Press release on today's plenary meeting of the Government Commission
Government Commission resolves Code amendments
- Caps on severance payments for management board members
limited to 2 years
- Nomination committee for the supervisory board recommended
- Streamlining of Code initiated
In its plenary meeting on June 14, 2007 in Düsseldorf, the Government Commission on the German Corporate Governance Code resolved amendments to the German Corporate Governance Code. Commenting on the outcome, Dr. Gerhard Cromme, Chairman of the Government Commission, said: "The Code amendments mainly concern the issues of severance payments for management board members and the supervisory board nomination committee. In addition, we addressed the subjects of the European Company and compliance."
This year the Government Commission focused on questions relating to the management board. On this the Chairman said: "Of great importance to us is the suggestion that severance payments be capped to a maximum of two years’ compensation if a management board member’s contract is prematurely terminated. In addition, we dealt with the management board’s overall responsibility and the principle of unanimity in management board decisions and introduced a recommendation on the distribution of duties and resolutions by majority vote."
In connection with the appointment of shareholder representatives to the supervisory board, the Government Commission recommends the introduction of nomination committees to improve the qualifications of candidates and the transparency of the selection procedure. In addition, the European Company (SE) was taken into account in the Foreword to the Code. Further amendments to the Code – especially for SEs with a single-board management system – are only expected when the SE has become further established in practice.
In addition to these new recommendations and suggestions, the Government Commission has also begun the process of simplifying, deleting and shortening numerous passages of the Code. Cromme: "This work is important to keep the Code as streamlined as possible and at the same time as efficient as necessary – in the interest of maintaining its high acceptance. We will continue with this work next year."
Specifically, the following new or augmented recommendations and suggestions were resolved. The other Code amendments are summarized in a separate attachment to this press release:
Section 4.2.1 S. 2: Distribution of duties and resolution by majority vote (new recommendation)
"Rules of procedure shall govern the work of the Management Board, in particular the distribution of duties among individual Management Board members, matters reserved for the Management Board as a whole, and the required majority for Management Board resolutions (unanimity or resolution by majority vote)."
Section 4.2.3 before the final paragraph: Severance cap (new suggestion)
"In concluding Management Board contracts, care should 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 should 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 should not exceed 150% of the severance payment cap."
Section 5.3.3.: Nomination committee (new recommendation)
"The Supervisory Board shall form a nomination committee composed exclusively of shareholder representatives which proposes suitable candidates to the Supervisory Board for recommendation to the General Meeting."
Sections 3.4, 4.1.3 and 5.3.2: Compliance (supplement – in bold print)
The word “compliance” has been added and precisely defined:
- In Section 3.4 par. 2
- "The Management Board informs the Supervisory Board regularly, without delay and comprehensively, of all issues important to the enterprise with regard to planning, business development, risk situation, risk management and compliance. The Management Board points out deviations of the actual business development from previously formulated plans and targets, indicating the reasons therefor."
- In Section 4.1.3
- "The Management Board ensures that all provisions of law and the enterprise's internal policies are abided by and works to achieve their compliance by group companies (compliance)."
- In Section 5.3.2
- "The Supervisory Board shall set up an Audit Committee which, in particular, handles issues of accounting, risk management and compliance, the necessary independence required of the auditor, the issuing of the audit mandate to the auditor, the determination of auditing focal points and the fee agreement. (...)"
The Code amendments resolved today have yet to be published in the electronic Federal Gazette (Bundesanzeiger) by the Federal Ministry of Justice. The updated wording of the German Corporate Governance Code will be available shortly on the Government Commission's website at www.corporate-governance-code.de, which also includes further information on the work of the Commission.
