Frontpage News 2013 Better management ...

Better management in the banks

22 November 2013

Today, the Danish Bankers Association publishes a new management code. This is a direct response to the crisis’ cases of poor management, management betrayals and inappropriate management structures. 

The aim with the Danish Bankers Association’s manager’s code of conduct is to achieve better management in the banks by focusing on culture, behaviour and competencies. The code is a response to the conditions we have seen about poor management and inappropriate management structures in the banking sector.
This includes e.g. recommendations on strengthening the competencies and recommendations of board members, which are to improve the board’s options to perform as a controller of the daily management.
As the only industry organisation, the Danish Bankers Association already recommends that all member companies comply with the recommendations from the Committee on Corporate Governance, and that the members makes demands on the external revision. This applies for both listed and unlisted companies. We maintain this in our manager’s code of conduct, and we have thus made 12 recommendations.  
The Danish Bankers Association’s management code stretches further than the recommendations from the Committee on Corporate Governance demands, and the code also goes beyond the tightening of the rules on the corporate governance area, carried out since 2008. Therefore, the code will help strengthen the management dimension in the financial sector.
The Danish Bankers Association’s manager’s code of conduct includes, among other things, the following new initiatives:
  • Recommendation on developing and publishing a management code for the company
  • Recommendation on the board’s composition and competency development
  • Recommendation concerning the cooperation between the board and the daily management

The Rangvid Committee

The Danish Bankers Association’s management code addresses two of the Rangvid Committee's four corporate governance-related recommendations. Those are recommendation 13 (on the board’s control the daily management) and 14 (on courses for board members). The code goes beyond the Rangvid Committee's recommendation on education.
The Rangvid Committee's recommendation 12 (on ownership and voting rights) is not addressed directly.
The Danish Bankers Association believes that it should be up to the individual banks whether they want ownership and voting restrictions in their articles of association. Also, the recommendations of the Committee on Corporate Governance contain a recommendation on that companies account for capital and ownership structure, including i.a. voting rights. Hence, the issue is not independently addressed in the new management code.
Nor is the Rangvid Committee's recommendation (No. 17) on the prohibition of variable remuneration, which depends on the volume of sales of securities to persons involved in counseling/sale of securities to retail customers, addressed in the new code. We are not dismissive of the recommendation. When it is not included in the Danish Bankers Association’s management code, it is due to the fact that the issue relates to employee relations, and they are not covered by the purpose of the management code.

Comply or explain

The Danish Bankers Association recommends that member companies should address the recommendations in the new management code according to the "comply or explain" principle. This means that if a member company chooses not to follow a recommendation, it must explain why and tell how it instead has chosen to adapt.
The Danish Bankers Association’s management code will enter into force on 1 January 2014. The Danish Bankers Association recommends that member companies every year thereafter, and in relation to their financial statements, publish a statement of how they relate to all recommendations in the Danish Bankers Association’s manager’s code of conduct. The first time will be in connection with the annual report for 2014.
Member companies must, however, already with the presentation of the financial statements for 2013 relate to all the recommendations of the Committee on Corporate Governance.



Summary of significant legislative changes in the corporate governance area since 2008
The Danish Bankers Association’s manager’s code of conduct should be seen in relation with the tightening of the legislation implemented since 2008 in the corporate governance area. It is, among other things:
Provisions concerning fit and proper process
  • The concern for the confidence in the financial stability must be considered by the assessment
  • The provisions are tightened with CRD IV in relation to qualifications, experience and the allocation of sufficient resources to the task
General requirements for the management (the management order)
  • Detailed requirements for the board on the establishment of business activities, risk profile and policies hereon, preparation of written guidance to the executives as well as ongoing evaluation of whether the risk profile and guidelines correspond to the business related activities
  • Continuous control over the executives’ performance of tasks
  • Detailed regulation of the board's tasks and responsibilities and executives’ tasks and responsibilities in the following areas: the area of credit risk, market risk, operational risk, liquidity risk, IT security and organisation of the work of the board.
  • Violation of the rules is largely enforced by criminal penalties, which stands in contrast to the past where many factors were just described in instructions.
Whistleblower scheme
  • Is introduced to the implementation of CRD IV
  • Determination of remuneration policies and -practices to be approved by the General Assembly
  • Capping the proportion of variable pay
  • The composition of the variable remuneration
  • Postponement of parts of the variable remuneration
  • The rules increases when CRD IV implemented

Management committee

  • A requirement on nomination and risk committees in major banks in relation to the implementation of CRD IV
  • Is included in the Committee on Corporate Governance's recommendations in respect of the member companies that are not covered by the statutory requirement

Restrictions on voting rights

  • There is established a rule that the statutory restrictions on voting rights in savings and cooperative banks are terminated if the company is in financial crisis. That is, if the amount of equity, that is not guarantee- or share capital, amounts to less than 20 percent of equity. The aim is to attract investors in order to avert the crisis and avoid settlement. There are no corresponding statutory restrictions on voting rights for banks.

Capping of management positions

  • A limitation on the number of executive and board positions that board members of SIFIs can hold

Good practice

  • Prohibition of progressive benefit programmes associated with ownership of shares or deposits in guarantee capital or share capital
  • Requirements of shareholding with a market value of more than 30,000 DKK or a deposit of guarantee capital of a maximum of 30,000 DKK as a condition for the entry into a benefit programme
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