The German Corporate Governance Code - Amendments Proposed by the Commission for 2015

The Government Commission of the German Corporate Governance Code (the “Commission”) seeks to promote the further professionalization of supervisory board work. It proposes the determination of a maximum period of office on the supervisory boards of listed companies. Additionally, the conscientious exercise of work on a supervisory board should be ensured by providing prior information to candidates for election regarding the expected scope of work and by ensuring greater transparency through more stringent reporting requirements.

Beginning of the Consultation Process

The Commission constantly reviews its rules and to this end initiated a consultation process on 25 February 2015. After the Commission had not made any changes last year, it has now published and commented its proposed amendments on its website (www.dcgk.de). The Commission will accept comments by e-mail or letter until 01 April 2015. In early May 2015, the Commission will conclude its consultation in a final plenary session. Encouraged by international investors, the Commission has also made a few substantive changes in addition to the on-going editorial review of the Corporate Governance Code (the “Code”), to further improve the work of supervisory boards.

Proposed Amendments to the Recommendations

The length of office on supervisory boards will be subject to company-specific limits (Sec. 5.4.1 (2)). Even if expertise and knowledge of the company increase with each year of supervisory board membership, the Commission nevertheless considers it essential that membership is constantly renewed. Long memberships on a supervisory board may lead to a certain operational "blindness".

Candidates for the supervisory board must be informed prior to their candidate of the expected time commitment for competent fulfilment of the mandate (Section 5.4.1, (4)). This is especially important for those supervisory board members that hold several mandates. The Commission has deliberately refrained from proposing a fixed maximum number of recommended mandates. A general estimate of the required time is neither realistic nor effective, given the different workload of individual mandates. The proposed recommendation should however raise the awareness about the required time commitment, so that the supervisory board mandate can be carried out effectively and in the best interest of the company.

Greater transparency should ensure that supervisory board members take office seriously: The supervisory board report should point out members that have attended less than 50% of meetings (Section 5.4.7). Previously, mention was only made in the report to the Annual General Meeting if a supervisory board member had attended less than half of the meetings. The requirement regarding attendance is only fulfilled if meetings are attended in person, or via telephone or video conferences; participation in resolutions based on written submissions and committee meetings does not count. The mandate is only competently fulfilled if a supervisory board member is personally involved in the open-ended and interest balancing communication process.

Comment

The proposed changes to the Code are to be welcomed. They will help to ensure that supervisory board mandates are carried out conscientiously and that a "fresh breeze" will blow through the boards. Nevertheless, enough flexibility remains to meet specific conditions on a case-to-case basis.