The Corporate Governance Review: Germany

Overview of governance regime

Germany has one of the most solid corporate governance systems in the world owing to both its well-balanced control mechanisms and capital preservation and market transparency rules, but also because of the equal opportunities it guarantees to women and men.

Just as it has affected almost all areas of life and business, the covid-19 pandemic has also left its mark on the German corporate governance framework. As in many other countries, Germany has enacted laws to mitigate the effects of the pandemic. One such measure has been the ability of companies to hold virtual general meetings. Many companies listed on the DAX and TecDAX stock indexes successfully made use of this new feature of German corporate law.

The German stock corporation is the common legal form among listed companies. Its corporate governance regime is determined by the following statutes and non-binding best practice rules:

  1. the Stock Corporation Act, which sets out the (largely mandatory) framework for the organisation of a stock corporation as well as the rights and duties of the corporate bodies, the management board, the supervisory board and shareholders' meeting, including those of the shareholders;
  2. the EU Market Abuse Regulation (MAR), which prohibits market abuse and market manipulation and governs the disclosure of non-public information and directors' dealings;
  3. the Securities Trading Act, which, among other things, implements the EU Transparency Directive and contains provisions on the enforcement of violations of the MAR under German law;
  4. the Securities Acquisition and Takeover Act, which provides for rules on mandatory and voluntary takeover offers and defensive measures;
  5. the Co-Determination Act and the One-Third Participation Act, granting employees co-determination rights at the supervisory board level;
  6. the Commercial Code, which stipulates the general accounting rules for German companies; and
  7. non-binding guidelines on non-financial reporting, which were published by the European Commission in 2017 and last updated on 18 June 2019.

The German Corporate Governance Code is a collection of best practice rules and non-binding recommendations for the corporate governance of stock corporations and has had a growing influence on how corporate governance is practised in Germany.

Although the rules and recommendations set out in the Corporate Governance Code are not legally binding, a company must explain the extent of and the reasons for its non-compliance (the comply or explain principle).

Corporate leadership

i Board structure and practices

Mandatory two-tier structure

The two-tiered board structure of German stock corporations requires a management board and a supervisory board.

Composition of the management board

The management board must consist of natural persons who are appointed by the supervisory board. The Corporate Governance Code requires that, when appointing management board members, the supervisory board must consider aspects of diversity and, in particular, aim for appropriate representation of women on the management board. From August 2022, the management board of a listed company obliged to ensure equal representation of employees pursuant to the Co-Determination Act (see below) and consisting of more than three members must be composed of at least one woman and at least one man.

Members of the management board may not be appointed for a period exceeding five years. For first-time appointments, the Corporate Governance Code recommends that members of the management board should not be appointed for more than three years. The appointment may be renewed or the term of office may be extended, provided that the term of each renewal or extension does not exceed five years.

The supervisory board may dismiss members of the management board only for good cause. Good cause is deemed to exist, in particular, in the event of material breaches of duty, for example, if a management board member is not able to properly fulfil his or her duties (e.g., owing to long-term illness or a lack of required skills or knowledge) or when the general meeting passes a vote of no confidence and the vote is not passed for apparently inappropriate reasons.

Composition of the supervisory board

The supervisory board must consist of at least three members, who are generally elected by the shareholders' meeting. The maximum number of supervisory board members permitted by law increases according to the amount of the stock corporation's registered share capital.

When a stock corporation generally has more than 500 employees (without taking into account any employees of group companies), one-third of the supervisory board members must be employee representatives pursuant to the One-Third Participation Act. In companies with more than 2,000 employees (taking into account employees of group companies), pursuant to the Co-Determination Act, half of the supervisory board members must be employee representatives. At least 30 per cent of the supervisory board members of a listed company subject to the Co-Determination Act must be women and at least 30 per cent must be men. In addition, companies that are either listed or subject to employee representation rules must adopt certain targets for the representation of female members on their supervisory and management boards and in their senior management.

