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

VIPsight is a dynamic photo archive, sorted by nations and dates, by and for those interested in CG from all over the world.

VIPsight offers, every month:
transparent and independent current information / comments / facts and figures on corporate governance locally and internationally,

  • written by local CG experts,
  • selected and structured by the Club of Florence,
  • financed by its initiator VIP and other sponsors with a background of “Equity and Advisory” interests.

VIPsight International

Article Index



More professionalism in supervision

According to the new study of Supervisory Boards by shareholder association Deutsche Schutzvereinigung für Wertpapierbesitz (DSW), the importance of company supervisors but also the demands on them are increasing. According to a points ranking, Manfred Schneider, chairman of Bayer, RWE and Linde, is regarded as the most powerful Supervisory Board member in the DAX, MDAX and TECDAX, followed by Gerhard Cromme and Clemens Börsig. Renate Köcher is the first woman, in 29th place. With an annual income of €1.1 million Schneider is also the top earner among German supervisors, followed by Cromme (0.92 million euros) and Ferdinand Piëch (0.84 million euros). Overall, the DAX companies paid their Supervisory Board members around 64.7 million euros in 2010, 26 percent more than last year. On average, a Supervisory Board chairman earned €273,000 last year. After Allianz, E.ON and Siemens eliminated the variable portion of their Supervisory Board members’ remuneration, for the other DAX companies the long-term variable share also plays an increasingly smaller role. DSW welcomes this, as it made little sense to have Supervisory Board members participate in economic success or failure like board members. Of the 256 seats 71 (28 percent) were held by foreigners. Only 28 seats (16 percent) are occupied by women.

Management reports too thin

Only about 60 percent of the DAX and MDAX companies report in their financial statements on the situation of the company or create a separate document for this purpose, says an analysis by Hamburg financial-communications agency IR-ONE. If there is a situation report, then its average length is two pages. Additionally, in the DAX 30 percent and in the MDAX 20 percent of companies use quarterly results in the annual report. Figures from the quarters are cited particularly commonly if they are subject to strong seasonal fluctuations, analysed IR-ONE.

Say on Pay becomes standard

For the first time in 2010, all 30 DAX companies submitted their board members’ remuneration system to shareholders for a vote. In the MDAX at least 78 percent did, according to an analysis by German shareholder association Deutsche Schutzvereinigung für Wertpapierbesitz (DSW). While this “Say on Pay” in Germany, as in Britain, Spain and Portugal, is consultative and so not legally binding, usual disclosure practices vary widely throughout Europe, according to DSW partner organization Expert Corporate Governance Service (ECGS). While shareholders in Germany, Denmark, the Netherlands, Norway and other countries vote on remuneration policy and the remuneration system, those in Belgium and the UK have the remuneration report submitted to them. In the last reporting season it again became clear that the potential compensation is often too high, or variable components were not designed to be transparent enough. So it was often not possible to understand whether the principle of “pay for performance” was met or whether procedures were more on the principle of “reward for failure”. ECGS has set itself the goal of establishing universal standards for the disclosure of executive compensation.

Supervisory Board members: excessive networking harms governance

The question of the role of Supervisory Board members as part of corporate management in relation to their involvement in social networks is the focus of the study “Is Busy Really Busy? Board Governance Revisited” by Professor Christian Andres of the WHU - Otto Beisheim Graduate School of Management and Mirco Lehmann of the University of Bonn. Here the scientists pursue the thesis that the sheer number of Supervisory Board posts held is not really an indication of the workload and the impact of Supervisory Board members. Based on an analysis of social networks (including personal contacts and memberships in associations and unions), the study shows that in the 133 German companies surveyed whose managers played a central role in the network in 2003-6, weaker governance was usually to be found. The pay of executives in companies with better-connected Supervisory Board members is consistently higher. The study comes to the conclusion that the limitation of Supervisory Board seats alone is no guarantee for better corporate governance, as long as here the scope and obligations of the mandates held are ignored. The complete study can be retrieved at http://ssrn.com/abstract=1569531.

