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Denmark went through a relatively turbulent period of change in its industrial relations system in recent years. Traditionally the country has had a highly intricate and robust social partnership between employers and trade unions with a minimum role played by the state and by the legal process. Its main emphasis was on the negotiation of voluntary collective agreements and the use of conciliation and arbitration to resolve differences. But in recent years there has been a clear shift towards decentralisation from industry or sector level to that of the enterprise, mainly under the influence of employers who have sought to achieve much greater flexibility in the management of their business operations.
As in other European Union member states legislation enabling employee representation at board level in both private and public companies was passed in 1973. It covered all such enterprises that employed more than 50 workers and enabled employees to elect at least two representatives to the board and up to a third of the board whatever its size. The proportion was raised to one third of all company directors from 1980. Further changes were made to the legislation in 1987 which laid down such companies are now covered by its provisions if they employ 35 or more workers and up to half the number who are elected by the shareholders with a minimum of two. However, no employee board representation is required unless such a change has won the initial support of workers in the company involved. A total of 10 per cent of the employees need to request such a procedure for it to come into being. All employee representatives in Denmark are elected for four year terms as board members directly by the workforce.
Such a system is only part of a much wider diversity of worker representative bodies in the company. In addition to trade union workplace committees, many enterprises employing 35 or more workers in Denmark also have joint cooperation committees which are made up of equal numbers of employee representatives and managers. These bodies may not deal with issues that involve collective bargaining but they do have a wide range of responsibilities in the company. These include the provision of financial and production information about company operations, working conditions, training, job restructuring and personnel questions.
The existence of the joint cooperation committees outside company boardrooms dates back to 1947 in Denmark. Subsequent legislation has modified or changed some of the details of how the system operates. But it has won considerable support from companies, trade unions and employees. The experience of such a vibrant and consensual approach to decision-making in companies made the advance to employee board representation more acceptable and credible.
The support for worker directors can be found in a study carried out between 1995 and 1999 by Copenhagen business school on the role of employee directors in Danish companies. It found as many as 60 per cent of workers in the country were working in enterprises with employee directors. Two thirds of firms employing 200 or more had such representation on their boards and one in five of the smaller enterprises with fewer than 200 workers on their pay-rolls.
The most remarkable finding in the survey concerned the priorities held by employee directors on what the company they worked for should regard as the most important. All those involved in the survey were asked to name what they believed to be the crucial considerations when making large and long-term decisions for the future of the enterprise. Employee directors said that markets were the key factor in determining what the company should do, followed by innovation.
The next consideration did concern the firm’s employees. This was deemed a more important factor than attitudes to the wider society and the shareholders, which was the lowest issue of concern.
What is so surprising about this order of priority among employee director decision-makers is that it proved to be the same as those listed by the directors elected by the shareholders. Although the actual results were not exactly the same in the importance attached to each priority, the fact is that the Danish survey found a convergence of opinion on the company boards examined between employee and shareholder representative directors. Apparently a strong common interest is shared in companies about what needs to be done to improve performance.
Such a finding strengthens those who believe the advance of employee directors in companies has a beneficial impact on business operations. Far from adopting a defensive and reactive attitude, worker directors see the strategic importance of pressing for policies that reflect market conditions and the need for innovation. The Danish example is another positive sign that the concept of employee representation on private sector company boards makes good business sense.
source: Robert Taylor (2004) in ETUI and Hans Böckler Foundation, The European Company - Prospects for board-level representation
DOCUMENTS: by Herman Knudsen (Jan. 2006)
It is still a matter of debate whether the Danish system of company management is a one-tier or a two-tier system. Officially, it is a two-tier system. In international comparison it can be defined as a hybrid between a pure two-tier system as found, for instance, in Germany, and a pure one-tier system, as in the UK. The main features of the Danish system are laid down in Chapter 9 of the Danish law on public limited companies
BRIEF OVERVIEW: Company law and existing legislative provision for employee participation in Denmark (by A. Büggel): (pdf)
 COUNTRY REPORT DENMARK: Workers' participation at board level
(by Peter Dragsbæk)
prepared within the project "Prospects for participation and co-determination under the European Company Statute" - more about this project
download country report (pdf, 152 kb) download whole report (pdf, 1.3 MB)
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Recent changes in Danish corporate governance recommendations - Herman Knudsen, Aalborg University
December 2006
In May 2005 the third Danish report on good corporate governance was published (for earlier reports see report on this site dated October 2005). The report was issued by the Copenhagen Stock Exchange Committee on Corporate Governance (the Nørby Committee). It included a slightly revised set of recommendations to companies. Regarding the independence of board members the central recommendation is still that “a majority of the board members elected at the general meeting should be independent”. It is stated explicitly that employee representatives on the board are not independent due to their employment in the company. Download full SEEurope report as pdf.
