:
- formulate strategy,
- appoint and supervise the CEO or the Director General,
- follow up the activities,
- control finances and risks.
Board and management
A common misconception is that the board runs the business on a daily basis. In reality, it is:
| Board of Directors | Executive management |
| Determines the direction | Carry out the work |
| Making strategic decisions | Runs the business |
| Exercises control | Operational responsibility |
| Appoints CEO | Head of Human Resources |
The board must therefore be active without becoming operational.
The difference between companies and authorities
A limited company normally has as its ultimate purpose the creation of value for its owners. An authority, on the other hand, has the mandate to implement politically decided societal goals. This means that the same formal body, a board of directors, can have very different working methods depending on the organization’s purpose. Throughout the rest of this article, we will go through:
- historical development,
- how boards function in practice,
- differences between private and public limited companies,
- differences between state and municipal organizations,
- practical consequences for board members.
History
The emergence of the joint-stock company
The stock company developed during the 19th century as a way to pool capital for large investments in industry, trade, and infrastructure. When owners could no longer run the business themselves, the need arose for a board that:
- represented the owners,
- supervised management,
- protecting the interests of investors.
Swedish company law has gradually evolved towards increased requirements for:
- responsibility,
- transparency,
- auditing,
- risk control.
State and public boards
During the 20th century, the public sector grew significantly. The state needed forms of governance for:
- authorities,
- university,
- business agency,
- state-owned companies.
The boards therefore had a broader societal mission than is typically the case in private companies.
The board of directors of a private limited company
A private limited company is characterized by:
- shares must not be sold to the public,
- often have few owners,
- The owners often sit on the board themselves.
Tasks of the Board of Directors
According to the Swedish Companies Act, the board of directors must:
- be responsible for the organization,
- ensure good financial control,
- establish strategies,
- supervise the CEO.
In smaller private companies, board work is often informal. Many decisions are made through close dialogue between:
- owner,
- board of directors,
- CEO.
Advantages
- Quick decisions
- Short decision-making paths
- Near the business
Risks
- Lack of documentation
- Role conflicts between owners and the board
- For weak control function
The board of directors of a publicly traded company
A public limited company can offer shares to the public. If the company is listed on the stock exchange, the requirements increase further.
Special requirements
The board must handle:
- expectations of the capital market,
- the interests of the shareholders,
- market abuse legislation,
- information provision.
Working method
Public companies' boards usually work through committees:
Audit Committee
Monitoring:
- internal control,
- risk management,
- external audit.
Replacement committee
Handles:
- CEO salary,
- bonus programs,
- incentive system.
Competency requirements
Members are often recruited based on:
- industrial experience,
- economy,
- law,
- international operations.
Higher personal responsibility
Public companies generally mean larger:
- legal responsibility,
- media scrutiny,
- market risk.
Is there a difference between a private and a public limited company?
Yes, significant differences.
| Area | Private limited company | Publicly AB |
| Share sales | Limited | To the public |
| Minimum share capital | Lower | Higher |
| Governance | Simpler | More formalized |
| Information requirements | Limited | Extensive |
| Board competence | Variates | Higher requirements |
| Review | Lower | Very high |
The basic responsibility under the Companies Act is, however, largely the same.
Board of directors in state-owned companies
State-owned companies are still limited companies and are governed by the Companies Act. Examples include companies in the following sectors:
- energy,
- transport,
- community service.
Double goal objective
The board often has to balance:
- Businessness
- Social mission
This is a key difference compared to many private companies. For example: A state-owned company may need to:
- maintain service throughout the country,
- contribute to employment,
- at the same time delivering financial returns.
Composition of the Board of Directors
Usually pursued:
- broad expertise,
- independent position,
- experience from both the business and public sectors.
Boards in state authorities
Here the differences become even greater. One authority has no shareholders. Instead there are:
- government,
- the Riksdag,
- citizens.
The Board's mission
The focus is on:
- legal certainty,
- efficiency,
- follow-up of assignments,
- internal control and monitoring.
Agency boards do not normally work with profit maximization. Instead, they scrutinize:
- goal fulfillment,
- operational quality,
- social benefit.
The role of the Director General
In many authorities, the general director partially corresponds to a CEO. The difference is that the general director operates within public law frameworks and politically determined goals.
Board of directors in municipal companies
Municipal companies are often limited liability companies owned by:
- municipalities,
- regions.
Examples:
- housing companies,
- energy companies,
- ports,
- water and waste companies.
Special rules
Here applies both:
- the Companies Act,
- the municipal law.
This creates a special management model.
The principle of purpose
Municipal companies are normally intended to promote a municipal purpose. This means that financial profit is not always the main goal. The key point is:
- benefit for the residents of the municipality,
- long-term societal development.
Political connection
Municipal boards often consist entirely or partially of politically elected members. This means:
Advantages
- Democratic roots
- Lokal knowledge
Disadvantages
- Risk of politicization
- Shorter time horizon
Ecosystems surrounding board work
Boards do not seem to operate in isolation. They are influenced by:
Laws
- Companies Act
- Municipal Law
- The principle of public access
- Accounting Act
- The annual reporting act
Professions
- CEO
- CFO
- Auditors
- Lawyers
- Compliance specialists
- Risk Managers
Frameworks
Many larger organizations use:
- Swedish code for corporate governance
- COSO (internal control)
- ESG and sustainability governance
Practical examples
Example 1: Private owner-managed company
The owner sits on the board and is also the CEO. The board's focus often becomes:
- investments,
- profitability,
- growth.
The decision-making processes are short but the risk of weak independent control is higher.
Example 2: Municipal housing company
The board must weigh the following factors:
- economic sustainability,
- housing supply,
- social goals,
- municipal politics.
A decision regarding rental levels therefore becomes significantly more complex than in a purely private real estate company.
Summary
All boards have the same basic task:
to manage, control and develop the business on behalf of the owners or society.
The differences mainly lie in:
| Type | Primary goal |
| Private limited company | Asset value |
| Publicly AB | Asset value and market confidence |
| State-owned company | Businessness + social responsibility |
| Authority | Social mission |
| Municipal company | Community benefit and financial sustainability |
The more public activity there is, the greater the importance of:
- transparency,
- democratic accountability,
- public scrutiny.
The more market-oriented the business is, the greater the importance of:
- return on investment,
- competitiveness,
- investor confidence.
Advantages of well-functioning boards
- Better strategic decisions
- Stronger risk management
- Closer division of responsibilities
- Higher confidence among owners and stakeholders
- Long-term sustainability
Disadvantages, risks and limitations
- Boards can become too operational
- Unclear responsibility between board and management
- Politicization in public organizations
- Group pressure and lack of independence
- Short-termism in a focus on results
Five readiness questions
- Do I understand the difference between management and operational management?
- Do I know what task the organization’s owner or principal has given the board?
- Is there sufficient expertise on the board regarding the risks and strategy of the business?
- Is the division of responsibilities between the board, CEO and owners clear?
- Does the board have adequate processes for follow-up, control and risk management?
Recommendation
If you want to work in or with boards, the next step is to immerse yourself in:
- The Companies Act.
- Swedish code for corporate governance.
- Local government laws and regulations for municipal companies.
- Practical board work, board responsibilities and risk management.
- Differences between ownership control, corporate governance and public governance.
A particularly interesting detail is the comparison between governance directives in municipal companies, the government's control of state-owned companies, and corporate governance in listed companies, Because it clearly shows how the same board function can look very different depending on who is the ”owner” and what societal mission the organization has.
