All questions

Corporate leadership

i Governance structures

Under Danish company law, a limited liability company may choose between two different types of governance structures.

A Danish limited liability company may choose the traditional Danish governance structure where the company is managed by a board of directors responsible for the overall and strategic management. The board of directors must appoint an executive board consisting of one or more persons to be responsible for the day-to-day management. In public limited companies, the majority of the members of the board of directors and the board's chair and vice chair may not be members of the executive board.

Alternatively, limited liability companies may choose a governance structure where the company is managed solely by an executive board. This executive board must be appointed by a supervisory board that oversees it, and thus the supervisory board has no responsibility for the overall and strategic management. A member of the executive board must not also be a member of the supervisory board.

The board of directors or the supervisory board of a public limited company must have at least three members.

In addition to these two governance structures, a private limited liability company has the further option of being managed solely by an executive board.

Where a limited liability company has employed an average of at least 35 employees during the previous three years, the employees of the company are entitled to elect among themselves a number of employee representative board members, to be appointed on the same conditions as those applying to members elected by the shareholders. Private limited companies in which the employees exercise their right to elect members must have a board of directors or a supervisory board.

The majority of Danish companies have the traditional management structure, namely a board of directors and an executive board, and the following paragraphs are, therefore, based on Danish limited liability companies with this governance structure.

ii Board structure and practicesGender equality

In 2012, the Danish parliament adopted a bill with the aim of creating a more equal ratio of men to women on the boards of directors of Danish companies.

The bill introduced new provisions in the DCA and the DFSA, pursuant to which certain types of companies are required to set target ratios and to implement a policy for gender equality to increase the share of the under-represented gender in the company's management levels in general. The companies must also report on the status of progress towards satisfying these requirements in their annual reports. However, the new rules do not impose any mandatory quotas to be met in terms of ratios of men to women on the boards of directors.

The rules are, inter alia, applicable to state-owned public companies, listed companies, large commercial enterprises, large commercial foundations and a number of financial sector entities.

Where an entity already has an equal gender ratio in its management – pursuant to the explanatory notes to the bill, this means at least 40 to 60 per cent of each gender – the entity is not required to set target ratios or implement a policy. Information in this respect must, however, be included in the annual report of the entity. Furthermore, there is a de minimis threshold regarding the requirement to implement a policy of gender equality. Thus, companies with fewer than 50 employees are not subject to the requirement of implementing this policy.

Failure by a company to observe the obligation to set target ratios, prepare a policy for gender equality or reporting in the annual report may result in a fine, but the fact that a company does not achieve the target figures will not in itself give rise to a fine.

The Danish Business Authority has prepared guidelines enabling companies to fulfil the requirements.

The new rules entered into force on 1 April 2013.

Liability of directors

The management of a Danish limited liability company owes a duty of loyalty to the company and its shareholders, and must at all times act in their best interests.

A management member who, by wilful misconduct or negligence, causes damage to the company or the company's shareholders, creditors or any third party can be held liable for damages under the culpa standard.

The culpa assessment is made by comparing the act or omission in question to a normal standard of care (i.e., what can reasonably be expected from a diligent person (bonus pater familias) in similar circumstances). In this respect, it may be of significant importance if a specific rule or duty to act has been contravened: for example, rules or duties contained in the DCA, the company's articles of association or any other regulations or guidelines applicable to management members.

Under Danish company law there is a business judgement rule, which prescribes that, as a main rule, the management will not be held liable when exercising a rational business judgement, even if an error in that judgement leads to financial losses. The decision must have been taken on a well-informed and qualified basis.

In Danish case law, the board of directors has generally not been found liable in financial distress cases where a business judgement has resulted in financial losses, provided that the chances of overcoming the financial difficulties were not unrealistic at the time the business judgement was made.

In general, Danish courts have been reluctant to render management members liable for the exercise or lack of exercise of their powers and duties unless clear, specific duties have been breached. This may, however, be changing, since the trend is probably towards stricter liability for management members.

In recent years, Danish company law has provided company management with a greater degree of freedom of choice; for example, certain legal requirements and documents may be waived in connection with mergers if the management considers such a decision to be prudent and justifiable. This tendency leads to an intensified focus on the potential liability of the management, especially when these requirements have been waived and losses occur.