Increasing number of professional plaintiffs

Frankfurt lawyer Professor Theodor Baums has determined that the number of legal challenges has been halved since the law was changed two years ago. Nevertheless, the reform has not worked adequately, according to Baums. The number of professional plaintiffs had according to his estimate risen from 32 to 45 in the past two years, and 80 percent of the actions for avoidance and nullity now focused on this group.

The most active professional plaintiffs

Name Actions Involvements Companies

brought as intervener sued

Klaus E. H. Zapf 74 8 44
Timo Hofmann 62 5 40
Thomas Höder 26 5 25
Familie Knoesel 22 0 19
Axel Sartingen 22 0 15
Caterina Steeg 21 0 19
Frank Scheunert 18 4 13
Peter Eck 17 1 11
Peter Zetzsche 16 0 15
Karl-Walter Freitag 14 8 9

Source: FAZ, after Baums/Drinhausen

Hedge funds improve corporate governance

Recent regulatory changes have meant that in German companies corporate governance will be exercised less and less by universal banks, and increasingly by other capital-market participants - including hedge funds. Has this trend towards a more capital-market orientation also improved corporate governance and shareholder value? This question is considered in the study “The Returns to Hedge Fund Activism in Germany” by Professor Wolfgang Bessler (University of Giessen), Professor Wolfgang Drobetz (University of Hamburg) and Julian Holler (University of Giessen). Between January 2000 and December 2006, the researchers examined 231 cases in Germany and were able to observe significant short-term price increases for the acquired companies as a result of hedge-fund activities. These positive effects, resulting partly from the fact that hedge funds often go into less profitable and badly managed companies, are still present after three years. The extent of long-term appreciation of these companies depends on one hand on their characteristics and ownership structures, and on the other on the hedge fund’s tactics and strategy. The complete study can be retrieved at http://www.fma.org/Denver/Papers/CorporateGovernanceHedgeFundsFMADenver.pdf. Advanced topics such as a consideration of the bear market from 2007 to 2008, which in contrast to the period 2000 to 2006 shows a negative performance of the target companies, are included in Julian Holler’s doctoral dissertation (to be published in January 2012 under the title “Hedge Funds: A Theoretical and Empirical Analysis from the Perspectives of Asset Management and Corporate Governance” in the Gabler Verlag series “Money – Banks – Exchanges”).

Supervisory Board members in a dilemma

Municipalities have, according to a ruling by the Federal Administrative Court (BVG) (AZ 8 C 16/10/2011), a right of instruction over Supervisory Board members sent by them to companies they have shares in, even without explicit provisions. In the case in point a city council had instructed the Supervisory Board members nominated by it not to agree to a price increase intended by an energy company. The decision runs counter to the company-law principle of independence of Supervisory Board members from instructions. In the opinion of lawyers, the Federal Court of Justice (BGH), responsible for company law, would have found no municipal authority to issue directives.

FIROs on the march

The German Investor Relations Association (DIRK), together with the Frankfurt School, has designed a training programme for FIROs - Fixed Income Investor Relations Officers. In a multi-day seminar, participants should develop basic knowledge of credit products and their legal aspects, receive an overview of Debt Capital Markets and processes, needs and requests for credit analysts and investors, and acquire an insight into the do's and don'ts of Fixed Income IR. The lecturers come from corporate and capital-market practice. The offer starts in 2012.

