Copenhagen Stock Exchange | 2001

Following the release of the Cadbury report in 1992, Denmark formulated their recommendations for good corporate governance. In 2001 The Nørby Committee’s Report on Corporate Governance in Denmark was published. The appointed committee came up with the following concept:

“The goals, according to which a company is managed, and the major principles and frameworks which regulate the interaction between the company’s managerial bodies, the owners as well as other parties, who are directly influenced by the company’s dispositions and business (in this context jointly referred to as the company’s stakeholders). Stakeholders include employees, creditors, suppliers, customers and the local community.”

The report formulates the recommendation (p. 15, part 2 of  the report) to built risk management as integral part of good governance.

Efficient risk management is a prerequisite for the board being able to perform the tasks for which it is responsible in the best possible way. Thus it is important that the board ensures that there are appropriate systems for risk management in place and, moreover, ensures that such systems meet the requirements of the company at any time. The purpose of risk management is: 

• To develop and maintain an understanding within the organisation of the company’s strategic and operational goals, including identification of the critical success factors. 
• To analyse these possibilities and challenges which are connected with the realisation of the above goals and to analyse the risk of these goals not being met. 
• To analyse the most important activities of the company in order to identify the risks attached hereto.

Risk management also focuses on procedures for damage control, the formation of contracts, safety at work, environmental issues and safeguarding physical values. It is recommended that the board ensures that the management establish efficient risk management systems and that the board continuously follows up on these in order to ensure that they always work efficiently in the light of the company’s requirements. As required, but at least once a year, the board should evaluate the company’s risk management and by establishing the risk policy, decide on the company’s risk-taking including insurance, currency and investment policies. 

The risk management system must define the risk and describe how this risk is eliminated, controlled or hedged on a continuous basis. In that connection the board should consider how any collaboration with the company’s external audit could contribute to the risk management, and to what extent the internal audit could be part of the risk management.

Bibliography

Nørby Committee (2001) Corporate Governance in Denmark: recommendations for good corporate governance in Denmark. Copenhagen: Copenhagen Stock Exchange.