Danish corporate governance 2013 – new recommendations




In May 2013, the Danish Committee on Corporate Governance revised its Recommendations on Corporate Governance from April 2010, most recently updated in August 2011. 

The recommendations were revised in light of the general developments in corporate governance, reflected by a high degree of compliance with the existing Recommendations on Corporate Governance. The Committee also considered it appropriate to simplify the recommendations. In the preface to the new recommendations, the Committee points out that it will monitor developments in corporate governance to continuously develop the recommendations as need be. One of the advantages of the recommendations is that they are ‘soft law’ and thus more flexible to changing circumstances than legislation (‘hard law’). 

The Committee on Corporate Governance, consisting of nine members, has been set up by the Danish Minister of Business and Industry, but acts as an independent body. 

Focus on value creation

The corporate governance debate originally began in the wake of the financial scandals in the late 1980s. The UK Cadbury report from 1992 was a response to the so-called BCCI banking scandal. The Cadbury report defined corporate governance as “the system by which companies are directed and controlled”. 

The first Danish Corporate Governance Recommendations were made in 2001 when the Nørby Committee (named after Lars Nørby Johansen, professional board member and former group CEO of Group 4 Falck) published its report on corporate governance. The Nørby Committee was not the result of any Danish scandal, but was set up by the then Danish Government to strengthen board culture in Danish companies. The Nørby Committee’s objectives of preparing recommendations on corporate governance were to improve Danish companies’ access to funds by creating increased confidence in the companies, to inspire companies to tackle strategic challenges, and to promote good corporate governance by stimulating the debate on corporate governance. 

Board duties have changed markedly over the 12 years that have passed since the Nørby Committee’s report was published. The debate on corporate governance continues to be very important. When Enron filed for bankruptcy in 2001, Enron’s board of directors had prepared all the required guidelines on how the board duties had to be performed, but did not seem to have put them into practice. The Enron case is a good example of the fact that corporate governance is not only a matter of formalities and ‘tick the box’. 

The new recommendations use the expressions ‘value’ and ‘value creation’ more than 20 times. This is more than a two-fold increase from the former recommendations, reflecting a clear message from the Committee that the new recommendations focus on value creation as a key element of corporate governance. The preface to the new recommendations sets out that the purpose of corporate governance is to support value creation and accountable management, and thus to contribute to the long-term success of the companies. 

Comply or explain 

The recommendations are based on the assumption that companies comply with them (the ‘comply or explain’ principle). If a company fails to comply with a recommendation, it must explain why and specify its different approach. 

In order to create the transparency necessary for investors, companies must, when reporting on corporate governance, consider each recommendation and provide clear and adequate information on whether or not they are complying with it. The reason for making alternative choices has significance for assessments by investors. 

As the recommendations are soft law, non-compliance is not a violation of the law, but reflects that the company’s board of directors has chosen a different approach. ‘Explain’ and ‘comply’ are therefore equally acceptable. It is for the investors and the market to decide whether an explanation given by a company and the different approach adopted by the company are acceptable. 

The advantage of the soft law nature of the recommendations is that it provides the recommendations with the flexibility necessary for companies to adjust the principles on corporate governance to their circumstances. Soft law is more dynamic than traditional legislation as it is more easily adapted to the developments within the areas affected. Whereas hard law typically provides a minimum standard that forms the framework for company conduct, soft law reflects best practice. Even if it is a key element of the recommendations that ‘explain’ is just as acceptable as ‘comply’, it is also important that the Committee finds the right balance when drafting the recommendations to ensure the necessary acceptance of the recommendations in the business community. 

The recommendations 

The new recommendations are divided into five sections. 

Section 1, with the heading “Communication and interaction by the company with its investors and other stakeholders”, has its focus on dialogue between the company and its shareholders and other stakeholders. Furthermore, the focus is on active ownership, transparency and openness. The recommendations include how to organise general meetings in order to support active ownership and contingency plans for takeover situations.

Section 2 deals with “Tasks and responsibilities of the board of directors” and focuses on value creation and tasks related to the company’s strategy. Recommendations include annual review of the company’s strategy and guidelines for management.

Section 3 concerns “Composition and organisation of the board of directors” and has its primary focus on the qualifications of the board, including diversity. It is recommended that at least half of the board members are independent and that the board has an annual evaluation procedure. 

Section 4 is titled “Remuneration of management” and includes recommendations regarding the company’s remuneration policy. 

Section 5 concerns “Financial reporting, risk management and audits” and includes recommendations regarding risk management, contact between the board of directors and the company’s auditors and a whistleblower set-up. 


NASDAQ OMX Copenhagen A/S has decided to implement the recommendations into the Rules for issuers of shares, and companies must apply the new revised recommendations for financial years beginning 1 January 2013 or later. The first reporting in respect of the new recommendations will therefore have to be made in connection with the presentation of the 2013 annual report. 


The Recommendations on Corporate Governance are by nature merely recommendations and not binding. It is therefore important to note that ‘explain’ is just as acceptable as ‘comply’ for any recommendation, even if you may get a different impression from the media. If a company elects to ‘explain’, it is, however, important to provide an informative explanation of the different approach taken. A complete explanation will create the transparency necessary for investors. 

When working with the recommendations, companies should bear in mind that the purpose of corporate governance is to support the value creation and accountable management of companies and thus to contribute to their long-term success. In addition, openness and transparency are intended to ensure investor confidence in companies.


Marianne Philip is a partner and Pernille H. Dalhoff is a lawyer at Kromann Reumert. Ms Philip can be contacted on +45 3877 4444 or by email: mp@kromannreumert.com. Ms Dalhoff can be contacted on +45 3877 4341 or by email: phd@kromannreumert.com.

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Marianne Philip and Pernille H. Dalhoff

Kromann Reumert

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