Corporate governance recommendations: Companies are to increase interaction with shareholders

The Committee has focused on simplifying the recommendations without relaxing corporate governance requirements. As a result, the requirements have been reduced from 79 to 47 and are divided into five categories, the first three categories having been changed significantly:

1. The company's communication and interaction with its investors and other stakeholders
2. Tasks and responsibilities of the board of directors
3. Composition and organisation of the board of directors
4. Remuneration of management
5. Financial reporting, risk management and audits

Communication and interaction with investors and stakeholders

According to the new recommendations, the company is to promote the possibilities of shareholders to exercise ownership and ensure shareholder confidence in the company through transparency and openness. The shareholders must be familiar with the company's potential and policies, while the board of directors must know about shareholder attitudes.

In a comment on the recommendations, the Committee writes that the company is to promote an ongoing dialogue between the company and the shareholders. The dialogue may be summarised in an investor relations strategy which may deal with the type of information to be communicated between the company and its shareholders and when, how and to whom it is to be communicated. In its investor relations strategy, the company should identify the type of investors it wants to attract.

Tasks and responsibilities of the board of directors

The recommendations on the tasks and responsibilities of the board of directors express the Committee's focus points: value creation and strategy.

In a comment, the Committee writes that the board of directors should set aside time to discuss the company's overall strategic goals and value creation. The Committee points out that the strategy discussions may result in a value creation plan which may prompt a discussion about whether the company's strategy matches its short-term and long-term opportunities and challenges.

Composition and organisation of the board of directors

The recommendations on the composition and organisation of the board of directors focus on the skills and expertise required in the board of directors to enhance value creation.

The companies should ensure a thorough and transparent board nomination process which provides for renewal and variation in the composition of the board of directors.

A material change concerns the evaluation procedure of the boards of directors. The Committee recommends that the evaluation of the board is to follow a procedure fixed by the board itself. The board will choose the most appropriate form of evaluation. In previous recommendations, it was the chairman of the board of directors who was to be in charge of the evaluation.

The evaluation should include an assessment of the board composition, work and results. The need for and the gain from a committee structure, organisation of the work and the quality of the material used by the board.

If the evaluation leads to material changes, such changes should appear from the management commentary on the annual report, perhaps with a reference to the company's website.

The Committee still recommends the appointment of an audit committee, a nomination committee and a remuneration committee. And, it is also recommended that an ad hoc committee be appointed if there are special tasks or problems of material, but temporary nature.

There have been no material changes to the recommendations on management remuneration and financial reporting, risk management and audits.

How to report

When the securities markets NASDAQ OMX Copenhagen and GXG Market implement the new recommendations (which everything indicates that they will), companies admitted to trading on one of the two securities markets will have to report on the recommendations from the annual report for 2013. In practice, the companies do this by referring in their management commentary to a report on the recommendations at their website.

The comply and explain approach still applies to the recommendations. This means that if a company does not comply with one or more recommendations, it must explain why it does not comply with the recommendations and what it has chosen to do instead.

IUNO's opinion

The recommendations provide a good guidance for how to enhance value creation, responsible management and long-term success through openness and transparency. The recommendations can also help ensure a good organisation of the work of the board of directors, which promotes value creation opportunities.

Also companies which are not admitted to trading on a regulated market should try to adjust to the rules as they not only ensure self-evaluation in the board of directors and transparency, but also serve to create value.

However, the recommendations are not binding on non-listed companies and therefore, they do not need to explain if they choose not to comply with them. In other words, non-listed companies are able to "pick and choose" between the recommendations.

IUNO recommends companies to always comply with the recommendations which seek to create value. The more shareholders a company has, the more reason to comply with the recommendations which aim to promote interaction and transparency between shareholders and the company.

[Recommendations on Corporate Governance″, Committee on Corporate Governance, May 2013]