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Corporate Governance Code of the Danish Bankers Association

22 November 2013

​The financial crisis and its consequences have shown that parts of the banking sector have been affected by poor management and inappropriate management structures. Decisions have been made on the basis of over-optimism, and we have seen examples of clear management failure and poor business ethics.

In the wake of the financial crisis, a series of initiatives have been implemented that subject today’s banking sector to a broad raft of legislative measures and other management regulation. However, the Danish Bankers Association believes it might be advisable for the banking sector to take further initiatives targeted at sharpening the focus on governance issues in the sector.

Therefore, the Danish Bankers Association has prepared a Corporate Governance Code with recommendations for its members. The recommendations go further than dictated by the legislation and the recommendations of the Danish Committee on Corporate Governance.

One aim of the recommendations is to prompt the members to actively address a number of key corporate governance topics, and another is to create greater openness about the governance frameworks of the individual members, with a view to increasing confidence in the banking sector.

Under this code, the members will report on corporate governance according to the 'comply or explain' principle. This means it is up to each member to decide on the extent to which it wishes to comply with the recommendations. A member failing to comply with a recommendation must give an individually formulated explanation for why it has deviated from the recommendations and what it has decided to do differently. Failure to comply with a recommendation is not considered a breach of rules, but merely implies that the company has chosen a different approach.
 
The first recommendation of the Corporate Governance Code relates to the recommendations of the Committee on Corporate Governance, for which reason reporting relating to this recommendation must be in accordance with the reporting rules laid down by the Committee on Corporate Governance.
 
As regards the publication of the members’ reporting concerning the other recommendations of the Corporate Governance Code, the Danish Bankers Association finds that disclosure on the company’s website is the best and most effective method – with a specific reference to this in the management’s review in the annual report.
 
The members are required to submit their first corporate governance report in connection with the annual report for the 2014 financial year.  
 
 

General recommendations

1. The Danish Bankers Association recommends that the members respond to all the recommendations of the Committee on Corporate Governance. See link
 
2. The Danish Bankers Association recommends that the members prepare and publish a code of conduct describing the company’s core values and the conduct desired in terms of the company’s management and operations.
 
Comment: Management and staff should share a common understanding of the core values for managing and operating the company. This foundation could, for example, include the company’s customer policy and company values, and should be accessible to the members’ customers, investors and other stakeholders. 


 

Recommendations regarding composition of the board of directors

3. The Danish Bankers Association recommends that the members use a well-described, structured process when recruiting candidates for the board of directors and possibly bring in external expertise.
 
Comment: To ensure the best possible field of candidates for the board of directors, a well-described, structured process should be used to identify and select suitable candidates, etc. The members might possibly consider involving external assistance in the process.
 
4. The Danish Bankers Association recommends that those members whose articles of association contain provisions determining that board members may only be elected from a limited group of individuals explain the background to these restrictions.
 
Comment: Restrictions determined by the articles of association regarding who may be elected to the board of a company limit the field of candidates. To ensure transparency regarding restrictions, those members whose articles of association contain such restrictions should explain the reasons for the provisions.
 
 

Recommendations regarding training of members of the board of directors 

5. The Danish Bankers Association recommends that board members embark on a training programme in banking operations as soon as possible and at the latest six months after joining the board, unless the board member concerned already possesses up-to-date, special banking skills. The programme should reflect the company’s size, business model and complexity.
 
Comment: The topics covered by the training programme concern both the board members’ general tasks as regards strategy and overall management, for example, as well as more specific, professional tasks within, for example, lending activities, risk management or knowledge about special industries to which the member company is particularly exposed.
 
The training programme can be conducted in-house or externally and must reflect the content and quality standards that follow from the financial legislation and the company’s business model and scope. The training programme could be given as e-learning.
 
Members of a board of directors who possess up-to-date banking skills at a level corresponding to that necessary relative to the company’s size, business model and complexity do not have to complete such a training programme in banking operations.
 
6. The Danish Bankers Association recommends that the members of a board of directors continuously receive skills development opportunities as relevant for their board duties. The topics and scope should be adapted to the company’s size, business model and complexity.
 
Comment: Relevant skills development can consist of maintaining already existing skills, but may also include new topics beneficial for the board member’s discharge of his or her duties.
 
In addition to the company’s size, business model and complexity, the extent of skills development depends on the board members’ individual needs. The topics may concern both the general duties of the members of the board of directors as regards, for example, strategy, overall management and general trends in society, but may also concern more specific, professional areas within, for example, financial legislation, accounting rules, risk management or knowledge about special industries to which the company is particularly exposed. Depending on the needs of the individual member of the board, skills development may involve concrete board training and/or focus on more specific professional topics. Many forums today offer relevant, recognised board training programmes and more specific advanced professional programmes. Skills development programmes could be given as e-learning.
 
Skills development discussions could potentially take place during the annual evaluation of the individual members of the board.
 
 

Recommendation regarding evaluation of the board of directors and its members

7. The Danish Bankers Association recommends that each individual board member undertake an evaluation of his or her work for the board. As part of the evaluation, each board member must fill in an evaluation form referring to both management and technical banking matters.
 
Comment: To ensure the best possible outcome, the evaluation work should follow a well-described, structured process. The evaluation form contributes to this by providing a basis on which the individual member of the board can evaluate him- or herself. The form must refer to management and technical banking matters and be adapted to the company’s size, business model and complexity.
 

Recommendations regarding cooperation with the company’s day-to-day management

8. The Danish Bankers Association recommends that relevant experts be involved in the cooperation with the board of directors, including participation in meetings of the board of directors when particularly complex issues are to be discussed.
 
Comment: The involvement of the member’s experts in the cooperation with the board of directors contributes to a highly professional level of discussion at board meetings. The executive board may take the initiative to involve such experts, but the board of directors may also specifically request that they be involved.
 
9. The Danish Bankers Association recommends that the cooperation between the executive board and the board of directors be discussed at least once a year, without the presence of the executive board.
 
Comment: Thus, the cooperation between the executive board and the board of directors must be a fixed item on the agenda of meetings of the board of directors at least once a year. The discussions can concern both the cooperation in general and also how the cooperation functioned during the handling of specific matters. 
 
 

Other recommendations

10. The Danish Bankers Association recommends that an overview of the participation of the members of the board of directors in board and committee meetings be published on the members’ website or similar.
 
Comment: The purpose of disclosing such information is to ensure greater transparency by affording the wider community an opportunity to assess the board members’ active discharge of their board duties.
 
11. The Danish Bankers Association recommends that the members consider and explain whether the rules set out in the Danish Financial Business Act (lov om finansiel virksomhed) regarding a cap on number of executive positions are relevant for the members.
 
Comment: The Danish Financial Business Act contains a restriction on the number of executive positions that members of the boards of certain financial enterprises may hold. The restriction applies solely to the so-called SIFIs (Systematically Important Financial Institutions). Under the Danish Bankers Association’s recommendation, members of the boards of member companies that are not SIFIs would have to consider and explain whether the cap on number of executive positions, with the exceptions it includes, is relevant.
 
12. The Danish Bankers Association recommends that the members focus on the role of the external auditor and the quality of its audit work. Among other things, members should set requirements for the composition of the teams used by external auditors to ensure that a team includes at least two experienced auditors with additional areas of expertise. To be considered an experienced auditor, an auditor must have completed supplementary training aimed at the banking sector and participated in the audit of a commercial bank, savings bank or cooperative bank for at least three years.
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