German Corporate Governance Code
Corporate Governance is understood as the legal and factual regulatory framework for the management and supervision of an enterprise. The German Corporate Governance Code (the “Code”) contains principles, recommendations and suggestions for the Management Board and the Supervisory Board that are intended to ensure that the company is managed in its best interests. The Code highlights the obligation of Management Boards and Supervisory Boards – in line with the principles of the social market economy – to take into account the interests of the shareholders, the enterprise’s workforce and the other groups related to the enterprise (stakeholders) to ensure the continued existence of the enterprise and its sustainable value creation (the enterprise’s best interests). These principles not only require compliance with the law, but also ethically sound and responsible behaviour (the “reputable businessperson” concept, Leitbild des Ehrbaren Kaufmanns).
With their actions, the company and its governing bodies must be aware of the enterprise’s role in the community and its responsibility vis-à-vis society. Social and environmental factors influence the enterprise’s success. In the enterprise’s best interests, Management Board and Supervisory Board ensure that the potential impact of these factors on corporate strategy and operating decisions is identified and addressed.
The objective of the Code is to make the dual German corporate governance system transparent and understandable. The Code includes principles, recommendations and suggestions governing the management and monitoring of German listed companies that are accepted nationally and internationally as standards of good and responsible governance. It aims to promote confidence in the management and supervision of German listed companies by investors, customers, employees and the general public.
The principles reflect material legal requirements for responsible governance, and are used here to inform investors and other stakeholders. Recommendations of the Code are indicated in the text by using the word “shall”. Companies may depart from recommendations, but in this case they are obliged to disclose and explain any departures each year (“comply or explain”). This enables companies to take into account sector- or company-specific special characteristics. Well-justified departures from recommendations of the Code may be in the best interests of good corporate governance. Finally, the Code contains suggestions from which companies may depart without disclosure; suggestions are indicated in the text by using the word “should”.
Code stipulations covering not only the listed company itself but also its group entities use the word “enterprise” rather than “company”.
Shareholders generally exercise their membership rights before or at the General Meeting. Institutional investors are of particular importance to enterprises. They are expected to exercise their ownership rights actively and responsibly, in accordance with transparent principles that also respect the concept of sustainability.
The Code is addressed to listed companies and companies with access to capital markets pursuant to section 161 (1) sentence 2 of the German Stock Corporation Act. Companies which are not capital market oriented may use the Code’s recommendations and suggestions as guidelines.
Listed credit institutions and insurance undertakings are subject to the applicable prudential requirements, which are not reflected in the Code. Code recommendations apply to the extent that they do not contradict any legal stipulations.