Germany's secret leaders

The ongoing Corporate Governance discussion lead to a strong increase in the requirements for German supervisory boards. This applies in particular to the chairman and those supervisory board members who are sitting in the key committees such as presidential, personnel or audit committee.

Today, a high degree of economical authority and experience in corporate policy is necessary in order to be able to fulfill the tasks formulated in the German Corporate Governance Code.

This was reason enough for DSW to examine the supervisory boards of the DAX 30 companies in detail. Who are the people that face up to this large responsibility? Who are the leading men of Germany?

DSW examined all mandates of the shareholder representatives on the supervisory boards of the Dax 30 companies. Altogether 278 mandates were examined, which are held by 193 representatives. The first 10 are part of our DSW ranking.

Apart from chairmanship or simple membership special attention was given to the three important committees: presidential committee, personnel committee and audit committee: For a supervisory board chair plus commitee chair 10 points were assigned. Eight points were allocated for the simple supervisory board membership plus commitee chair. Six points got a supervisory board member who at the same time sat in a committee. Four points were assigned to the simple membership in a supervisory board. In order to avoid distortions, only one committee per member and company was rated.

At some corporations we found specialties. For example, the presidential committee of Adidas-Salomon has no chairman. It is also unusual that the personal committee at Deutsche Post AG and the audit committee at SAP AG are chaired by an employee representative. The suggestion of the Corporate Governance Code that the supervisory board chairman should not at the same time chair the audit committee, is not followed by six corporations: Bayer, DaimlerChysler, Infineon, Linde, MLP and Siemens.

Finally, the DSW-survey came to the following results: Manfred Schneider, former CEO of Bayer, achieved the first place. He chairs the supervisory boards of Bayer and Linde. In addition, he is seated in the important committees of five other Dax companies. And he is represented in eleven committees, six times as their chairman, for example in the audit committees of Allianz and Linde.

Karl-Hermann Baumann, chairman of the Supervisory Board of Siemens AG takes the second place. Mr. Baumann also leads six committees and is member of three other committees.

At the no. 3 position: Ulrich Hartmann, former chairman of the Management Board of the energy company E.ON AG. Since the last AGM, Hartmann is chairing the supervisory board. Additionally, Hartmann leads the Supervisory Board of Munich Re.

Altogether, Mr. Schneider, Mr. Baumann and Mr. Hartmann sit in the supervisory boards of 15 of the DAX companies. At five companies they chair the board. At the remaining ten they are at least represented in the important committees. 22 of the Dax companies are controlled by the first ten of our ranking list.

A further result of the DSW survey: Among the first ten of our list Paul Achleitner is the only active management board member (CFO of Allianz). DSW appreciates this development: Executives suffer from extreme workload and therefore might get prob-lems to perform their supervisory board mandates reasonably. Accordingly, the regulation of the Corporate Governance Code that members of the Management Board shall not accept more than a total of five Supervisory Board mandates in non-group listed companies is reasonable.

Altogether, the ‘professional’ supervisory board members control the ranking: nine out of the first ten of our ranking belong into this category. Less pleasant: Seven out of the first ten directly changed from their management chair to the chairmanship of the supervisory board. The only exceptions are the still active management board member, Mr. Achleitner, the ex-WestLB CEO Friedel Neuber, who chairs the supervisory boards of RWE and TUI and Karl Hermann Baumann. The number two of the list was ‘only’ CFO of Siemens.

All in all the survey shows that the professional supervisory board members are gain-ing ground. It also shows that only a few foreigners can be found on the list. Here the question arises whether the large German corporations should not look more fre-quently across national borders, in case an important supervisory board position is to be assigned.

Which conclusions can be drawn from the survey? Where do the problems lie?

From DSW’s point of view, three crucial problems arise:

1. The lack of consequences for failures

Voting for the discharge means for the shareholders: confidence in the work of the supervisory board members. The refuse of a discharge therefore is a vote against confidence. Unfortunately, this does not have any legal consequences for the super-visory board member. This became obvious at the AGM of Lufthansa. The discharge was refused by the majority of the shareholders to union representative and Lufthansa supervisory board member Frank Bsirske. Nevertheless, at the constituent meeting of the supervisory board Bsirske was re-elected as deputy chairman with the voices of the employee representatives.

Here, DSW calls for action. In case that a supervisory board member has not been discharged in the past five years, he should not be able to hold an outstanding posi-tion such as chairman, deputy chairman or membership in a committee. In addition, he should not be set up for re-election.

These regulations could be included, for example, in the Corporate Governance Code as recommendations.

2. The automatic change from CEO to the chairman position

Last AGM season was a season of board elections. Accordingly, it could be quite often observed that a CEO automatically changes to the position of the chairman of the supervisory board.

From DSW’s point of view it would be good to introduce slight changes in the Corpo-rate Governance Code with a recommendation concerning this topic. The rule should be: The direct change must become an exception which could be explicitly justified by the company.

3. Appropriate remuneration

A controversial issue during this general meeting season was the remuneration. Nearly all large corporations strongly increased the remuneration for their supervisory board members. In future, Volkswagen will pay the highest amount to its board. After the reorganisation Ferdinand Piech, chairman of the supervisory board, receives approximately € 305,000.

The range at the DAX companies is, however, very large. Adidas, for example, pays only € 42,000 to the chairman of the supervisory board, Henri Filho. And Altana shows that the reverse way is also possible. Justus Mische, chairman of the pharma group, receives approx. 60 per cent less remuneration than in the year before. In this year Altana heads the rank list with € 334.500.

From DSW’s point of view the increases are, in principle, acceptable. The level of the supervisory board remuneration can converge with the payment of business lawyers or management consultants, where the daily rates can amount to up to € 10.000. The selected model is crucial. The payment should consist of a fixed and a success-dependent element. The measurement of success should include e.g. earnings per share and a long-term incentive such as Economic Value Added (EVA). The share price is not suitable to maesure the work of the board’s success. Furthermore, the supervisory board should not be entitled to receive stock options.