Hiding behind the flag? Prospects for change in german corporate governance

Abstract

This paper summarises the views of 149 company Chairmen from the top 500 publicly listed German companies on a number of significant issues relating to the German corporate governance system. In the wake of some high profile mergers involving German companies and the publication of OECD Principles on corporate governance, we used a fax survey to canvass views on a range of topics including shareholders rights, the structure and accountability of supervisory boards, the role for codes of conduct, shareholder participation and top management compensation. The results of the survey suggest company chairmen are divided on a number of these issues which may have implications for any reform of the German system. We also find evidence of the adoption of key board committees dealing with audit, compensation and nominating matters. Further analysis of the survey results shows that larger companies are generally against reform to make supervisory boards more independent and accountable for company performance. The German financial sector, and banks in particular, which have played a pivotal role in the corporate governance system, are also shown to be largely against measures to increase direct shareholder involvement in corporate governance affairs and measures to increase disclosure of executive compensation. We suggest that opinions on corporate governance arrangements are unlikely to be reconciled by the OECD Principles in Germany, and may indeed run counter to many of them.