Leadership Advisor Group has published their interesting research on how well the Danish C25 companies comply with good corporate governance regarding board evaluations. The research was done during Spring 2020.
Abstract:
2020 Danish guidelines say the following:
“The Committee on Corporate Governance recommends (Recommendation 3.5.1) that the board of directors establish an evaluation procedure for an annual evaluation of the board of directors and the individual members’ contribution and results as well as the cooperation with the executive board. Among other factors, the evaluation should include an assessment of the Chairman’s leadership, the composition of the board of directors (including competencies, diversity and number of members), the work in the committees and the committee structure, and the organisation and quality of the material submitted to the board of directors. External assistance should be obtained at least every three years. The evaluation procedure and the general conclusions should be described in the management commentary and on the company’s website.”
Also, according to the recommendations, the Chairman should be accountable for the evaluation of the board of directors, including the process and general conclusions at general meetings before the election of the board of directors.
Leadership Advisor Group has analyzed in depth how well the Danish C25 companies meet these recommendations. They have used systematic desk research, reading the C25 companies’ management commentary and researching their websites, then commenting on each of the companies’ written descriptions.
The analysis includes the extent to which the C25 companies comply with the current recommendation, and the standard (quality) with which these evaluations have been carried out.
Here is a topline summary of the main results.
Denmark C25 board evaluation compliance and quality
Only about 20% of the C25 companies’ available information complies with the Committee on Corporate Governance CCG’s recommendation on board evaluations (Recommendation 3.5.1). Five companies fulfill all the requirements of the recommendation in terms of describing the procedure and conclusions of the board evaluations in the management commentaries (annual reports) and including this information on the companies’ respective websites. About 25% of the C25 companies partially comply, and more than half of the C25 companies are non-compliant with the requirements of the recommendation.
Interestingly, it appears that most companies comply with the requirement to report the procedure and conclusions of the board evaluation in the management commentary. However, while most companies produce information on their board evaluation in the management commentary, many of them fail to report the procedure satisfactorily, with some companies failing to include any details on the general conclusion. Notably, few companies describe their procedure and general conclusions on their company website (33% and 25%, respectively).
In reference to the quality of the board evaluations, only two (that is approximately 8%) of the C25 companies appear to conduct high-quality board evaluations. These two companies have implemented a robust procedure, used external assistance in 2019, and made explicit assertions on the strengths of the board as well as areas for development. Three of the C25 companies conducted board evaluations of moderate quality, whilst eight of them performed evaluations that can be improved on. Despite the deficiencies, around 21% still communicated a robust procedure, and approximately 29% revealed clear conclusions in terms of disclosing strengths and areas for development.
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