Germany’s corporate governance code is being amended to emphasise that institutional investors have a responsibility to exercise their ownership rights.
The amendments follow a six-week consultation period that generated a strong response, both positive and critical, according to the government-appointed commission responsible for the code. The commission decided on changes to the code itself and the preamble, which sets out the spirit behind the code.
The preamble has been extended to argue that good corporate governance requires companies and their directors to conduct business ethically and take responsibility for their behaviour. The German word used by the commission for the latter is “Eigenverantwortung” – literally translated as “self-responsibility” or “own-responsibility”.
The guiding principle of an “honourable businessperson” (“ehrbarer Kaufmann”) was introduced to the preamble to reflect this.
The preamble is also being changed to specify that “institutional investors are particularly important for companies”.
It says institutional investors should exercise their ownership rights actively and responsibly “in accordance with transparent principles that also respect the concept of sustainability”.
“The [commission] has therefore actively contributed to the debate, on a European as well as an international level, according to which institutional investors have particular responsibility in assessing how corporate governance is put into practice,” it said.
Manfred Gertz, the outgoing chair of the commission, said the responses to the consultation underlined “the vast interest on questions regarding good corporate governance that exists within German listed companies”.
“The focus is on strengthening self-responsible conduct by corporate bodies and committees complimented by a sensible level of transparency, allowing stakeholders to better assess how corporate governance is being put into practice,” he added.
The changes to the code itself impose more transparency requirements for companies, with the commission seeing transparency as the basis on which investors can assess good corporate governance.
The requirements relate to compliance management, supervisory board composition, periodic reporting to investors, and the role of the chair of the supervisory board in engaging with investors.
Unlike in countries such as the UK where non-executive directors do most of the communication with investors, in Germany the law has traditionally been interpreted to mean that this has to be handled by the management board.
This is changing, however, and the commission decided that supervisory board chairpersons should “be prepared (under appropriate conditions) to discuss topics relevant to the supervisory board with investors”.
“These are issues within the sole responsibility of the supervisory board, and which it must decide upon on its own,” the commission said. “In accordance with this suggestion, the chairman of the supervisory board will have certain discretion with whom and when he/she would like to conduct a discussion.”
The commission’s recommendation comes after a group of investors and other stakeholders developed guidelines for interaction between the supervisory board chair and investors in a bid to bring German corporate governance more in line with practice in other countries. Some of the members of that task force are also on the government corporate governance commission.