Recent Developments in the German Corporate Governance System (2007)

The Cromme-Commission published its German Corporate Governance Code (GCGC) in February 2002. Since then, the ‘standing committee’ headed by Dr. Gerhard Cromme met regularly.

In its plenary meeting on June 6, 2008, the commission made a number of amendments to the German Corporate Governance Code and resolved on personnel changes.

Specifically, the following new or augmented recommendations and suggestions were resolved:

Section 4.2.2: Management board - composition and compensation (changes in bold print)

"At the proposal of the committee dealing with Management Board contracts, the full Supervisory Board shall resolve and regularly review the Management Board compensation system including the main contract elements."

Section 4.2.3, third and fourth paragraph (changes in bold print)

"In concluding Management Board contracts, care shall be taken to ensure that payments made to a Management Board member on premature termination of his contract without serious cause do not exceed the value of two years’ compensation (severance payment cap) and compensate no more than the remaining term of the contract. The severance payment cap shall be calculated on the basis of the total compensation for the past full financial year and if appropriate also the expected total compensation for the current financial year.

Payments promised in the event of premature termination of a Management Board member’s contract due to a change of control shall not exceed 150% of the severance payment cap." 

Section 7.1.2: Reporting and Audit of the Annual Financial Statements (supplement in bold print)

"The Consolidated Financial Statements must be prepared by the Management Board and examined by the auditor and Supervisory Board. Half-year and any quarterly financial reports shall be discussed with the Management Board by the Supervisory Board or its Audit Committee prior to publication. In addition, the Financial Reporting Enforcement Panel and the Federal Financial Supervisory Authority are authorized to check that the Consolidated Financial Statements comply with the applicable accounting regulations (enforcement). The Consolidated Financial Statements shall be publicly accessible within 90 days of the end of the financial year; interim reports shall be publicly accessible within 45 days of the end of the reporting period."  

In addition to the changes stated before, modifications were also made in the following Code section (marked in bold):

Foreword: page 2, paragraph 3:

"The recommendations of the Code are marked in the text by use of the word "shall";. Companies can deviate from them, but are then obliged to disclose this annually. This enables companies to reflect sector and enterprise-specific requirements. Thus, the Code contributes to more flexibility and more self-regulation in the German corporate constitution. Furthermore, the Code contains suggestions which can be deviated from without disclosure; for this the Code uses terms such as "should"; or "can";. The remaining passages of the Code not marked by these terms contain provisions that enterprises are compelled to observe under applicable law."

Personnel changes

Effective June 30, 2008, Dr. Gerhard Cromme stepped down from his position as chairman of the Commission and left the Commission. Dr. Rolf-E. Breuer and Prof. Dr. Marcus lutter left the Commission at the same time. They were succeeded by Klaus-Peter Müller, former spokesman of the management board of Commerzbank AG and Daniela Weber-Ray, partner in the law firm Clifford Chance. Mr Müller took over the chair of the Commission.