Insight

Adjusted Recommendations on Foundation Governance

The new recommendations contain a new recommendation on the foundation’s asset management and several new comments.

The Committee on Commercial Foundation Governance has issued adjusted Recommendations on Foundation Governance. The commercial foundations shall present their report according to the new recommendations for the first time in connection with the presentation of the 2020 annual report.

According to the Committee, commercial foundation governance has developed positively, and both large and small foundations constantly work more seriously and professionally with the subjects covered by the recommendations. The recommendations have been adjusted, as there is now a need to extend the guide on the recommendations and to address additional subjects that may be important to the foundations.

A new recommendation (2.1.2) concerning the foundation’s asset management and several new comments have been added to the adjusted recommendations. In its report on foundation governance in the management commentary, cf. section 77a of the Financial Statements Act, cf. section 60 of the Commercial Foundations Act, the board of directors of a commercial foundation must only account for whether the foundation complies with the recommendations and – if relevant – explain why the foundation does not comply with the specific recommendation. The comments on the recommendations are solely for inspiration for the work of the board of directors with the recommendations.

New recommendation with comments on asset management

The adjusted recommendations have been extended with a new recommendation (2.1.2), according to which the board of directors of commercial foundations must regularly address whether the foundation’s asset management is in line with the purpose of the foundation and its long- and short-term needs.

It appears from the comments on the new recommendation that:

  • The board of directors should define and continuously address the general principles according to which the board of directors manages the foundation’s capital. The general principles should, inter alia, concern the expected return, grantmaking, liquidity requirement, grantmaking policy, and costs. The board of directors should address the objectives of the foundation’s investments, permitted asset types, risk profile, risk diversification, and capital resources in relation to the foundation’s activities, as well as monitoring and reporting.
  • In general, the foundation’s asset management should ensure the long-term viability of the foundation and the opportunity for it to continue to fulfil its purpose and to support ownership of subsidiaries, if applicable.
     

New comments and editorial changes

Below is a summary of significant additions regarding content to the comments of other recommendations.
 

1. Transparency and communication

In the comment on recommendation 1.1 regarding principles for external communication, the following has been added:

  • It may be relevant to publish the overall positions, procedures, and values upon which the foundation’s communication is based.
  • Publication of the foundation’s contact person(s) in the foundation’s annual report and/or on the foundation’s website supports that it is simple and transparent for the public to get in touch with the foundation. 
     

2.1 Overall tasks and responsibilities

In the comment on recommendation 2.1.1 regarding the board of directors’ regular position on the overall strategy and grantmaking policy of the foundation, it has been added that the strategy should among other things include the following:
 

  • Areas that are essential to the foundation’s activities, opportunities and challenges, and the foundation’s significance to society.
  • The commercial activities of the foundation, including if the foundation’s commercial activities take place through ownership of one or more companies, how the foundation, through shareholder engagement of the companies, best supports the foundation’s purpose and the development of these companies.
  • Position of the board of directors on the grant making activities, including how the board of directors implements the purpose of the foundation and what impact the foundation desires that the grantmaking has on recipients and the greater society, and how the foundation communicates to its stakeholders about the purpose of the foundation’s grants.
     

2.5 Appointment period

In the comment on recommendation 2.5.1 regarding appointment period of members of the board of directors, the following has been added:
 

  • An appropriate appointment period aims to ensure that the board of directors is composed in such a way that it always best matches the foundation’s purpose, opportunities and challenges and helps ensure independence. There should be a sensible balance between replacement and continuity in the board of directors.
  • That appointment of board members can take place by co-optioning or by a third party (an entity entitled to make appointments) outside the board appointing one or more board members.
     

In the comment on recommendation 2.5.2 regarding the setting of an age limit for members of the board of directors, the following has been added:

  • An age limit supports the introduction of new talent to the board of directors.
  • An age limit is not in conflict with the rules on non-discrimination.
     

2.6 Evaluation of the performance of the board of directors and management

In the introduction to the recommendations on evaluation of the performance of the board of directors and management it has been added that involving external assistance in the evaluation process may be considered, possibly periodically.
 

Deloitte recommends that the chair of the board involves external assistance in the evaluation of the performance of the board of directors and management to ensure an independent and confidential evaluation of the replies from the board of directors and management and to draw inspiration from other foundations. This can be done through a Board Effectiveness Review, where the board of directors and management receives a customised questionnaire, which is then processes and analysed by Deloitte. The anonymous results are then discussed with the chair of the board for the purpose of a face-to-face reporting and facilitation of a fruitful and developing dialogue within the board of directors.
 

3. Remuneration of management

In the comment on recommendation 3.1.1 regarding remuneration of management, the following has been added:
 

  • The remuneration of the board of directors is provided for the responsibility and work effort associated with performing the duties of board members, including salary, bonus, or similar schemes, as well as any contributions to pension, and also benefits such as free car, housing, telephone, internet or similar.
  • That decisions on board remuneration are made solely for the fulfilment of the foundation’s purpose and interests and thus solely correspond to the responsibilities and work effort associated with the duties of board members.
  • That the board of directors of the foundation should address the principles of the subsidiary(ies) for remuneration of its board of directors and management.

In the comment on recommendation 3.1.2 regarding information about the full remuneration received by any member of both the board of directors and management in the financial statements, it has been added that the foundation also follows the recommendation if the information is provided in a separate remuneration report that is published on the foundation’s website and to which reference is made in the annual report.

Besides the above additions, several minor editorial additions, changes, and elaborations have also been made.
 

Effective date

The first time the commercial foundations must respond to the recommendations is in connection with the presentation of the 2020 annual report.

The recommendations appear from the website of the Committee on Commercial Foundation Governance.

The Committee on Commercial Foundation Governance has also prepared an updated table which the commercial foundations may choose to apply for the report. The table can be found here.
 

The Danish Business Authority’s guide on annual reports of commercial foundations

The Danish Business Authority has issued a guide on annal reports of commercial foundations, which was updated in January 2020. The guide can be found on the website of the Danish Business Authority here.

 

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