Corporate Governance In Germany Research Articles

The Politics of the German Company Network

For over 100 years, the company network was a major feature of organized corporate governance in Germany. This paper uses network visualization techniques and qualitative-historical analysis to discuss the structure, origins and development of this network and to analyse the reasons for its recent erosion. Network visualization makes it possible to identify crucial entanglement patterns that can be traced back historically. In three phases of network formation– the 1880s, 1920s and the 1950s– capital entanglement resulted from the interaction of company behaviour and government policy. In its heyday, the company network was de facto encompassing and provided its core participants, especially the banks, with a national, macroeconomic perspective. In the 1970s, increased competition among financial companies set in. In the 1980s and 1990s, declining returns from blockholding and increased opportunity costs made network dissolution a thinkable option for companies. Because of the strategic reorientation of the largest banks toward investment banking, ties between banks and industry underwent functional changes. Since the year 2000, the German government's tax policy has sped up network erosion. Vanishing capital ties imply a declining degree of strategic co-ordination among large German companies.

The Politics of the German Company Network

For over 100 years, the German company network was a major feature of organized corporate governance in Germany. This paper uses network visualization techniques and qualitative-historical analysis to discuss the structure, origins and development of this network and to analyze the reasons for its recent erosion. Network visualization makes it possible to identify crucial entanglement patterns that can be traced back historically. In three phases of network formation - the 1880s, 1920s and the 1950s - capital entanglement resulted from the interplay of company behavior and government policy. In its heyday, the company network was de facto encompassing and provided its core participants, especially the banks, with a national, macroeconomic perspective. In the 1970s, a process of increased competition among financial companies set in. In the 1980s and 1990s, declining returns from blockholding and increased opportunity costs made network dissolution a thinkable option for companies. Because of the strategic reorientation of the largest banks toward investment banking, ties between banks and industry underwent functional changes. Since the year 2000, the German government's tax policy has sped up network erosion. Vanishing capital ties imply a declining degree of strategic coordination among large German companies.

Corporate Governance in Germany: An Economic Perspective

A financial system can only perform its function of channelling funds from savers to investors if it offers sufficient assurance to the providers of the funds that they will reap the rewards which have been promised to them. To the extent that this assurance is not provided by contracts alone, potential financiers will want to monitor and influence managerial decisions. This is why corporate governance is an essential part of any financial system. It is almost obvious that providers of equity have a genuine interest in the functioning of corporate governance. However, corporate governance encompasses more than investor protection. Similar considerations also apply to other stakeholders who invest their resources in a firm and whose expectations of later receiving an appropriate return on their investment also depend on decisions at the level of the individual firm which would be extremely difficult to anticipate and prescribe in a set of complete contingent contracts. Lenders, especially long-term lenders, are one such group of stakeholders who may also want to play a role in corporate governance; employees, especially those with high skill levels and firm-specific knowledge, are another. The German corporate governance system is different from that of the Anglo-Saxon countries because it foresees the possibility, and even the necessity, to integrate lenders and employees in the governance of large corporations. The German corporate governance system is generally regarded as the standard example of an insider-controlled and stakeholder-oriented system. Moreover, only a few years ago it was a consistent system in the sense of being composed of complementary elements which fit together well. The first objective of this paper is to show why and in which respect these characterisations were once appropriate. However, the past decade has seen a wave of developments in the German corporate governance system, which make it worthwhile and indeed necessary to investigate whether German corporate governance has recently changed in a fundamental way. More specifically one can ask which elements and features of German corporate governance have in fact changed, why they have changed and whether those changes which did occur constitute a structural change which would have converted the old insider-controlled system into an outsider-controlled and shareholder-oriented system and/or would have deprived it of its former consistency. It is the second purpose of this paper to answer these questions.

Corporate Governance in Germany

Corporate Governance in Germany

The disintegration of organised capitalism: German corporate governance in the 1990s

Assesses corporate governance in Germany in the 1990s. Changes in corporate governance; Role of social responsibility on entrepreneurship; Reorientation towards investment banking.

Corporate Governance in Germany: Transition to a Modern Capital-Market-Based System?

The German corporate governance system has long been the standard example of what Franks and Mayer [1994] have called an insider-controlled and stakeholder-oriented system. This may not be an appropriate characterisation any more today. One of the factors that drive developments in the fields of corporate governance is the general trend towards internationalisation and globalisation. It is often argued that this factor exposes countries to pressure to adopt a good corporate governance system, and very often a good system is assumed to be one that follows the capital-market-based Anglo-Saxon model (for an early example see Walter [1993]). The past decade has seen a wave of developments that seem to have brought considerable innovations and improvements into the German corporate governance system and the German financial system. These developments are often assumed to be shifting both systems towards the Anglo-Saxon model.1 Our comments concentrate on the question whether the main developments relating to German corporate governance are already indicating or foreshadowing such a paradigm shift. In earlier work we have tried to identify an inner logic of the German corporate governance system and analysed the development of the German financial system in a comparative perspective.2 There we argued that the German systems have in the past exhibited a surprisingly high degree of stability and resilience to change and that therefore the German corporate governance system is still insider-controlled and stakeholder-oriented. In the present comment we want