Related documents:
The Debate on Corporate Governance in Denmark - Herman Knudsen, October 2005
Download report as pdf (99 KB)
Chronology
The Danish debate on corporate governance was sparked off by developments in both the national and the international contexts. In the early 1990s, bankruptcies in a few major Danish companies were accompanied by discussions of the tasks and responsibilities of the company board, and in the latter part of the 1990s, liberalisation of capital markets and increased competition for capital prompted the government to establish an interministerial committee whose task it was to begin to analyse corporate governance in the Danish context. The committee concluded, among other things, that the provisions determining board composition (mainly owner representatives) and management functioned relatively well. However, some necessary changes were also identified.
The process continued when in March 2001 the government asked four top company directors to consider whether there was a need for guidelines or recommendations for good corporate governace in Denmark. The committee came to be known as the “Nørby-udvalg”, after its chairman, Lars Nørby Johansen (Falck-Securicor). The other members were Jørgen Lindegaard (SAS), Waldemar Schmidt (ISS) and Mads Øvlisen (Novo Nordisk).
The committee’s report (Nørby-udvalgets rapport on corporate governance i Danmark, available at www.corporategovernance.dk) was published in December 2001. This report is still the main document of the Danish discussion, although it has been followed up by two other reports from another committee, also chaired by Lars Nørby Johansen. This committee was established by the Copenhagen Stock Exchange in November 2002, and its reports were published in January 2004 and May 2005 respectively.
As we shall see, the Danish reports and the public debate on corporate governance have only marginally touched upon the issue of worker participation at board level (although according to Danish company legislation employees are entitled to fill one third of the seats on company boards).
Corporate governance in the Danish context
The 2001 report characterises the Danish system of corporate governance as something of a hybrid between the one-tier and the two-tier systems. On the one hand, it is not strictly a one-tier system because there is a distinction between the board (bestyrelsen) and the top management (direktionen). On the other hand, the two bodies are not clearly separated, as in the German system. In Denmark, the board not only oversees the management, but also takes part in strategic management. Furthermore, Danish company law does not prevent top managers from being board members. Put differently, the board may consist of executive as well as non-executive directors (but is usually dominated by the latter). The committee’s view on these basic features of the Danish system was expressed quite clearly:
"The committee does not find reasons to presume that other governance models are superior to the Danish model. With its recommendations the committee would like to facilitate the even better functioning of the Danish model." (p. 25)
Regarding the paradigmatic distinction between shareholder and stakeholder models the report takes a middle-of-the-road position. However, the stakeholder perspective is supported only in a rather vague and non-committal way:
"The company’s management must … work for a long-term creation of wealth in the interests of the company and the shareholders. However, … the optimal representation of shareholder interests presupposes that other stakeholders are taken into consideration to a relevant extent. A company that exclusively attempts to represent the interests of the shareholders in the short term may destroy the possibility of creating shareholder value in the longer term by not taking into due consideration the company’s other stakeholders whose acceptance of the activities of the company may be a decisive prerequisite for continuing development. However, the many diverse stakeholders make it impossible to state precisely what kind of consideration individual companies should take in relation to stakeholders." (pp. 37–38)
None of the three reports found reasons for proposing changes to Danish legislation. Instead, the reports formulated a set of recommendations. Above these, a meta-recommendation is that companies in their reporting should either demonstrate that they are following these recommendations, or explain why they are not doing so.
