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Corporate Governance – portrayed in the individual cultural and legal framework, from the standpoint of equity capital.

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Professor Marcus Labbé

Quality beats diversity

“The term ‘Corporate Governance’ is a notably fortunate one. What makes the expression, which does not mean much to many people, particularly attractive in German linguistic usage is the fact that it is ennobled by its English form and pronunciation,” says Sebastian Hakelmacher in his legendary best-seller “Corporate Governance, or the corpulent governess,” in which he reveals some insights into life on supervisory boards.

The fact that recently the Government Commission on the German Corporate Governance Code included qualifications for a supervisory board member on its agenda is welcome and sensible, as well as being necessary in the interests of both firms and supervisory board members. But the topic has already been occupied for several years in connotative terms, and also de facto, by an initiative that is unique in Europe to have supervisory board members qualified and certified.

The desire to exploit all the tricks in the Accounting Law Modernization Act as well as the sloganization of the appropriateness of executive salaries, to date interpreted unfortunately in purely abstract terms, follows most recently from the buzzword of the hour: diversity. There is hardly a theme that seems to move hearts at the moment as much as this one, says a study published in March, for which 445 active supervisory board members, both men and women, were surveyed. One interesting finding is as follows: women who have made it reject the quota.

I have been dealing with this subject for a long time, since it brings women into the focus of debate, particularly as a factor for success and not just as a subject of quota regulations. This seems to be a pragmatic way. For diversity on supervisory boards certainly can pay. With equal certainty, however, the problem is by no means solely to do with faults in appointments by supervisory board bodies.

The sovereign personnel competence of the supervisory board works in two directions: appointment of board members and nomination to supervisory-board positions. And the quota is supposed to put that right? Well, anyone wanting to settle in Spain would be well advised to start by tackling the Spanish language and culture. To that extent, qualification might be an obvious way onto the supervisory board. After all, I don’t know anyone who would prefer to have incompetent supervisory board members.

If not a quota, then at least qualification measures exclusively for women, runs the current creed. Specific know-how for supervisory board members is, however, not gender-specific. Qualification measures exclusively for (would-be) female supervisory board members is something I would regard as extremely counterproductive. Considerations of this nature also irritate established supervisory-board women. Just ask the ones certified by the Rhineland authority.

Men and women act together on supervisory-board committees, not separately. What shareholder meeting would like to elect to supervisory-board committees women who have focused on giving gender-specific aspects preference over specific supervisory-board ones? That is the way to get kept out. But the rules of the game can be changed only if they are controlled, and that means from the inside out.

Women may possibly be able to make the breakthrough if they appear with a neutral qualification certificate, which is the only way to make it really valuable, being independent of persons because it is related exclusively to qualification. Candidates, men and women, who take a three-hour written examination are credible. The necessary continuing sensitization to specific supervisory-board knowledge is an overdue step that the Government Commission is now also calling for.

Internal independence and competence are conditions for each other, all the more so since supervisory board and administrative board appointments have to be exercised very personally. Responsibility and liability can not be delegated away. Every appointee is responsible for his or her actions and omissions. Qualified exercise of the mandate and qualification for a post are thus needed in the interests of both firms and the appointees.

Professor Dr Marcus Labbé, President of the German Supervisory Board Institute (D.A.I.)