Politics, Corporate Governance, and the Dynamics of German Managerial Innovation: Schering AG between the Wars

Conflicting interpretations of the evolution of German business between the two world wars and of Germany's corporate governance during the Third Reich are examined in this article. Alfred Chandler's view that major corporate changes emanated from managerial initiatives is contrasted with Harold James's interpretation that public and government pressures forced innovations on business. In support of James's analysis, I argue that state and political pressures, not management, initiated significant changes in German corporate governance and in the organization of German industry during the interwar period, especially in the 1930s. Using Schering AG, one of Germany's largest companies before World War II, the article traces the influences of National Socialist pressure and changes in corporate law on companies’ organizational adaptation to government social priorities during the Third Reich.

Corporate Governance in Germany: the move to shareholder value

The paper offers an inside view of the German corporate governance model, based on interviews with over 100 members of supervisory‐ (Aufsichtsrat) and executive‐boards (Vorstand) of major German corporations. The traditional supervisory board with its large size of 20 members, one half elected by the employees, reflects the strong consensus orientation of the German corporate world. This system worked well in times of long innovation cycles and largely separate, national capital markets. It is coming under increasing pressure to adapt to the demands of a fast changing globalised capital market.Keywords: Corporate governance in Germany, supervisory board, codetermination, board composition, professionalisation of boards

Financial reporting enforcement mechanisms as an element of corporate governance in Germany and reflections on their further development

The article sets out the different elements involved in the corporate governance and enforcement process in Germany, including the two-tier board, the executive board's responsibility for preparing financial statements, the statutory audit, the approval of the financial statements by the supervisory board, and the arrangements for addressing unsuitable accounting. After having described the current framework, it then goes on to review how corporate governance and enforcement is likely to evolve, including improved accounting, improved audit and changes in the role of the supervisory board. It also examines the case for a compliance review mechanism.

Corporate governance in Germany: the role of banks and ownership concentration

Corporate governance Bank versus ownership concentration in Germany The German system of corporate governance is often thought to be effective at addressing problems arising in large firms. In addition to the usual emphasis on the role of German banks, it is increasingly recognized that the German system also involves a high concentration of the ownership of large firms. We analyse the relative significance of these two features of the German system and conclude that high ownership concentration is more important. Although banks may influence corporate governance via their control of proxy votes, positions on supervisory boards, and provision of loan finance, in practice they do not play a role in the governance of large German firms which is distinct from that of other types of large shareholders. Any case for the superiority of German corporate governance of large firms must therefore be based on high ownership concentration rather than a special role of banks, and must consider the costs of ownership concentration as well as the benefits. — Jeremy Edwards and Marcus Nibler

Corporate Governance in Germany

I shall focus, and dwell most extensively, on the role of the management board and the supervisory board in large German companies, and their agency link with shareholders. This discussion will, however, be imbedded in a broader view of corporate governance generally in Germany. This will allow us to highlight some of the tensions inherent in the German model and to outline constraints for, and the potential of, some evolutionary trends.

Corporate Governance in Germany

The paper describes the system and current developments of corporate governance in Germany. The two-tier-system, the co-determination regime and other control devices are explained shortly. The paper focuses then on the new legislation on corporate governance which entered into force on May 1, 1998. The Act on Control and Transparency of Enterprises (KonTraG) provides modest changes by aiming at the improvement of the work of supervisory boards, more transparency and the strengthening of the shareholders' position. The most important modifications are mentioned and discussed.

Corporate Governance in Germany: Institutional Background and Empirical Results

I survey empirical studies on German corporate governance and conclude that they raise intriguing questions for future research and have important political implications. First, current German transparency legislation (WpHG) is not adequate to achieve the objective of transparency as stated by the European Commission and the German Parliament. Compared to other developed economies, the German stock market is dominated by large shareholders. However, even after introducing the WpHG in 1995, the ultimately controlling parties are often not disclosed and transfers from smaller shareholders are legally possible. Second, due to proxy votes and board memberships, banks control a substantially higher fraction of voting rights than cash-flow claims. Moreover, banks extend more loan money to the typical firm than they hold as equity. Consequently, it is unclear whether their voting power is used in the interest of shareholders. Empirically, bank involvement appears to have a very limited effect on performance. Several open questions remain to assess the efficacy of the German model in relation to more market-based systems. 1 I thank the German Science Foundation (DFG) for substantial financial support. The European Corporate Governance Network supported parts of this study. Theodor Baums, Marco Becht, Klaus Gugler, and Beatrice Kuehn were very helpful in discussing and commenting on various parts of this study. In addition, participants at the 1996 DFG Colloquium, the 1997 Workshop on Banking in Munster, the 1997 and 1998 ECGN Conferences in Milan, and the finance the University of Amsterdam provided helpful comments.