Recommendations to Danish companies
An important component of both the 2001 and the 2005 reports was a list of recommendations to companies. The recommendations refer to eight areas:
1. The role of shareholders and their interaction with the board.
2. The role of stakeholders and their significance for the company.
3. Openness and transparency.
4. Tasks and responsibilities of the board.
5. The composition of the board.
6. Remuneration of board and management.
7. Risk management.
8. Auditing (not covered by the 2001 report).
Most recommendations are identical from 2001 to 2005. They concern issues such as good information and communication practices, relations between the board and the management, relations with shareholders and stakeholders, procedures for regular evaluations of practice, and so on. Generally, the recommendations in the 2005 report are less detailed and specific, and therefore one might say also less ambitious. One example of this can be found in the first of two recommendations regarding relations with stakeholders. In the 2001 report the formulation runs:
"It is recommended that the board formulates a policy for the company’s relations to its stakeholders, including for example the company’s basic idea, values and goals. One element in such a policy may be guidelines for the company’s dissemination of information on, for example, environmental and social issues." (p. 15)
In the 2005 report only the first part of the first sentence is kept. Another example is that while the 2001 report recommends that the board be composed of no more than six persons elected by the general assembly (plus possible employee representatives, but these are not mentioned), the 2005 report states only that the board should “not be so big as to prevent a constructive debate and an efficient decision-making process to take place”.
In two respects, however, the 2005 report contains recommendations which were not included in 2001. First, it has a number of recommendations concerning auditing. Secondly, it explicitly mentions employee representation on the board. This is not done in the section on stakeholders, however, but in the section on board composition. Here,
"it is recommended that the individual company considers the need to explain the system of employee-elected board members in the annual report or on the company website."
What lies behind this is the fear that in particular investors from outside continental Europe may view employee board representatives as something negative, and that therefore Danish companies – if they are wise – should explain how this institution functions. This apologetic approach has been criticised by Danish trade union leaders (see the daily newspaper Politiken, 1 April 2004) and by researchers (Caspar Rose in Tidsskrift for Arbejdsliv, vol. 7, no. 3, 2005) as a very defensive way of presenting the fact that employee representation is a well-established and well-functioning element of corporate governance in Denmark. Instead, they argue, companies should present it as an asset that may help companies to make better decisions.
Conclusion
Inspired by the international discussion on corporate governance, as witnessed by reports from the USA, the UK, the OECD and the World Bank in the 1990s, the Danish reports and discussions have attempted to formulate recommendations for “best practice” in the Danish context. It is remarkable that employee representation on the board – which has been a feature of the Danish system since 1973 – has hardly played any role in the discussion.
Perhaps the absence of this theme can be understood as the result of a kind of cross-pressure on those (relatively progressive and broad-minded business leaders) who have stood for the Danish contributions. On the one hand, they have had to recognise the neo-liberal context in which the corporate governance debate is taking place. On the other hand, there is no indication that employee representation at board level has affected companies negatively: rather the opposite. However, for them to speak positively of employee representation would be to openly contradict the neo-liberal paradigm. So why not just remain silent about employee representation!
This is, of course, irritating, as it means that an opportunity for reflecting on and improving the role of employee participation has been missed. Conversely, at least it can be said that the discussion on corporate governance in Denmark has not degenerated into an attack on the principle of employee representation on company boards.
(NB All quotations translated by the author.)
Download report as pdf (99 KB)
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(3) Transposition process
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Implementation of the Takeover Directive (2004/25EF) in Denmark - Herman Knudsen, Aalborg University (December 2006)
The implementation process took place in spring 2005. The directive was transposed through a law (L155) which contains amendments to four different business laws, among them the law on public limited companies. The act was proposed to parliament on 13 April and adopted on 16 June. The law entered into force the day after its publication in Lovtidende on 24 June. Download report
Danish SCE transposition Herman Knudsen (May 2006)
The SCE Regulation and the associated Directive on employee involvement in European cooperative companies (SCEs) have now been transposed in Denmark.
The Directive was transposed through the Act on employee participation in SCE companies (Lov om medarbejderindflydelse i SCE-selskaber) of 27 March 2006. The Act was presented to parliament on 25 January 2006 and entered into force on 18 August 2006.
