Company purpose, culture, values: how well are companies reporting how the board has helped ensure these are aligned?

In support of the company’s purpose and long-term value creation, one of the relatively new Danish recommendations on corporate governance* is guideline 2.1.1.

“The Committee recommends that the board of directors in support of the company’s statutory objects according to its articles of association and the long-term value creation considers the company’s purpose and ensures and promotes a good culture and sound values in the company. The company should provide an account thereof in the management commentary and/or on the company’s website.”

The Danish Corporate Governance Recommendations define the term “purpose” (in the Recommendations for Corporate Governance of December 2020) as the following:

“Purpose” is a new term in the recommendations. A company’s purpose is the company’s overall aim for long-term value creation, which the company delivers to its shareholders, other stakeholders and society. In order to support the company’s statutory objects pursuant to its articles of association, the company’s board of directors should consider the company’s purpose. Many companies already have a purpose, which they use actively in the company’s strategy, for instance, under the designation’s “mission” or “vision”.
The Committee considers the company’s purpose to be a considerable driving force in the company’s strategy and decision-making processes.”

Once again, our team has conducted desk research to evaluate whether and how the C25 companies have defined purpose, culture, and values and whether they have reported how the board has considered the company purpose and ensured and promoted a good culture and sound values by the end of the (financial) year.

Key Conclusions

Defining a company’s purpose, culture, and values is challenging, and implementing them can be even more difficult. Despite progress made by many companies, there still needs to be better and more reporting on how boards ensure that a company’s culture is aligned with its values.

Several executive leadership teams are attentive to and take action to improve the company culture and are good role models regarding company values (ref. annual reports); however, the boards still need to find their way in terms of how to evaluate, engage in, and ensure a healthy company culture. Apparently, boards can spend more time and effort to understand their role in this matter fully.

While some companies describe how their values contribute to their culture, and there is information available about what companies, in general, are doing to ensure their culture is healthy, the crucial aspect of how the board is involved in this process is often missing.

Our research indicates that the C25 companies must improve their reporting practices to comply with 2.1.1. Only two of the C25 companies described in their annual reports (a few) actions their board took to promote positive company culture and good values.

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Our full report is available on request and contains not only a comparison of how well each of the C25 companies’ comply but also good examples of reporting and actions the board is taking, both from Danish and foreign companies, as well as comparison of company Purpose statements, showing significant improvement vs. prior years.

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