DWS checks auditors

“It is questionable when a company checks as part of its audit work something they have previously developed as a consulting company themselves,” complains Jella Benner-Heinacher, managing director of shareholder association Deutsche Schutzgemeinschaft für Wertpapierbesitz (DSW), on the premise of the independence of the big accounting firms. Together with the Expert Corporate Governance Service (ECGS), DSW put common practice in the industry under the microscope. The Big Four - PricewaterhouseCoopers, KPMG, Ernst & Young and Deloitte - were clearly an oligopoly and, according to ECGS Analysis 2010, together audit 93 percent of the 450 largest European companies. They collected four billion euros, while the other companies came to just 103.5 million euros. On average across Europe 72 percent of revenue was audit fees, an additional nine percent audit-related fees, and less than 19 percent non-audit fees. In Germany, the non-audit fees even reach 20 percent. At 13 million euros, the average remuneration of auditors in Germany ranks top in Europe. In 2010 Deutsche Bank was on top with audit fees of €71 million, followed by E.ON at €59 million and Siemens at €47 million. Another problem is that while the audit costs are indeed in the Annual Report, the explanations are not very transparent, making it hard to understand whether the services actually fall into the category of auditing. Benner-Heinacher argues at European level for a joint audit, a consulting ban, or alternatively a percentage limit on consulting services. A rotation, as provided for in Germany after seven years, should also be standard across Europe.

Bonds gain importance

In German medium-sized firms corporate bonds are gaining importance as financial instruments, as attested by the study “Mittelstandsfinanzierung und Deutschland (SME financing and Germany),” presented by the Stuttgart Stock Exchange in cooperation with consulting firm Seidenschwarz and Professor Burkhard Pedell of the University of Stuttgart. 92 percent of companies surveyed said that innovative financing instruments will in future play a greater role in SMEs’ financing mix. 83 percent see bonds gaining in appeal, and 69 percent believe that bonds are a good first step for midsize companies to orient themselves more strongly towards the capital market. About half of the respondents see potential for improvement in a stronger linkage of financial management with corporate strategy.

Banks must evaluate customer relations

Generally, the majority of large and medium-sized enterprises that management consulting firm Steria Mummert surveyed in its Managementkompass Corporate Governance considered compliance with corporate-governance requirements as an important goal. Among the main reasons were the protection of employees (87 percent), risk reduction (83 percent) and protection of reputation (83 percent). However, there is still potential for improvement in the practical implementation, is a result of the survey. Specifically, the financial sector is relatively highly regulated and the bar for compliance rules high here. Recent legislative amendments require that money laundering, terrorist financing and other criminal offences should in future be assessed as a coherent complex. In order to prevent money laundering and tax evasion, the banks must now parse their customer relationships. One - cost-efficient, to boot - solution might be to merge customer-related data from customer-relations management and from client due diligence. Here, however, data protection requirements would have to be observed. Total compliance would however also be more cost-effective, according to Steria Mummert.

Economic crime is shrinking

A two-year rolling study by consulting firm Pricewaterhouse Coopers (PwC) has concluded that white-collar crime in Germany is on the decline. While in 2009 61 percent of companies were still victims of such offences, now only about half the 830 companies surveyed said they had been affected in the past two years. On average, the damage was at 8.4 million euros annually. That amounted to €2.8 million less than two years earlier. But while on the one hand direct losses are down, on the other hand subsequent costs are growing. After all, now 41 percent said they had suffered reputational damage from economic crime. Fraud and embezzlement shrank from 42 percent to about one-third, while theft of customer or corporate data fell by nine percentage points, to twelve percent.

The reputation risk factor

In October came the revised version of the so-called “RepRisk 2012”. This web-based platform (www.reprisk.com) enables asset managers to be quickly and comprehensively informed about threatening reputational risks of a company, region or country in the environmental, social and governance spheres. Users can create a watchlist with companies or topics they want to follow. By e-mail they receive information about the latest developments. The newly revised version contains an additional 400 scandals or major events that can be pursued. Here keywords and topics such as arms, oil spills, corruption, gambling and tobacco can be defined. Newly added are also an interactive version of RepRisk Index (RRI) that quantifies the reputational risks, interactive world maps with countries in which companies are being criticized, and graphs with alleged misconduct on the part of companies in environmental, social and governance areas or breaches of the UN Global Compact Principles. The database has data in 13 languages on 20,000 listed and unlisted companies.