Denmark publishes new governance code
A new Danish Governance code will apply from 1 January 2018. The code calls for boards to contain only non-executive directors, and for retiring CEOs to be prevented from becoming chair or deputy chair as soon as they become board members. Yearly, internal performance evaluations must be conducted, with independent external evaluation in every third year. Although companies will no longer be compelled to have specific gender diversity targets, they must develop diversity policies. Caps must be applied to executive remuneration, recovery provisions should be adopted, remuneration reports must be disclosed and remuneration policies should be updated every four years.

Nearly two years ago, the Danish Ministry of Industry, Business and Financial Affairs announced that it had tasked the Committee on Corporate Governance (“Committee”) with a review of the recommendations of the Danish Corporate Governance Code (“Code”). A draft was published in July 2017 and, following a consultation period, the Committee has now published the final version of their revision of the Code.

The following are some of the key changes made to the Code:

Governance

The board of directors should consist of only non-executive directors and retiring CEO’s should not become chair or deputy chair immediately upon joining the board.

The board should establish a yearly internal performance evaluation process. Every third year the performance of the board should be evaluated by an independent external party.

Companies will no longer be required to set concrete gender diversity targets; however, they should develop and implement a diversity policy.

Remuneration

Companies should make changes to their remuneration policy at least every four years and must get shareholder approval for any material change.

Companies should disclose information on executive remuneration as part of a remuneration report.

The remuneration policy should include recovery provisions in case of miscalculation or misconduct.

Companies should set a cap on overall remuneration for executives.

Former Minister of Industry, Business and Financial Affairs Troels Lund Poulsen stated in 2016 that the goal of the code review is to encourage more active stewardship by Danish pension funds and institutional investors. He referenced the 2010 UK Corporate Governance Code as an example of a new code that encouraged more active stewardship.

While most Danish companies do not have any executive directors, the new amendments will have implications for the likes of A.P. Møller-Mærsk and Rockwool International, where executives do serve on the board.

We also believe the increased disclosure requirements surrounding executive remuneration is a positive change, in preparation for the introduction of the EU Shareholder Rights Directive. In particular, we appreciate the introduction of recovery provisions, which is an important safeguard against the receipt of unwarranted awards.

The revised code will apply from the financial year starting on January 1, 2018 and thereafter.

Paul and Jakob are analysts covering the Danish market. Jakob Nordmark also contributed to this report.