In stock corporations listed on a regulated market, one member of the supervisory board must have expertise in accounting and another member in auditing. The members of the supervisory board must jointly be knowledgeable in the business sector of their corporation. According to the Corporate Governance Code, the composition of the supervisory board should be such that its members jointly have the knowledge, ability and experience to properly carry out its tasks and include an adequate number of independent members.

Supervisory board members are considered to be independent from the company and its management board if they have no personal or business relationship with the company or its management board that may cause a substantial – and not merely temporary – conflict of interest. More than half of the shareholder representatives are to be independent from the company and the management board. The Corporate Governance Code defines a supervisory board member as independent from the controlling shareholder if he, she or a close family member is neither the controlling shareholder nor a member of the executive governing body of the controlling shareholder and does not have a personal or business relationship with the controlling shareholder that may cause a substantial conflict of interest.

In practice, the supervisory board members are appointed for a period of five years; renewed appointments are permissible.

ii Legal responsibilities and representation

Management board

The management board is responsible for managing the business of the stock corporation and legally represents the corporation in relation to third parties. According to the statutory concept, all members of the management board manage and represent the corporation jointly. However, in practice, the rule is that the corporation is represented either by each member of the management board acting individually or by two members of the management board acting jointly.

In managing the business of the corporation, the members of the management board must apply the care of a prudent and diligent businessperson. Under the duty of loyalty, each management board member is obliged to give the stock corporation's interests priority over their personal interests. Failure by a management board member to meet these duties may lead to personal civil liability for damages owed to the company.

In making an entrepreneurial decision, a member of the management board cannot be held personally liable if he or she had adequate information and believed they were acting in the best interests of the stock corporation. This business judgement rule applies in the context of decisions that are not predetermined by law, the articles of association or resolutions of the shareholders' meeting. The management board is considered to have had adequate information for making its decision if it consulted all sources of factual and legal information reasonably available to it in the specific situation and, on that basis, weighed the advantages and disadvantages of its decision. However, it is not required that all conceivable information be obtained and every conceivable effect quantified before making the decision.

The management board is subject to a duty of legality. This means that the management board may not itself commit, and may not order third parties to commit on behalf of the company, any violations of the law. In an unclear legal situation, the board members may also rely on the advice of a third-party expert if:

  1. they have provided the expert with the necessary documents and a comprehensive description of the facts to be examined;
  2. the expert is independent and professionally qualified to advise on the issue; and
  3. they carry out a diligent plausibility check of the advice provided by the expert.

Members of the management board have the right to request from the supervisory board a revocation of their appointment if they are temporarily unable to fulfil their duties during parental leave, while caring for a family member or due to illness. In the case of maternity leave, the supervisory board must ensure reappointment after expiry of certain statutory protection periods under the Maternity Protection Act. In other cases, the member of the management board has a right of reappointment only if the period of leave does not exceed three months, and the supervisory board may only refuse to revoke an appointment if there is good cause. For longer periods from three to 12 months, revocation and reappointment are at the discretion of the supervisory board. A member of the management board whose appointment has been so revoked is not subject to any legal responsibility or any liability arising from decisions taken by the management board during his or her absence.

The management board must ensure that all employees of the company act in compliance with the law when acting within the scope of their operational activities. This entails that the management board must establish an appropriate system of organisation and control to prevent violations of law from happening within the company.

The management board is obliged to manage the stock corporation independently. It is not bound to any instructions given by the supervisory board or the general meeting. However, the shareholders' prior consent is required for transactions of outstanding importance, such as selling the most valuable parts of the company, or if the by-laws of the management board stipulate the shareholders' consent.

Apart from the foregoing, material transactions with related parties are subject to prior approval of the supervisory board or, if the supervisory board refuses to grant its approval, of the general meeting. A transaction constitutes a material related-party transaction if its economic value is at least 1.5 per cent of the company's total fixed and current assets. No approval is required for transactions that are concluded in the ordinary course of business and on customary market terms, or for transactions with directly or indirectly wholly owned subsidiaries. Companies must announce related-party transactions publicly no later than when the transaction is concluded, which is when the transaction documents are signed.

