1. Center for Corporate Governance BCC Presentation 19. September 2008 Danish Corporate governance in a European perspective Steen Thomsen st.int@cbs.dk Center for Corporate Governance Copenhagen Business School http://uk.cbs.dk/ccg

2. Center for Corporate Governance Corporate Governance Systems

3. Center for Corporate Governance Boards Supervisory board One-tier system Two-tier system Management board The Board Company Outsiders Insiders Company Employees

4. Center for Corporate Governance Industrial foundations Non-profits that own/operate business firms..ties to founder/family Creation by donation Independence (no owners, no members) Governance by Charter Business activity

5. Center for Corporate Governance 14 foundation-owned firms in Denmark´s top 100 1. A. P. Møller Gruppen - APM OG CMMs Fond 2. J. Lauritzen - J.L. Fondet 3. Carlsberg – Carlsbergfondet 4. Novo Nordisk - Novo Nordisk Fonden 5. Skandinavisk Holding - Augustinus Fonden 6. Danfoss - Bitten & Mads Clausens Fond 7. Lego - Legofonden 8. Grundfos- Poul-Due Jensens Fond 9. Lundbeck - Lundbeckfonden 10. Gutenberghus - Egmont H. Petersens Fond 11. Løvens Kemiske fabrik - Leo Fondet 12. J.C. Hempel - J.C. Hempels Fond 13. Carl Allers Etablissement - Allerfonden 14. V. Kann Rasmussen - V. Kann Rasmussen Fonden

6. Center for Corporate Governance Company (normal joint stock co.) Foundation Minority Investors (optional) > 50% Donations (optional)

7. Center for Corporate Governance Oticon Foundation Other Investors William Demant Holding PLC 39% 61% Oticon Hearing AidsOther Businesses 100% An Example Donations

8. Center for Corporate Governance The Foundation Puzzle Foundation-owned companies should fail –lack a personal profit motive –limited risk diversification But they perform well Profitability, growth, survival.. vs. family- and investorowned companies No tax advantages for the company

9. Center for Corporate Governance Denmark: Board structure Two tiers Employee representation (1/3) Managers on board (but less frequently in listed companies) Mandatory Separation of chair and CEO Small boards

10. Center for Corporate Governance Board Diversity in Scandinavia 2005

11. Center for Corporate Governance Chair education DK (%) 199420002005 Economist234032 Engineer302625 Lawyer372228 Other Academic228 Non Academic897 Total100

12. Center for Corporate Governance

13. Danish Board diversity (Largest companies 1994, 2000, listed companies 2005) 199420002005 Chair Age6658 Foreigner on board (%boards) 7%19%23% % Women elected by shareholders 4.3%1.9%2.9%

14. Center for Corporate Governance The Danish Board network 2001

15. Center for Corporate Governance The ownership network 2001

16. Center for Corporate Governance Activities and incentives Annual meetings8 Average duration4 hours Preparation per meeting4 hours Incentive pay for top managers50% Incentive pay for boards5% Seniority (chair)6 years Professional board member (chair)28% Importance of personal networks 1..73.3

17. Center for Corporate Governance Listed Danish companies1983-2006 (Ken Bechmann 2008)

18. Center for Corporate Governance DK

19. Center for Corporate Governance A Conclusion on Denmark Danish owners are relatively strong (family/foundation ownership…) The board is relatively independent of management (two-tier system) Boards are relatively small Employee representation => Management is relatively weak (c.f. low levels of compensation)

20. Center for Corporate Governance The pertinent governance issue Not the classical agency problem (weak owners, strong managers) Nor the Stakeholder problem (cf. Investor protection, Employee representation etc) => Active ownership is key

21. Center for Corporate Governance Company cases Novozymes – foundation ownership Coloplast – family ownership ISS – private equity Topdanmark – investor ownership Danisco – investor ownership

22. Center for Corporate Governance Future Trends Risk and governance Audit committees, regulation.. (29. oct..) Private equity Social responsibility (climate….) Signing Global Compact (8. October) Women on board Employee ownership revisited

23. Center for Corporate Governance Thank you!