The content of the Act is very similar to the Act transposing the Directive on employee participation in SEs. There was no public discussion in relation to the legislative process, and the debates in parliament were very brief and without any substantial disagreements. Before the readings in parliament the Act was discussed in the implementation committee of the Ministry of Employment. This is a tripartite committee that always discusses EU Directives on labour and employment issues before they are presented to parliament. Due to this discussion process, the peak labour market organisations – the LO and the DA – had no reservations concerning the proposed legislation when the official hearing of interest organisations took place in late autumn 2005. However, at this stage a few concerns were raised by the Agricultural Council (Landbrugsraadet) and the employers’ organisation for agriculture (SALA). They both opposed what they see as a new practice among Danish cooperatives, namely that the Act (Article 25, 2) obliges the board and general assembly to make meeting agendas available to employee representatives (on the SCE representative body). Likewise, they complained about one item in the list of issues that companies have to discuss with their employee representative body, namely ‘initiatives concerning social responsibility’, claiming that this should be defined more precisely.
Perhaps the most interesting element in the Danish transposition act is article 4, which states: ‘However, if there are no employees in any of the participating legal persons, affected subsidiaries and operational units, an SCE company can be founded without a special negotiating body being established’.
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SE transposition (Final Update: May 2004)
On 15 April 2004 the Danish Parliament adopted the law on employee involvement in European Companies, and on 6 May the law transposing the European Company Statute was adopted. In neither of the cases changes were made during the second and third reading. This means that the provisions accounted for in the country report below (March 2004) apply.
DOCUMENTS / LINKS:
Text of law transposing the SE Directive (Link to EU Commission website, inofficial translations are available for some countries)
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March 2004
Danish legislation implementing the SE Statute and the SE Directive is expected to be in place by June 2004 and to enter into force on 8 October 2004. The legislation consists of two new laws – one accompanying the introduction of the SE Statute and one transposing the SE Directive – and minor changes in three existing laws: (i) the law on public limited companies, (ii) the law on company annual accounts, and (iii) the law on auditing of accounts. All the new pieces of legislation were presented to parliament in January 2004, and the first readings of the two new laws took place on 17 and 19 February respectively.
Implementing the SE Statute
The typical Danish corporate governance structure consists of the general assembly, the company board and (the board of) directors. Since 1973 employees have been entitled to one-third of the seats on the company board. In the discussions on implementation of the SE Statute the Danish system was defined as a one-tier system. In the new laws and through the amendments of the existing laws it is determined that SEs can choose between a one-tier and a two-tier structure. The Danish Act on the SE Statute defines the obligations and competences of the supervisory board and the management board in a two-tier structure. Generally, the aim has been to grant the management board the same competences and obligations as those held by the board in the one-tier system. However, as to employee involvement this applies only to the supervisory board.
Other elements in the Act include provisions protecting shareholders and creditors when an SE is formed with its headquarters in another country. Shareholders who at the general assembly vote against a company merger or the transfer of headquarters to another country are allowed to cash in their shares. In relation to financial-sector companies, the Minister of Economy and Business has the right to object to mergers into an SE and to an SE wanting to move from Denmark to another country. Such an objection must be based on the national interest. Finally, the proposed Act determines – in accordance with national rules – that the first general assembly of a Denmark-based SE must take place no later than 18 months after its founding, and that all shareholders are entitled to put any issue on the agenda of the general assembly, provided that the proposal is made in due time.
At the first reading in parliament the Act was welcomed by representatives of all political parties, with the exception of “Enhedslisten”, a coalition on the extreme left. Their spokesperson deplored the act because it “concerns transnational companies’ ability to operate across borders more easily. In our view, there is no need for that. It is already far too easy for them to operate across borders and to wield economic power.”
The changes in the laws on public limited companies, annual accounts, and auditing aim first and foremost at ensuring that these laws make possible two-tier as well as one-tier governance systems in SEs.
Implementing the Directive on Employee Involvement in SEs
The Directive on Employee Involvement in SEs was first discussed by the so-called implementation committee. This is a joint social-partner committee which has existed as a permanent body since 1999. Its aim is to determine whether the social partners want specific EU directives on labour issues to be implemented by collective agreement. The committee operates on the basis of a parliamentary resolution of 1993 which decided that implementation through collective agreements is the preferred method in Denmark when it comes to implementing EU labour directives.