Supervisory board

The supervisory board is responsible for supervising and monitoring the management board. To that end, the supervisory board is entitled to inspect the corporation's books and records and may, at any time, request the management board to report on the corporation's affairs.

Like members of the management board, members of the supervisory board must act in the best interests of the stock corporation and must demonstrate the care of a prudent and diligent businessperson. They are obliged to keep confidential all non-public information that they receive in their capacity as supervisory board members. One of the notable responsibilities of the supervisory board is enforcing claims for damages on behalf of the stock corporation against members of the management board. In the wake of the global financial and economic crisis of 2008 there has been a significant increase in the number of lawsuits brought by corporations against former members of management boards.

The supervisory board's responsibility to supervise the management equates to a duty to prevent any actions by the management that may be detrimental to the corporation and that do not fall within the ambit of the business judgement rule. A supervisory board member may even be subject to criminal liability if, by consenting to certain transactions, her or she has permitted management conduct that is not covered by the business judgement rule.

iii Delegation of board responsibilities

All members of the management board manage the stock corporation collectively and are jointly responsible for their actions.

In practice, responsibility for the management of certain business divisions or certain functions (e.g., finances, accounting, controlling, human resources, tax, legal, compliance) is delegated to individual members of the management board. Each management board member is primarily responsible for her or his delegated tasks, but the other board members still monitor and oversee the performance of other members. As a general rule, carefully, continuously and appropriately observing developments in the delegated divisions or functions as well as the performance of other management board members' duties is deemed sufficient.

iv Roles of chair of the management board and chair of the supervisory board

If the management board consists of more than one person, the supervisory board may appoint one of them as chair. The chair is responsible for administrative tasks relating to the work of the management board, such as preparing and chairing meetings and keeping minutes, and for coordinating and supervising the work of the management board. He or she typically is in charge of liaising with the supervisory board and represents the management board in public, and thus has a prominent position among the members of the management board. The manner in which many chairs of management boards discharge these responsibilities in practice has given rise to the perception that the position is comparable to that of the chief executive officer of a US corporation. However, from a legal perspective, this is not the case. In particular, the chair has no right to give instructions to other management board members and is not entitled to decide matters against the wishes of a majority of the other members of the management board.

The members of the supervisory board must elect a chair and a deputy chair. The chair of the supervisory board is a largely administrative role that is not endowed with any particular powers. The chair calls, prepares and leads meetings of the supervisory board. Typically, the articles of incorporation provide that the chair of the supervisory board also chairs the general meeting.

v Compensation of members of the management board and the supervisory board

In accordance with the German Act implementing the EU Shareholder Rights Directive (SRD II)2 and the German Corporate Governance Code, the compensation of each member of the management board (e.g., fixed salary, variable salary components and pensions) must be clear, comprehensible and reasonable in light of the responsibilities and individual performance of that management board member as well as the situation of the company. The supervisory board must determine the target total remuneration for achieving all agreed goals and the maximum amount that each management board member's remuneration cannot exceed. In addition, for listed stock corporations, the compensation structure is to take into account sustainable corporate development as well as social and ecological aspects, and short-term variable remuneration is to be made subject to a multi-year assessment.

The compensation of members of the management board is determined by the supervisory board, usually following a recommendation by a committee established for that purpose. Pursuant to the German Act implementing SRD II, the general meeting of a listed stock corporation must vote on the company's remuneration policy in the event of a material change at least every four years. Since the two-tiered board structure in Germany still requires that the supervisory board determine the management board's compensation, the general meeting's vote has an advisory function and is only non-binding. The general meeting cannot change the management board remuneration policy, but it has the right to vote against the management board's maximum remuneration (cap) as set by the supervisory board.

