Sources of Corporate Governance Rules and Practices
Primary sources of law, regulation and practice
What are the primary sources of law, regulation and practice relating to corporate governance? Is it mandatory for listed companies to comply with listing rules or do they apply on a ‘comply or explain’ basis?
The primary sources of law and regulation that must be complied with by both listed and non-listed capital companies in Germany are:
- the German Limited Liability Companies Act;
- the German Stock Corporation Act;
- the European and German acts on European stock corporations;
- the German Commercial Code;
- the Reorganisation of Companies Act;
- the Takeover Act (implementing the EU Takeover Directive (Directive 2004/25/EC));
- the Securities Trade Act; and
- the Anti-Money Laundering Act.
Listed companies must also comply with the applicable listing rules and the German Corporate Governance Code (DCGK). The DCGK differentiates between recommendations, which must be complied with or otherwise the company must explain why it chose not to comply and disclose such an explanation on its website and as part of its corporate governance reporting (‘comply or explain’ policy), and suggestions, from which deviations are allowed without disclosure, excluding new general principles, which must be adhered to.
What are the primary government agencies or other entities responsible for making such rules and enforcing them? Are there any well-known shareholder or business groups, or proxy advisory firms, whose views are often considered?
The primary government agencies are the federal parliament and, to an increasing extent, the European Union’s legislators. The DCGK and its amendments are prepared and issued by the Government Commission for the German Corporate Governance Code. The listing rules are usually set by the stock exchanges or other listing entities. Capital markets laws and regulations are enforced by the Federal Financial Supervisory Authority.
Shareholders’ associations, most notably the German Association for the Protection of Capital Investors and the German Society for the Protection of Securities Holders, are usually present in general meetings to voice their members’ questions and concerns. Statements by ‘proxy advisers’ have become increasingly noticeable in the market.
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This article was first published in: Lexology, Getting the Deal Through, Corporate Governance 2023 (generated 24 May 2023)