DENMARK- A government committee appointed to make recommendations on efficient corporate governance in Danish labour market pension funds has unexpectedly backed the role of social partners on the boards of pension funds.
Labour market funds are pension funds governed by a collective agreement between the social partners, that is employers and employees. These pension funds hold around 40-50% of assets in the Danish pension fund market.
The report was widely expected to criticise the presence of social partners on pension fund boards on the grounds that they lack both the knowledge and skills required for the role. The report instead was expected to call for independent directors on these boards.
But the committee, headed by former Pensionskassernes Administration (PKA) CEO Bent Nyløkke Jørgensen, said that there was no evidence to prove that pension funds with social partners on the boards were any worse run compared to other life insurance companies.
The group, however, made some crucial recommendations on board constitution.
It said that the boards should draw up a description of the responsibilities of the board and the competencies and qualifications required for board members.
Jørgensen, who chairs the government committee, said that the group had endorsed the role of social partners in labour market pension funds because, in his experience, he had found no conflicts of interest on boards with employers and employees.
“We realise that we may have disappointed some people,” said Jørgensen. “But, in my experience, you do not have conflicts of interest in these boards in the daily operations of the fund. Most decisions, and especially all important decisions, are made unanimously.
“However, we have warned that there is a danger that these boards may have directors with similar profiles and qualifications. And, therefore, even though each director is qualified, the board as a whole may lack the broadness that should be represented and this is what we are trying to express in the report.”
PKA CEO Peter Jensen said: “These recommendations underline the importance for a proper discussion on board constitution. It is something new and we haven’t had this particular discussion in PKA, although we have worked on corporate governance and education of board members for some years. It is an issue that we will definitely examine further.
“The other key recommendation on openness and transparency is also crucial.
“The group has said that pension funds should create guidelines to secure that all essential information that is of value to key stakeholders is published. In PKA we couldn’t agree more and I think this matter will certainly be debated a great deal in future.”
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