Frontpage News 2013 The Danish Bankers...

The Danish Bankers Association’s manager’s code of conduct

22 November 2013

​The financial crisis and the impacts of it have shown that parts of the banking sector has been characterised by bad leadership and unsuitable management structures. Dispositions based on too much optimism have been made, and we have seen examples of clear management betrayal and bad business morals.
 
In continuation of the financial crisis, a number of initiatives have been implemented which implies that the banking sector is now subject to a variety of laws and other regulations of managerial issues. However, the Danish Bankers Association believes that it may be advisable that the banking sector takes further action in order to sharpen the focus on the management of the sector.
 
Therefore, the Danish Bankers Association has drawn up a code of management recommendations to member companies. The recommendations go further than the legislation and recommendations from the Committee on Corporate Governance.
 
The purpose of the recommendations is partly that member companies actively consider a number of key managerial issues, and it also provides greater transparency on the framework for the management of individual member companies in order to increase confidence in the banking sector.
 
The member companies' statement in relation to the management code is prepared in accordance with the "comply or explain" principle. This means that each member company should decide to what extent they want to comply with the recommendations. If a member company does not comply with a recommendation, the member company must provide an individually crafted explanation of why they have chosen differently, and how they instead have chosen to adapt. Failure to comply with a recommendation is not a violation, but the expression of a company that has decided to organise in a different way than according to the recommendation. 
 
The management code’s first recommendation relates to the recommendations from the Committee on Corporate Governance, which is why reporting of this recommendation should be in accordance with the reporting rules laid down by the Committee on Corporate Governance.
 
In relation to the disclosure of the member companies' statement on the management code’s other recommendations, the Danish Bankers Association finds that this happens best, and with the greatest impact, on the company’s website - with a precise reference thereto in the management report.
 
The first time member companies must account for the management code will be in relation with the Annual Report for the financial year 2014.
 

General recommendations

1. The Danish Bankers Association recommends that member companies address all the recommendations of the Committee on Corporate Governance. See the link
 
2. The Danish Bankers Association recommends member companies to prepare and publish a code of conduct with a description of the company's values and desired behaviours for the company's operations and management.
 
Comment: There should be a common understanding among management and employees of the value basis of the company's operations and management. This framework could include the company's customer policy and the company's values and should be accessible to member company clients, investors and other stakeholders.
 

Recommendations regarding the composition of the board

3. The Danish Bankers Association recommends that member companies use a well-defined and structured process for recruitment of candidates for the board and possibly involve external competence.
 
Comment: In order to ensure the best possible candidates for the board, there should be a well-defined and structured process to i.a. identify the particularly suitable candidates, the selection, etc. Involving external assistance in the process may be considered. 
 
4. The Danish Bankers Association recommends that member companies, whose articles of association include conditions about that the board can only be selected within a restricted group of people explains the background to these limitations.
 
Comment: Statutory limitations on who can be elected as a director of a company limit the field of candidates. In order to ensure transparency about the limitations should member companies, whose articles of association contains such limitations, explain the reason for the rules.
 

Recommendations on training of board members

5. The Danish Bankers Association recommends that board members as soon as possible and no later than 6 months after accession commence a course in banking operations, unless the member already has specific banking skills. The course is to reflect the company's size, business model and complexity.
 
Comment: The topics for the training concerns both the board members’ overall tasks in relation to, for example, strategy and general management as the more specific and technical duties in areas such as credit, risk or knowledge of specific industries, as a member company is particularly exposed to.
 
The training can be carried out internally or externally and must reflect the substantive and qualitative requirements imposed by the financial legislation and the company's business model and scope. The training could be implemented as e-learning.
 
If a board member possesses the updated banking skills at a level equivalent to what would be necessary in relation to the company's size, business model and complexity, that person must not undergo such training in banking operations.
 
6. The Danish Bankers Association recommends that the board regularly receives skills that are relevant to the board profession. Topics and scope must be adapted to the company's size, business model and complexity. 
 
Comment: Relevant skills may partly be maintenance of existing skills, but can also deal with new issues of benefit to the board member's tasks.
 
In addition to company’s size, business model and complexity, the extent depends on the competency development of each member's needs. The issues can be both in the board members' main tasks in relation to, for example, strategy, general management and general society, but may also relate to more specific and professional areas such as financial law, accounting rules, risk management or knowledge of specific industries that the company is particularly exposed to. Depending on the needs of the individual board member, and executive board programme may be relevant and/or a focus on more specialized topics. Today, there are several relevant and recognized executive board programmes and more specialised courses at high professional level in several forums. Competency development could be implemented as e-learning.
 
Discussions on competency development could take place at the annual review process of individual board members.
 

Recommendations concerning the evaluation of the board and its members

7. The Danish Bankers Association recommends that each member annually makes an evaluation of his or her duties. Board member must, as part of the evaluation, complete an evaluation form, which affects both managerial and technical banking issues.
 
Comment: To ensure the best possible outcome, the evaluation work should be carried out by a well-defined and structured process. The evaluation form contributes to this as the start of a board member self-assessment. The form must affect managerial and technical banking issues and be adapted to company size, business model and complexity.

Recommendations regarding the cooperation with the company’s daily management

8. The Danish Bankers Association recommends that relevant specialists are involved in cooperation with the board, including participating in board meetings in connection with the discussion of particularly complex cases.
 
Comment: The inclusion of a member company’s specialists in cooperation with the board contributes to a high level of expertise in board discussions. The involvement may happen on the executives’ initiative, but can also be by specific request of the board.
 
9. The Danish Bankers Association recommends that cooperation between management and the board is discussed at the board meeting at least once a year. The management is not present during these discussions.
 
Comment: The cooperation between the board and the management must therefore be a regular item on the agenda for board meetings at least once a year. Discussions can both relate to cooperation in general, but also how cooperation has progressed when dealing with specific cases.
 

Other recommendations

10. The Danish Bankers Association recommends that a list of board members' participation in board- and committee meetings is published on the member company’s website or on a similar platform.
 
Comment: This information is to ensure greater transparency in relation to society's ability to assess the board members active handling of the directorship.
 
11. The Danish Bankers Association recommends that member companies relate to the Act on Financial Business’s rules about a ceiling on executive positions.
 
Comment: The Financial Business Act contains a limitation in the number of executive positions, which board members of certain financial companies can hold. The restriction only applies to the so-called SIFIs. With the Danish Bankers Association’s recommendation, board members in member companies that are not SIFIs should relate to the ceiling of management positions with the exceptions it contains and explain whether the ceiling is relevant to the member company.
 
12. The Danish Bankers Association recommends that member companies must focus on the role of external auditors and the quality of the work s/he performs. Member companies should, among other things, make demands on the composition of the teams that external auditors use to ensure that there are at least two experienced auditors in a team with complementary areas of expertise. To be an experienced accountant, s/he must have completed training targeted the banking area and have participated in the audit of a bank, savings bank or cooperative through a minimum of 3 years.2
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