Dr. Jürgen Claassen
Corporate Communications and Strategy
Telephone: + 49 (211) 824- 36002
Fax: + 49 (211) 824- 36006
Attachment to press release of June 14, 2007:
Further modifications to the Code
In addition to the changes stated in the text of the press release, modifications and adjustments were also made in the following Code sections (marked in bold):
Foreword: Par. 1: European Company
In the final line the phrase "stock corporations" was replaced by the more neutral formulation "companies" so as to cover European Companies as well.
"Its purpose is to promote the trust of international and national investors, customers, employees and the general public in the management and supervision of listed German companies."
Foreword: Par. 4: European Company
After par. 3 the preamble continues as follows:
"Alternatively the European Company (SE) gives enterprises in Germany the possibility of opting for the internationally widespread system of governance by a single body (board of directors).
The form that codetermination takes in the SE is established generally by agreement between the company management and the employee side. All employees in the EU member states are included.
In practice, the dual-board system, also established in other continental European countries, and the single-board system are converging because of the intensive interaction of the Management Board and the Supervisory Board in the dual-board system. Both systems are equally successful."
Section 2.3.1 General Meeting
As a result of the amendment of § 175 par. 2 Stock Corporation Act (AktG) by the Act on Electronic Commercial Registers, Cooperative Society Registers and the Company Register (EHUG), sentence 2 was formulated as follows after deletion of a passage:
"The Management Board shall publish the reports and documents, including the Annual Report, required by law for the General Meeting in an easily accessible way on the company's Internet site together with the agenda."
Section 2.3.2 General Meeting
The following formulation results from the amendment of §§ 30b ff. Securities Trading Act (WpHG) by the Transparency Directive Implementation Act (TUG):
"The company shall send notification of the convening of the General Meeting together with the convention documents to all domestic and foreign financial services providers, shareholders and shareholders' associations by electronic means if the approval requirements are fulfilled."
Section 3.8 par. 1 Business Judgment Rule
“In the case of business decisions an infringement of duty is not present if the member of the Management Board or Supervisory Board had reasonable grounds to believe, based on appropriate information, that he/she was acting in the best interest of the company (Business Judgment Rule).”
Section 6.2 Transparency
As a result of the change in the threshold values for voting right disclosures brought about by the Transparency Directive Implementation Act (TUG), the formulation is as follows:
"As soon as the company becomes aware of the fact that an individual acquires, exceeds or falls short of 3, 5, 10, 15, 20, 25, 30, 50 or 75% of the voting rights in the company by means of a purchase, sale or any other manner, the Management Board will disclose this fact without delay."
Section 6.6 par. 1-3 Transparency
Par. 1 reflects the legal requirement of § 15a Securities Trading Act (WpHG). Unlike when this was included in the Code, there is now no longer anything unusual about the disclosure of directors’ dealings in Germany. Par. 1 was therefore deleted without replacement and par. 2 formulated as follows:
"Beyond the statutory obligation to report and disclose dealings in shares of the company without delay, the ownership of shares in the company or related financial instruments by Management Board and Supervisory Board members shall be reported if these directly or indirectly exceed 1% of the shares issued by the company. If the entire holdings of all members of the Management Board and Supervisory Board exceed 1% of the shares issued by the company, these shall be reported separately according to Management Board and Supervisory Board.
The aforesaid disclosures shall be included in the Corporate Governance Report.”
Section 6.7 Transparency
The wording of the recommendation was modified as follows:
"As part of regular information policy, the dates of essential regular publications (including the Annual Report, interim financial reports) and the date of the General Meeting shall be published sufficiently in advance in a "financial calendar"."
Section 7.1.1 S. 2 ff. Accounting
The wording of the section was modified with regard to the Transparency Directive Implementation Act (TUG), and the final sentence of section 7.1.1 was deleted:
"During the financial year they shall be additionally informed by means of a half-year financial report and, in the first and second halves, by interim reports or quarterly financial reports. The Consolidated Financial Statements and the Condensed Consolidated Financial Statements in the half-year financial report and the quarterly financial report shall be prepared under observance of relevant internationally recognised accounting principles."