According to a 2007 International Monetary Fund (IMF) Technical Note, the Danish framework for corporate governance is not only "largely compliant" with the Organization for Economic Cooperation and Development's (OECD) Principles of Corporate Governance, but in some areas goes beyond these standards. In fact, the report notes that the Danish Recommendations on Corporate Governance will guide international work to further strengthen corporate governance standards. In 2001 the Nørby Committee was established to make recommendations on measures to improve corporate governance and the Committee decided to make specific Danish recommendations instead of using international standards - such as the OECD Principles. The Nørby Committee's recommendations are implemented on a comply-or-explain basis and were updated in 2004. A 2008 U.S. County Commercial Guide for Denmark further corroborates that in general, Danish corporate law is in line with European Union legislation and that the legal, regulatory and accounting systems are transparent and in line with international standards. However, the small size and limited liquidity of Danish equity markets can pose a challenge to effective investor protection.

General Overview

According to the 2008 U.S. Country Commercial Guide, the Danish stock market functions efficiently and in 2005, the Copenhagen Stock Exchange became part of the integrated Nordic and Baltic market place in Stockholm. The World Bank's 2009 Doing Business report, published in 2008 notes that investor protection in Denmark is higher than the average achieved by member states of the Organization for Economic Cooperation and Development (OECD). The Investor Protection Index is a subcomponent of the World Bank's 2008 Doing Business Indicators, and consists of three dimensions of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of Director Liability Index) and shareholders' ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index). The indexes range from 0 to 10, with higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection. Denmark scores 7.0 in the disclosure index against an OECD average of 5.9. It scores 5.0 in the Director Liability Index against an OECD average of 5.0 and 7.0 in the Shareholder Suits Index against an OECD average of 6.6.

In 2001, a group of experts known as the Nørby Committee was established to make recommendations on measures to improve corporate governance in Denmark. The Committee decided to make specific Danish recommendations instead of using international standards - such as the OECD Principles. The Nørby Committee made 31 recommendations in some key areas comprising: role of stakeholders; openness and transparency; responsibilities and composition of the board; remuneration; and risk management. These Recommendations were implemented on a comply-or-explain basis and were updated in 2004. A 2007 International Monetary Fund (IMF) Technical Note adds that the Copenhagen Stock Exchange followed-up the work on the work of the Nørby Committee and incorporated the Committee's Recommendations in its disclosure requirements for listed companies.

According to the IMF Technical Note, with the introduction of the revised Recommendations on corporate governance, the Danish framework is not only "largely compliant" with the Organization for Economic Cooperation and Development's (OECD) Principles of Corporate Governance, but in some areas goes beyond these standards. As explained in the Note, "it is commendable that the Danish capital market has invested so many resources in developing this important framework. Actually, the Danish Recommendations will guide ongoing international work to heighten corporate governance standards" (p. 26). A 2008 U.S. County Commercial Guide for Denmark further corroborates that "Danish corporate law is generally in conformity with current EU legislation" (p. 49) and that the legal, regulatory and accounting systems are in general transparent and in line with international standards.

Nonetheless, certain weaknesses were identified in the previous IMF assessment conducted in 2006. The report notes that the medium-size of the Danish equity market faces many structural issues. For instance the report notes that "the concentration of liquidity and activity in a limited number of shares can ultimately be seen as a major obstacle by investors, in particular institutional investors" (p. 24). The 2006 report further adds that the creation of an alternative market place, First North that focuses on small companies and demands reduced listing requirements was too recent at the time of the assessment to gauge its effectiveness. Similar organized but unregulated markets have been successful in attracting new categories of companies elsewhere in Europe, however, "opaque markets" would weaken investor protection and the corporate governance framework eventually, the report states.

The securities market is regulated by the Danish Financial Supervisory Authority (DFSA), the Securities Council and the Copenhagen Stock Exchange. Listed companies and financial institutions, starting 2005 must also appoint at least one state authorized public accountant. Denmark has adopted International Financial Reporting Standards and International Standards on Auditing endorsed by the European Union for listed companies.

The Principles

Principle I: Ensuring the Basis for an Effective Corporate Governance Framework

FC

The 2006 FSSA notes that the governance framework for Danish firms is sound. The report explains that in 2001, the Nørby Committee was established to make recommendations on measures to improve corporate governance. These recommendations were initially voluntary, but later Denmark followed a comply-or-explain approach for listed companies. With regard to Principle 1, the 2007 IMF Technical Note explains that "there is no parallel to this principle in the Danish Recommendations, nor is there any need for it because the revised Recommendations are based on the Danish legal framework which is in full compliance with best international standards" (p. 27).

Principle II: The Rights of Shareholders and Key Ownership Function

CP

The IMF Technical Note explains that the OECD requirements for this Principle are incorporated either in the Danish recommendations or the different laws that deal with some specific aspects of this principle. For instance, mergers and acquisitions are addressed in Danish corporate law and law on capital markets. Also, OECD provisions related to disclosures by institutional investors are regulated by the mutual fund law in Denmark. In fact, the Note adds that some Recommendations addressed in the OECD Principles are better developed in the Danish Recommendations because they are more specific and detailed.

Principle III: The Equitable Treatment of Shareholders

EN

The requirements for this Principle are covered in Danish legislation and as explained in the IMF Note "are dealt with in the Danish legal framework for corporations and the capital market and are not included in the Danish Recommendations" (p. 28).

Principle IV: The Role of Stakeholders in Corporate Governance

EN

According to the IMF Technical Note, the OECD Principles and the Danish Recommendations recognize the role of stakeholders in corporate governance. Both emphasize the need for "cooperation and ongoing dialog between the parties and protection of the stakeholders' interests" (p. 30). Therefore, the Note asserts that the OECD Principles and the Danish Recommendations are similar in substance on this point.

Principle V: Disclosure and Transparency

CP

According to the 2007 IMF Technical Note, the Danish Recommendation III regarding openness and transparency parallels OECD Principle V. Differences were observed in their emphasis on the urgency of bringing information to shareholders and investors. In fact, the IMF finds that the Danish Recommendation ensures more immediate communication of information to the investors.

The IMF Technical Note adds that this Principle requires companies to disclose material company information and these requirements are included as part of Danish capital markets law. The Note further states that "the Danish Recommendations have devoted a separate chapter to audits that provide detailed requirements for audits that are dealt with in a more general manner in the OECD Principles" (p. 34).

Principle VI: The Responsibilities of the Board

CP

According to the 2007 IMF Technical Note, Danish Recommendations with regard to the OECD requirements on this Principle have been organized under two chapters called "The task and responsibilities of the supervisory board" and "The composition of the supervisory board." In fact, the Note points out that "the Danish Recommendations are more specific, extending beyond the

OECD Principles relating to the board's tasks" (p. 31). Further, the Danish Recommendations have detailed requirements ensuring the independence of the board and also require that the members of the members of the executive board of a company must not be key executive in the same company. With regard to remuneration, the Note explains that the Danish Recommendations are more detailed on this issue and include a chapter "Remuneration of members of the supervisory board and the executive board". Again, the Danish Recommendations go beyond OECD requirements and along with disclosure of remuneration also suggest developing a remuneration policy that reflects the interest of the shareholders and the company. The Danish Recommendations also promote the establishment of a nomination committee to prepare elections of members to the board and a remuneration committee.