The Danish Stewardship Code – The Past, the Present and the Future

Abstract

Along with companies all over Europe, Danish companies suffered during the financial crisis from 2008 and onward. However, contrasting to what was seen in other Member States, notably in the UK, the post-crisis discussions on who and what caused the crisis only to a very limited extent included the role of the shareholders. Even though the development of the Stewardship Code in the UK, and later the process on the amendment of Shareholder Rights Directive, was followed on the sideline by the Danish Committee on Corporate Governance, stewardship was a concept that was given very little attention in the public. In 2016, the Danish Committee on Corporate Governance adopted a Stewardship Code following a public consultation. The Code is heavily inspired by the UK Stewardship Code, and it consists of seven principles. The aim of the Code is to promote Danish listed companies’ long-term value creation and thereby contribute to maximising long-term return for investors. In this respect, the Stewardship Code shares a mutual purpose with the Danish Recommendations on Corporate Governance, which seeks to ‘support value creation and accountable management, thus strengthening the long-term competitiveness of the companies.’ The Stewardship Code does not intend to establish a uniform approach for institutional investors’ exercise of stewardship activities. Rather, the Code aims to increase transparency as to how the individual investor chooses to exercise stewardship activities. This is emphasised by the application of the comply-or-explain principle. On the face of it, the Danish Stewardship Code is not significantly different from the UK Code. However, as stated above, the rationale behind the Danish Code is mainly linked to the listed companies’ value creation for the good of investors, and the stewardship element that is an embedded part of the UK Stewardship Code, and which builds on fiduciary relations between institutional investors and their beneficiaries, is seemingly missing in the Danish Code. Consequently, the Danish Stewardship Code appears to serve as a parallel to the Recommendations on Corporate Governance aimed at listed companies’ board of directors. The effect of stewardship in Denmark mainly depends on two factors. The first is the regulatory framework, which allows shareholders, and in particular institutional investors and asset managers, to contribute to establishing and maintaining good corporate governance in listed companies. Most important in this respect is the Companies Act which sets the scene for stewardship activities (section 2). The other important factor is that stewardship has to be taken to heart by the institutional investors and asset managers. If they do so, the potential effect may be significant as Danish company law grants shareholders very extensive rights in relation to their influence at the general meeting. However, experience shows that engaging institutional investors and asset managers may be a long haul, and this is further complicated by stewardship in Denmark being a recent development that is closely related to the introduction of the Stewardship Code. Thus, we continue our contribution with a presentation of the Danish Stewardship Code; not only the Code as it stands (section 3), but also its genesis, and the experience with the compliance so far (section 4). The institutional investors and asset managers that have signed up for the Code were required to submit their first report on stewardship in 2018. Given the very limited lifespan of the Code, it is difficult to make any conclusions regarding the development of stewardship in Denmark. However, the past AGM seasons do not leave us with much optimism regarding the effect of the Code, and the emerging question is whether this is likely to change. In this respect, the implementation of the amended Shareholder Rights Directive (SRD II) in Danish law could be a major factor (section 5). Consequently, the final part of our contribution is forward-looking (section 6). We discuss whether the adoption of the SRD II may have an effect on stewardship in Denmark. We argue that it is unlikely due to the many parallels to the existing Stewardship Code. Therefore, new initiatives may be required. In this respect, we discuss whether the corporate governance origin may serve as a catalyst to more and better engagement by institutional investors by establishing a stronger interplay between the Recommendations on Corporate Governance and the Stewardship Code.