The article, written by Rüdiger von Rosen, is a research paper whose purpose is to display the history and plan for the development of corporate governance in Germany. It presents the main steps of the work done for this and reveals legal and historical prerequisites for the formation of this system. The documents by which this plan was implemented are presented, as well as people and organizations that influenced the emergence of a new direction in German management. The work is of sufficient relevance and can be used to study the characteristics of the German economy and the standards of doing business and trade in this country.
General Principles of Corporate Governance in Germany
In the late 1990s, it was necessary to reconstruct Germany’s internal market system in such a way as to ensure the most productive relationship between company managers and their owners. Here, up to the 20th century, there was no a single system of legislation regulating joint-stock law. A minimum standard of corporate governance was adopted in 1999 for the globalization of the capital market and to have the opportunity to monitor the level of sales, the interest of investors in local companies. After the German Code of Corporate Governance had been introduced in Berlin in 2000, new amendments appeared. According to the legislation, the highest management bodies of German public companies had a two-tier structure: the Management Board and the Supervisory Board. The greater part of the Code was devoted to these organizational elements of the management system, as well as the interaction of the corporation and its shareholders.
In the same year, the German Chancellor, who at that time was Gerhard Schröder, established the Government Commission. Its purpose was to regulate and monitor the work of company management, as well as to change the whole governance structure under the impact of the globalization of world markets. The organization of such a Commission gave German business the opportunity to enter a new level. As a result, another law on financial markets was adopted in 2002, and its primary objective was to strengthen the protection of investors. The importance of these reforms was that many potentially profitable companies were guaranteed the possibility of growth and reasonable supervision.
Important Issues
One of the important issues is that the German Corporate Governance Code was accepted positively both by the business community of Germany and by investors. The author intentionally highlights that the Code dealt with the matters related to shareholders’ rights, which formed joint-stock companies’ capital. Besides, this set of rule determined the mechanisms for interaction between the Management Board and the Supervisory Board, which meant a considerable change in the system of governance.
Thanks to this interaction, the concepts of corporate governance erase conflicting facets quite significantly. The author singles out another important issue: the main subjects that fell under the influence of the Code were shareholders and the general meeting, the Management and the Supervisory Boards, as well as cooperation between all these legislative bodies. According to von Rosen, the system included control over accounting and auditing of annual statements and guaranteed transparency of all the procedures performed.
Author’s Recommendations
Quite a large percentage of companies (about 82.5) adopted a new code. Rüdiger von Rosen refers to this fact as a very positive result of the work done and does not offer anything to change about this. One of the features that affected the researcher’s approval was the choice of the term of working for the Management Board. As a result, a total mandatory period could be reduced from five to three years. The author notes that such a decision contributed to a better and more efficient work of the Board. It means that after three years its members could be re-elected to protect the interests of a particular company in case of their non-compliance. Von Rosen remarks that it may help in the process of regulating a company’s business and creating more loyal conditions for work.
Thus, both companies and investors did not doubt the effectiveness of the measures taken. A careful approach to the formation of the Board allowed achieving a balance of interests and was another important issue mentioned in von Rosen’s paper. Nevertheless, the researcher states that despite more efficient control of managers of companies, which the described model of doing business took, it might be worthwhile to revise some of the paragraphs of the Code related to shareholders. He considers that if the system gave more power to these people, it could influence the whole business policy positively. He also points out that the risks of bankruptcies and conflicts could be even lower if special measures were taken.
Strengths and Weaknesses
Von Rosen depicts all the changes that the Code has undergone quite well. During the entire period of the work, the German Code has been amended four times to a large extent, and the total number of all amendments is 28. Such a strong author’s desire to show a certain number of times indicates his careful work on the article. As he states, the key points of the law, which concerned these changes, were related to shareholders and the order of their annual meetings, as well as to the board and monetary compensations in case of certain situations.
Rüdiger von Rosen also describes all the participants of the corporate governance system in detail. In the process of reading the article, there are no questions as to who occupies certain positions in this structure. The author’s work provides a reader with all the necessary data about how the corporate system is built, and what roles the Management Board and the Supervisory Board play in it. The frequency of meetings of shareholders is also reflected well as it varies in each company and depends on the charter. The strength of the work is in its relevance and importance not only for the German business market but for the entire European corporate system.
One of the weaknesses of the article is that the author didn’t describe the prospects of work for foreign employees. The changes also touched the order of shareholders’ meetings since this issue was important for both companies and shareholders themselves. The author did not disclose the question properly for the reader to understand the peculiarities and significance of this problem. The main point to be considered was the participation in the voting of those people who lived outside Germany (the average number of capital they owned was about 30 percent). However, the attitude to such discussions was critical enough because rather strict German legislation prohibited any unjustified deviations from the general order, and limiting the opportunities for shareholders could have serious consequences. This issue could have been considered in detail for better understanding possible consequences and minuses.
Importance and Implications of Corporate Governance to Society
Von Rosen claims that the implementation of corporate governance policies plays a very significant role in the German business market and society as a whole. According to him, possible reforms in this area can lead to serious disputes, but the author does not give accurate and feasible development prospects and does not present the idea of a possible German market path in case of any changes. The author remarks that there is a need to develop competent and well-grounded solutions that can improve the state of corporate policy and update it in such a way that all its members, regardless of citizenship and position in the system, could perform necessary functions and participate in the work process.
The implications of corporate governance to society are described in detail. Rüdiger von Rosen assumes that there are certain important reasons to analyze the system of coordination between the two Boards, draw necessary conclusions and identify shortcomings. Among the issues he raises are the quality of the work of the Supervisory Board, and the effectiveness of this body. Von Rosen focuses on those members of the Board who are appointed by the trade union. Besides, he notes that a rather large size of this Board, especially in comparison with other European countries, makes a decision-making process somewhat difficult. The significance of this body, which plays an important role in corporate governance, is reflected in the paper.
In general, the article could be used as one of the resources for studying the specifics of the policy of German corporate governance, its peculiarities, and examples for other states. Despite the fact that the author did not present possible solutions and situations that can affect the improvement of this sphere and its development, the article describes the structure of the trading market, its participants and the functions that they perform in detail. The relevance of von Rosen’s work is due to the importance of the topic researched, as well as the possibility of comparing the German corporate structure with trading markets of other countries and their specific management systems.