EUROPE - Hermes Fund Managers has sent an open letter to German government officials and companies listed on the Dax and Mdax stock exchanges, arguing changes are needed recent legislation which was designed to strengthen corporate governance and "the appropriateness of management board remuneration".

A letter addressed to company heads as well as to Brigitte Zypries, federal justice minister, and Klaus-Peter Müller, chairman of the government commission for the German corporate governance code, concerning the VorstAG (Gesetz zur Angemessenheit der Vorstandsvergütung) legislation enacted in May, warned slight reforms would ensure companies were "tightened, professionalised and safeguarded against litigious shareholders".

More specifically, the letter produced by Hans-Christoph Hirt, head of European corporate governance at Hermes, argued there is a major flaw in the introduction of two-year waiting period company managers must adopt when seeking to move from the management to the supervisory board.

He claimed VorstAG legislators should have followed the proposals set out by the government commission for the German Corporate Governance Code, as the two-year wait means supervisory boards will lack the "valuable experience and relevant knowledge" to do their jobs and see "its efficiency being weakened rather than strengthened" - a move which could potentially lead to shareholder legal action further down the road.

Rather than place undue pressures on boards to comply with the new rules, Hermes has proposed it will bypass law and apply a legal opt-out, and support shareholder proposals to elect suitable people to move from the management to the supervisory board.

Hermes' key priority, however, it to ensure shareholders' voices are at least heard on the subject of remuneration policy, so has proposed companies accept a new policy which gives shareholders a non-binding ‘advisory' vote on remuneration, to improve dialogue with shareholders and prevent disagreements during general meetings.

The asset manager pushed for such a policy in January during the general meetings held by Siemens and Porsche. (See earlier IPE story: Hermes pushes for pay vote at Siemens and Porsche)

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