The social partners agreed that in the case of the Directive on Employee Involvement in SEs, however, they did not want it to be implemented through collective agreements. As with the Directive on European Works Councils, the opinion was that because of the transnational character of the relations in question, national collective agreements were not suitable instruments for transposition.
Subsequently, transposition was dealt with by a committee under the Ministry of Employment with representatives from the state and the social partners. Two major topics were:
1) election procedures;
2) whether the legislation should contain a clause making it possible for collective agreements to supplement the law.
On the latter issue it was agreed that the Act should not include such a clause, although the employers’ association of the agro-industry had argued for it. On the first question, it was agreed that the rules on elections to the SNB and to the representative body (as defined in the standard rules) should be similar to those laid down in the Danish law on European Works Councils. This means that trade union delegates (shop stewards) are given priority: representatives will normally be elected from among and by them. The fact that union representation is preferred – also by employers’ organisations – can be seen as supporting the Danish model of representation: union constituencies rather than the workforce as a whole form the basis of representation. However, it was also agreed that this principle should not apply to participation in the administrative or supervisory body as defined in the standard rules of the SE Directive. Here, a different set of national rules were upheld, namely those from company legislation stating that employee representation on the board/supervisory body shall be based on a direct election involving all employees. The election principles agreed upon by the committee are those found in the Act.
Between the work in the ministerial committee and the presentation of the Act to parliament in January 2004 there was a consultation round (November–December 2003) in which a number of state bodies and employers’ and employees’ organisations were asked their opinion on a draft of the Act. The SALA (agro-industry employers) took the view that there should be a provision enabling implementation through collective bargaining. The DA (Danish Employers’ Confederation) agreed in principle, but added that in this case implementation through collective agreement was not possible. The DA also “noted the opt-out provision in art. 7, para. 3 of the Directive in the case of SE companies founded by merger. The DA finds that consideration should be given to including this exception in the Act…”.
In his reply to the consultation responses the minister wrote:
"Generally, the aim has been that the Act should resemble existing rules on employee involvement as much as possible. The reasoning behind this is, on the one hand, that the law would be easier to apply, and on the other that unequal treatment of SEs and of nationally-based companies must be avoided as far as possible."
Concerning the opt-out clause the answer to the DA’s request was that “it should not be included in the Act, as this would entail unequal treatment of SEs and other companies”; the opt-out clause “is particularly intended for member states in which participation is not common”. Finally, the SALA wish for a clause enabling implementation by collective agreement was dealt with briefly: “due to the transnational character of the Directive this is not possible”.
Other responses in the consultation round came from the Confederation of Salaried Employees, the FTF. They wanted the comments to the Act to state more precisely under what circumstances the provision on confidentiality should be applied, and to what extent the supervisory or administrative body of the SE can omit to pass on information. The minister responded by adding a section to the official comments to the Act clarifying what can be regarded as confidential information; the comments to the Act also state that the administrative/supervisory body or the competent body must define clearly what information is confidential. Concerning the second part of the request the reply was: “It seems impossible to determine precisely the extent to which the dissemination of information can be omitted. It depends on a concrete assessment and the question can be subject to legal action.”
The proposed Act on Employee Involvement in SEs was presented to parliament on 28 January 2004, and the first reading took place on 19 February. Representatives of all political parties expressed support. The Minister of Employment commented as follows:
"I will be the first to admit that the Act is complicated as it stands. The many technical provisions are part of the price to be paid for employee protection and a necessary consequence of the fact that the field, which has so far been regulated very differently at national level, is now encompassed by transnational rules. It is the aim of the Act that the principles governing, among other things, election of employee representatives which are operating in the Danish labour market today shall be applied to the widest possible extent in relation to SEs. The Directive gives member states some freedom of choice in questions of this nature, and for several reasons – among other things, the wishes of labour market actors – it has been clear that the Danish model should be referred to."
The wording of the Act to a large extent repeats the wording of the Directive. In what follows, only those parts of the Act which augment the formulations of the Directive will be mentioned, together with a few issues concerning which it is debatable whether the act succeeds in fully implementing the Directive.
