Setting the Scene – Sources and Overview
What are the main corporate entities to be discussed?
Companies may be organised as capital companies or partnerships. Whereas partnerships are characterised by personal liability of their partners, the liability of capital companies is limited to the assets of the company.
This chapter will focus on the two most popular forms of capital companies in Germany, stock corporations (Aktiengesellschaft – AG) and companies with limited liability (Gesellschaft mit beschränkter Haftung – GmbH). The other legal forms of capital companies – European stock corporations (Societas Europaea – SE) and partnerships limited by shares (Kommanditgesellschaft auf Aktien – KGaA) – are, to a large extent, comparable to an AG.
In particular, this chapter will highlight the requirements for listed companies since they are subject to the most comprehen[1]sive corporate governance rules.
What are the main legislative, regulatory and other sources regulating corporate governance practices?
The main sources regulating corporate governance practices are the German Stock Corporation Act (Aktiengesetz – AktG), the European and German acts on SEs (in particular the European SE-VO and the German SEAG), the German Limited Liability Companies Act (Gesetz betreffend die Gesellschaft mit beschränkter Haftung – GmbHG), the German Commercial Code (Handelsgesetzbuch – HGB) and, for certain aspects, the Reorganisation of Companies Act (Umwandlungsgesetz – UmwG) and co-determination laws (in particular the MitbestG and the DrittelbG).
For listed companies, capital markets law – in particular the European Market Abuse Regulation (MAR), the Securities Trading Act (Wertpapierhandelsgesetz – WpHG) and the Securities Takeover Act (Wertpapiererwerbs- und Übernahmegesetz – WpÜG) – establish further requirements. The German Corporate Governance Code (DCGK) is an additional non-binding source of corporate governance rules for listed companies following the “comply or explain” principle.
The company’s articles of association and the rules of procedure for the management and the supervisory board shape corporate governance within the statutory framework at the level of the individual company.
What are the current topical issues, developments, trends and challenges in corporate governance?
Virtual shareholders’ meetings: In response to the COVID-19 pandemic, the legislator has passed a temporary COVID-19 law allowing virtual general meetings for AGs, SEs and KGaAs and providing reliefs for GmbHs to pass shareholders’ resolutions in writing. In 2021, the COVID-19 law was amended, in particular to strengthen shareholders’ rights with respect to their right to ask questions in a virtual general meeting. Although these provisions are only applicable until 31 December 2021, the experiences gained with virtual shareholders’ meetings might have a lasting impact on potential legislative reforms and legal practice in the future.
Gender equality: The recently adopted Second Leadership Positions Act (FüPoG II) further develops the statutory provisions fostering equal participation of women in leadership positions – often referred to as the “women’s quota”. As the most prominent amendment, certain large listed companies will be required to appoint at least one woman to the management board. Also, reporting and justification requirements for target quotas and possible sanctions in case of violations have been tightened.
Financial market integrity: The “Wirecard scandal” has triggered discussions on the effectiveness of control mechanisms to prevent accounting fraud. As a reaction, the German parliament has recently adopted the Financial Market Integrity Strengthening Act (FISG) which sets new corporate governance standards, primarily for listed companies, with regard to audits and financial reporting, e.g. requirements to establish an audit committee endowed with direct information rights, to appoint at least two financial experts as supervisory board members, to rotate the external auditor and to install internal control and risk management systems.
Remuneration policy: Following the implementation of the EU Shareholders’ Rights Directive II into German law, certain requirements for listed companies with respect to their remuneration scheme for the management board and the supervisory board have in 2021 become mandatory for the first time (in particular “say on pay”). As a general trend, corporate governance-related issues are increasingly subject to legislative initiatives and harmonisation efforts at EU level.
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ICLG_Corporate Governance Laws and Regulations 2021_Chapter Germany
This article was first publishd in: International Comparative Legal Guides (ICLG), Corporate Governance Laws and Regulations 2021, pp. 63-69, 26. August 2021
