Campus

Green Paper aims to set CG standard

In Europe very different rules and standards of corporate governance may apply. In order to unify them, the EU Commission in April 2011 published the so-called Green Paper on the EU corporate governance framework, with an eye to identifying the existing need for improvement. Through July, the Commission then collected opinions on the Green Paper. The results of the consultation were published in mid November 2011. Commissioner Daniela Weber-Rey, a partner at Clifford Chance and a member of the German Corporate Governance Commission, has summarized the answers. The majority advocated that consistent corporate governance standards should be introduced regardless of company size. But they rejected a legally binding quota for women and want to encourage a voluntary promotion of diversity here. At the same time, respondents were against a legal limit on the size of supervisory boards. However, they call for regular external evaluations and mandatory disclosure, and a mandatory vote on remuneration policies. A shareholder platform is to improve cross-border coordination and the flow of information between issuers and shareholders. In addition, the work of proxies is to be made more transparent. The Commission has announced publication of further consultation results for early 2012.

DAX board directors are pension millionaires

In times of rising fixed salaries the pension entitlements of DAX board members are also climbing. Compensation expert Heinz Evers has worked out a statement for Handelsblatt showing that DAX company board members have, on average, pension rights of eight million euros, thus more than double within 15 years. The ranks of the best-secured DAX board members are headed by Daimler CEO Dieter Zetsche, who by the end of 2010, for his past 13 years on the Executive Board alone, had secured €26 million in entitlements. Volkswagen boss Martin Winterkorn follows, with a current pension of €18 million. Ex BASF CEO Jürgen Hambrecht, on his departure in 2011 after 14 years on the board, took a €15 million pension package with him. Josef Ackermann, head of Deutsche Bank since 2002, will retire in May 2012 with pension rights of €13 million. Evers makes the criticism that the DAX companies’ total pension obligations have grown disproportionately to employee pensions: instead of commonly 50 to 60 percent of the last fixed salary, they are at up to 80 percent today. The pension plan for the eight-member VW board climbed to €64 million in 2005-2010 and thus rose by 540 percent. In addition, an increasing burden on groups is emerging: at Daimler, the Board’s pension entitlements already add up to €197 million.

More private shareholders

Despite the financial crisis and economic downturn, the interest of private investors in Germany in shares has increased for the first time in six years. As the German Stock Institute (DAI) determined, the number of shareholders has risen by 683,000 to 4.1 million. A total of 8.7 million investors, or 13.4 percent of the German population, was in possession of shares or units of equity funds at the turn of the year. In the crash month of August the volume of purchases even exceeded that of sales by almost double. Thus the total number of shareholders rose in the second half of 2011 by around 4.1 percent or approximately 356,000 – a “remarkable” increase, as the DAI writes. Of the 6.2 million shares owners in 2000, just 3.4 million remained by the end of 2010.

Investment bankers more optimistic again

The estimates of financial experts on the situation in the capital market having almost reached the negative level of the Lehman bankruptcy in consulting firm cometis’s previous panel, the mood among the investment bankers surveyed lightened again in the fourth quarter of 2011. The bankers granted defensive sectors such as food & beverages, but also pharma, the best prospects, while cyclical industries such as the automotive industry took the rear seats. The respondents see the financial sector at the very back. The vast majority sees the euro crisis as the decisive factor for stock-market developments in the next six months. As long as no consistent solution is found there, investors will continue to hold back, the bankers judge. The great uncertainty about economic developments will also keep the window for IPOs closed in the first half of 2012, but it should open in the second half of the year. On SME loans, about half the respondents predict 20 to 30 new issues.

Accounting errors down

The German Financial Reporting Enforcement Panel (DPR) detects the first signs of improvement in balance-sheet quality. Its 2011 activity report still shows a consistently high error rate, of 25 percent. Of the 110 tests carried out 90 were spot checks and 20 non-routine tests or checks performed at the request of BaFin. The previous year the error rate was 26 percent for 118 tests. The main causes of the consistently high error findings for the past five years were inadequate reporting in the management report and the notes, especially regarding the impact of the financial and economic crisis on the company’s situation, and difficulties in applying individual IFRS standards. Thus, as in the previous year, risk and forecasting reporting was a major error source. The error rate falls from 25 percent to 19 percent when the results are adjusted by not counting errors that occurred again in successive financial statements of the same company more than once, and also eliminating tests where the auditor’s report was already restricted or denied. This value is still too high, says Vice President Axel Berger, but the adjusted calculation reflects the situation more adequately.

Proportion of women barely increased in 2011

A study by the German Institute for Economic Research (DIW) came to the conclusion that the proportion of women in supervisory and management boards of large companies and banks in Germany barely changed in the past year. “The tenacity of male structures leaves little room for women,” stated the Institute’s female managers’ barometer on 18 January. Thus, the proportion of women on the boards of the top 200 German companies continued at three percent in 2011. Nevertheless, DAX-listed companies raised their share by 1.5 percentage points to 3.7 percent. On supervisory boards, the proportion increased slightly from 10.6 percent to 11.9 percent. In MDAX companies in 2011 only 2.3 percent of board members were women: female SDAX executives came to 4.8 percent. While the rate in this country is barely moving forward, the percentage of women directors in Ireland is already at 28 percent, in Sweden at 15 percent and in Finland at 12 percent.