DSW’S Comments on the Review of the OECD Principles of Corporate Governance

DSW, Germany’s leading shareholder association with more than 28.000 members, appreciates the review of the OECD Principles of Corporate Governance.

We strongly support the approach of the steering group with regard to the following items:

I.C.3 effective shareholder participation in key corporate governance decisions,

I.F.1 exercise of ownership rights by institutional investors.

Furthermore DSW provides the following comments and suggestions, which reflect the situation and the still existing deficits in the German capital market:

II. (introduction): All shareholders should have the opportunity to obtain effective redress for violation of their rights.

DSW strongly supports the view of the OECD steering group that ‘the confidence of minority investors is enhanced when the legal system provides mechanisms for minority shareholders to bring lawsuits when they have reasonable grounds to believe that their rights have been violated. The provision of such enforcement mechanisms is a key responsibility of legislators and regulators.’ Unfortunately Germany still does not offer each shareholder the possibility to bring individual compensation claims in the case of intentional or grossly negligent misleading information by board members to court. Although such a rule was proposed by the Government commission under the lead of Professor Baums, this is still not transmitted into the German law. The draft  for German law on ‘the modernisation of the law for shareholder claims’ (UMAG) proposes just a lower quorum for shareholders in order to force the board to forward any compensation claims vs. the management, but not the possibility for individual claims.

Since other countries such as the Netherlands and Italy provide their shareholders with such an individual compensation claim, the equitable treatment of shareholders, especially those of the shareholders in Germany, is disregarded. It is not understandable that a shareholder in Germany is in such a bad legal situation compared to shareholders in other countries.

II.1.4. Unrestricted cross border voting should be facilitated.

Already in 1999 DSW published a European Study comparing minority shareholders’ rights, voting rights and proxy voting in 15 European countries. The outcome mainly showed that legal and practical obstacles make the exercise of the votes cross border almost impossible. It is therefore time to set minimum standards such as common notice periods of at least 1 month, abolition of  different quorum requirements and the removal of any obstacles which prevent proxy voting. It would be very helpful, if the OECD principles could include such concrete cases for minimum standards in their annotations.

IV.A.4.and I.C.3. Disclosure of materiel information on remuneration

DSW agrees with the Principles’ approach to disclose the remuneration policy, since ‘ it is important for shareholders to know the specific link between remuneration and company performance when they assess the capability of the board and the qualities they should seek in nominees for the board.’

Since 2002 DSW regularly publishes a survey on the development of the director’s pay of DAX 30 companies in relation to the development of the company’s earnings per share.

And each time we have to see that companies still link directors’ pay to the dividend, which is in our view, not a suitable instrument to measure the managements’ performance.

Since the Cromme-Commission last year introduced a higher transparency on the structure of the remuneration towards the shareholders, DSW will especially emphasise on this aspect in the upcoming annual general meeting season.

Beyond this, we believe that the issue of pension benefits will become an increasingly important issue. Since in  DSW’s view the overall remuneration also includes any pension schemes or benefits, we would like to ask the steering group to define ‘remuneration’ in detail in the annotations in order to avoid any misunderstandings.

Furthermore it should be clear that full disclosure should include the individual disclosure of pension benefits per board member, such as it is the case in the U.K..

IV.A.4. Disclosure for board members include their qualifications, the selection process, other company directorships and whether they are regarded as independent by the company.

and V. D. 5. The board should fulfil certain key functions, including ensuring a formal and transparent board nomination and election process.

DSW fully supports the proposed disclosure regarding the selection process for board members. Increased transparency on the reasons why a company is proposing a candidate and a full disclosure of his qualifications as well as a statement of independence by the company will make it easier for the shareholders to understand and duly vote on the election of board members.

Deutsche Schutzvereinigung für Wertpapierbesitz

Düsseldorf, Germany

10 of February, 2004