A plenary meeting of the Government Commission on the German Corporate Governance Code was held on June 8, 2004. After detailed discussion, the Commission decided unanimously not to adjust the Code at the present time in view of the forthcoming changes to legislation in Germany and at EU level.
Key areas of discussion at the meeting
The Commission dealt with a number of topics today, including:
- Status of implementation of the German Corporate Governance Code,
- Effects on the Code of the corporate integrity and modernization of the right of avoidance bill (UMAG), accounting law reform bill, balance sheet monitoring bill and other projects in Germany,
- Status of implementation of the EU action plan for the modernization of company law in the European Union and its effects on corporate governance in Germany,
- Individual questions such as the independence of supervisory board members, in particular the move from management board chairman to supervisory board chairman, or compensation questions for management and supervisory board members as well as questions relating to the size of the supervisory board, streamlining of the AGM and accounting.
Modernization of company law making good progress
The Commission is observing very closely the debate and the development of legislation in Germany, the European Union and its member states as well as in the USA. The German government has initiated a number of new bills including the corporate integrity and mod-ernization of the right of avoidance (UMAG) bill, the accounting law reform bill and the balance sheet monitoring bill. As a result, in the next few months Germany will have a new legal framework for corporate governance with improvements regarding annual general meetings, investor protection, accounting and financial statement auditing.
At EU level, too, in the course of the implementation of the EU action plan for the modernization of company law in the European Union new recommendations and directives can be expected which will then have to be incorporated into the national law of the member states. Some of these recommendations and directives are very far-reaching and on the subjects of independence of supervisory board members and compensation for management and supervisory board members include a level of detail which is open to question. The national codes should be left sufficient latitude.
No adjustment to Code at present time
The impact on the code can only be reliably assessed after the new statutory regulations have been introduced. Against this background the Commission came to the conclusion that the Code should for the time being be left unchanged. It would serve little purpose to anticipate the result of the ongoing legislative process
High acceptance of the Code's recommendations
The Berlin Center of Corporate Governance (BCCG), headed by Prof. Dr. Axel von Werder of Berlin University, has been commissioned by the Government Commission to evaluate the declarations of conformity under Art. 161 of the Stock Corporation Act (AktG) submitted by companies from the DAX, M-DAX and S-DAX, and presented initial indications in the plenary meeting. The final results of the study will be presented at the 3rd German Corporate Govern-ance Code Conference in Berlin on June 23 24, 2004. An executive summary will then be available on the Government Commission's website.
Overall acceptance of the Code is high. According to the BCCG, the DAX companies are already following on average around 95% of the Code's 72 recommendations, while the average for M-DAX companies is 85% and for S-DAX companies 83%. By year-end these figures will be slightly higher.
This is an encouraging finding, although the Code Commission wishes for a significantly higher implementation rate for some of the recommendations. This includes for example the recommendation that executive compensation be disclosed on an individualized basis.
Overall great progress has been made with corporate governance in Germany and the Code has played a major role in this. Germany as a business location has been strengthened. Rather than having to deal with an excess of additional bureaucracy, companies using the Code properly have established an efficient and transparent management and control system.
Dr. Jürgen Claassen
Corporate Communications, Strategy, and Executive Affairs
Telephone: +49 (2 11) 8 24-36 00 1
Fax: +49 (2 11) 8 24-36 00 5