Bank control, takeovers and corporate governance in Germany

This paper examines the three cases of hostile takeovers in Germany in the post Second World War period. It describes the important role played by banks in affecting the outcome of the bids: bank representatives were chairmen of the supervisory board in all three cases and banks voted a large number of proxies in important decisions affecting the bids. The paper reports that low returns were earned by shareholders of two of the target firms and offers an explanation in terms of bank control and the regulatory regime operating in Germany.

The Political Economy of Corporate Governance in Germany

To understand the potential economic implications of challenges from the real and financial sectors for the system of corporate governance - the social process that shapes who makes investment decisions in corporations, what types of investments they make, and how the returns from successful investments are distributed - we need an economic theory if governance. In previous work, I have argued that, if it is to be relevant, a theory of corporate governance must take account of innovation, that is, of the process through which productive resources are developed and utilised to generate higher quality and/or lower cost products than had previously been available (O'Sullivan 1997; Lazonick and O'Sullivan, 1997a; 1997b; 1997c; O'Sullivan, 1996). Innovation is central to the dynamic through which successful economies improve their performance over time as well as relative to each other. Historical research on innovation in all of the advanced industrial nations has highlighted the importance, as loci of innovation, of corporate resource allocation and its governance must therefore incorporate an understanding of the central characteristics of the innovation process. On the basis of the extensive literature on the subject, innovation, and the learning process that is its substance, can be characterised as one that is collective and cumulative and, hence, organisational. A system of corporate governance, if it is to support innovation, must generate the social conditions that permit collective and cumulative learning to take place. Specifically, it must provide support for financial commitment -- the commitment of resources to irreversible investments with uncertain returns -- and organisational integration -- the integration of human and physical resources into an organisational process to develop and utilise technology (Lazonick and O'Sullivan, 1996).

Corporate governance in Germany: The changing role of the banks

The article analyses the different channels ‐ industrial stakes, supervisory board mandates, proxy voting ‐ by which German banks can exert influence on industrial companies. The central thesis is that even where the banks have such influence they do not dominate the companies. A recent empirical study on the effects of the alleged bank dominance over industrial companies with detrimental effects on their performance is shown to contain major methodological mistakes. The relationship between banks and industry is undergoing some distinct changes. Banks have substantially reduced their industrial stakes as well as their representation on supervisory boards, which underlines that they are not striving for industrial leadership. Despite a clear trend in the German corporate sector to pay increasing attention to shareholder value and to provide more transparency in accounting, it seems premature to expect the German capital market, including the corporate governance system, to incorporate fully the Anglo‐Saxon model in the immediate future.

The Financial System and Corporate Governance in Germany: Institutions and the Diffusion of Innovations

AbstractGermany's economic resilience, even in the face of the extreme pressures of unification, cannot be explained by the neoclassical economic approach. Its social market institutions induce the major actors in the political economy to negotiate over the terms of economic and political adjustment in such a fashion as to diffuse innovative new organizational and institutional practices broadly and thoroughly throughout the economy and polity. The reorganization of the financial sector and the spread of new forms of workplace organization and corporate governance are used to illustrate this dynamic. The paper concludes with implications for how we think about regulation.

Corporate Governance in Germany: The Role of the Banks

Journal Article Corporate Governance in Germany: The Role of the Banks Get access Theodor Baums Theodor Baums *Theodor Baums is Dr. jur., Professor at the University of Osnabriick, Germany. This paper was presented at the Stanford University (Center for Economic Policy Research) conference on “Corporate Governance: New Problems and New Solutions,” May 1-2,1992. Helpful comments have been given on a former draft of this paper by Richard Buxbaum, Robert Cooter, Paul Davies, Melvin Eisenberg, David Haddock, Mark Roe, and Kenneth Scott. Search for other works by this author on: Oxford Academic Google Scholar The American Journal of Comparative Law, Volume 40, Issue 2, Spring 1992, Pages 503–526, https://doi.org/10.2307/840568 Published: 01 April 1992

CORPORATE CONTROL IN GERMANY

The article presents the German system of corporate control. Compared with the UK, the number of listed joint-stock companies in Germany is relatively low. The most important shareholders are companies, whereas institutional investors play a minor role. An essential feature of German corporate culture is the concept of the interest of the company as a whole and the long-term approach in pursuing company goals. Joint-stock companies operate under a two-tier structure with a managing board controlled by the supervisory board, the body which plays the central role in corporate governance in Germany. In contrast to what is widely believed, German banks do not dominate companies even though they exert considerable influence through industrial holdings, supervisory board mandates and proxy voting rights in addition to their regular banking business. Control via the market is less pronounced here than in the UK but is growing in importance. Copyright 1992 by Oxford University Press.