Art. 5 determines that the SNB must be considered established (and ready to negotiate) 10 weeks after the employees in all participating companies and establishments have received information from management on plans to establish an SE. It is argued in the official comments to the act that if such a time limit is not specified, failure to establish an SNB will hinder the establishment of an SE (see also the discussion in the Swedish country report on this issue).
Art. 9 defines how members of the SNB shall be elected in Denmark (and the same rules apply to the election of members of the representative body under the standard rules). Members are elected “by the employee representatives in the cooperation committees in participating companies, subsidiaries and establishments. Where there is no cooperation committee the members are elected by the shop stewards. If no shop stewards have been elected, or if this has been agreed between the management and the ordinary employee representatives, the members are elected by all employees”. Para. 2 adds: “If it has been demanded before the election, the cooperation committee or the group of shop stewards can be complemented by representatives of groups which are not represented by the ordinary cooperation committee members or shop stewards”.
A few comments are needed to explain these rules. First, cooperation committees, which have priority in the election procedure, are joint consultation bodies based on a collective agreement signed by the LO (the peak organisation for workers and some categories of salaried employee) and the DA (the peak employers’ organisation); the employee representatives on cooperation committees are trade union delegates (shop stewards) and in principle represent only trade union members. Second, the two minor peak employee organisations (the FTF, covering salaried employees, mainly but not exclusively in the public sector, and the AC, covering employees with a higher education, for instance engineers) are not part of the agreement on cooperation committees. The election procedure puts these groups – as well as non-union members – in an unfavourable position and therefore the abovementioned para. 2 was introduced to give them an opportunity for representation. However, their position seems weaker than that of the groups covered by the LO–DA agreement on cooperation committees. The comments to the Act contain the following further attempt to restore some sort of balance: “It is assumed that the election of the SNB will be announced in a timely fashion, making it possible for these groups to take care of their interests through a request for representation”.
Art. 13, para. 2 states that the company is obliged to pay the costs of one expert assisting the SNB.
Sanctions: Articles 45 and 46 mention a number of instances where non-compliance with the provisions of the Act may be sanctioned with fines, including (employees) passing on of confidential information and (management) dissemination of incorrect information “which is important for employee involvement in the SE”. In relation to the standard rules, fines may be issued against a company for: i) failure to meet with the representative body at least once a year; ii) failure to inform and consult in the event of “special circumstances”; iii) failure to take the necessary steps to hold elections to the administrative/supervisory board. Companies may also be held responsible in accordance with provisions in the penal code and breach of confidentiality may be punished with reference to other legislation.
Information for trade unions in relation to negotiations. The Act fails to include the following formulation contained in art. 3, para. 5 of the Directive: “the SNB may decide to inform the representatives of appropriate external organisations, including trade unions, of the start of the negotiations”. The FTF in its consultation response proposed that this formulation be included. However, the response from the Minister was that “nothing prevents the SNB from informing anyone that negotiations have been started”.
Issues in the standard rules
It is determined in art. 21, para. 5 that if the representative body consists of more than 10 persons it has the right to form an executive committee consisting of no more than three persons.
Art. 23 concerns changes in the SE and states that “the representative body must once a year determine whether as a result of changes within the SE, its subsidiaries and establishments the distribution of seats should be different. If this is the case, the representative body must reconstitute itself, so that the changes are reflected in the composition of the body”.
The Act repeats the Directive’s formulations on the employer’s obligation to finance the costs of the representative body, and adds that the Minister is authorized to formulate more precise rules.
Art. 36–40 deal with elections of employee representatives to the administrative or supervisory body of the company. The rules of Danish company legislation are applied. A joint employee–management committee organises the elections; all employees, irrespective of trade union membership, participate.
Sources: Official documents from the Danish Parliament (available at www.folketinget.dk) and interview with trade union expert.
by Herman Knudsen (Aalborg University)
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Recent survey on employee directors in the board of directors
A survey made in collaboration with several Danish trade union organisations revealed interesting results with regard to the self-assessment of Danish employee directors. Many of these employee directors have the impression that they really make a difference even though they can only make up a third of the board of directors. Other topics examined are e.g. the profile of an average employee director in Denmark and their understanding of their role as an employee director. 263 employee directors from listed companies and 236 from unlisted companies participated in the survey.
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(5) Other relevant information (Info-Box)
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