The compensation of the supervisory board is determined in the articles of incorporation or by the general meeting. Pursuant to the German Act implementing SRD II, the general meeting of a listed stock corporation is obliged to resolve on the supervisory board's compensation once every four years. As with the management board members' compensation, it must take into account the duties of the supervisory board member and the condition of the company. The Corporate Governance Code suggests that the remuneration of supervisory board members should be fixed. However, it may also comprise variable components based on the corporation's long-term performance.

Listed stock corporations must disclose the aggregate and individual remuneration granted to members of the management board and the supervisory board in their financial statements. In addition, the German Act implementing SRD II and the Corporate Governance Code require that the management board and the supervisory board prepare an annual remuneration report. The information in the remuneration report is extensive and includes a five-year comparison of a member's compensation, the company's earnings performance and employee compensation. The remuneration report must be formally reviewed by the auditor and made available to the public on the company's website.

vi Committees

The supervisory board is not required to, but may, form committees, in particular for the purpose of preparing for its deliberations and supervising the implementation of its resolutions.

If the supervisory board is composed of both shareholder and employee representatives, the supervisory board must form a reconciliation committee composed of the chair of the supervisory board, his or her deputy and two members of the supervisory board, one elected by the shareholder representatives and the other by the employee representatives.

The supervisory board may establish an audit committee to deal with matters relating to the preparation of the corporation's financial statements and the effectiveness of the internal audit and risk management systems. The audit committee is also responsible for monitoring the accounting process and the efficacy of the internal control system. The Corporate Governance Code recommends that the chair of the audit committee should have specialist knowledge and expertise in the application of accounting principles and internal control processes.

The Corporate Governance Code further recommends forming a nomination committee that is composed exclusively of shareholder representatives and that is tasked with identifying suitable candidates for the supervisory board to recommend to the general meeting for election to the supervisory board.

vii Board and company practice in takeovers

In the event that a company has become the target of a takeover offer, the management board and the supervisory board must publish online a reasoned statement regarding the offer. The statement is to enable the shareholders to make an informed decision on whether to accept the offer and must, in particular, contain the management board's and the supervisory board's assessment of the consideration offered by the bidder; the expected consequences of a successful takeover offer for the company, its employees, the employee representatives (i.e., the works council), the terms and conditions of employment, the company's production sites and other locations; the goals pursued by the bidder and information about whether the members of the management board and the supervisory board intend to accept the offer.


i Regular reporting and disclosure requirements

Stock corporations must disclose their annual financial statements (consisting of the corporation's balance sheet and profit and loss statement, as well as the notes thereto) by publishing them electronically in the German Federal Gazette. In addition to the annual financial statements, the management reports of listed stock corporations and other companies must contain a corporate governance statement that includes:

  1. statements regarding compliance with the Corporate Governance Code;
  2. information on any practices and standards applied by the corporation in addition to those required by law, such as codes of conduct;
  3. information regarding the composition of boards and committees as well as the manner in which they conduct their affairs; and
  4. information about the company's diversity targets, its achievement of statutory diversity requirements and its diversity plan addressing specific aspects such as age, gender and educational or professional background.

Either as part of the management report or in a separate declaration, large capital market-orientated corporations, as well as certain credit institutions and insurance companies, are also obliged to submit a non-financial declaration (see Section IV).

Within the first three months of each financial year, the management board of a stock corporation on which another enterprise can exercise a dominating influence must prepare a report on the corporation's relations with affiliated companies.

Disclosure of inside information

As a general rule, any issuer that has securities admitted to trading (or that has requested admission of its securities to trading) on a regulated market or multilateral trading facility in Germany must disclose, without undue delay, any information directly relating to the issuer that is not publicly known if the information could have a material effect on the market price of the relevant securities.

Disclosure of this information must be made using a system for the electronic dissemination of information in the European Economic Area, as well as on the issuer's website. Prior to disclosure to the public, the issuer must inform:

  1. the management of each trading venue on which the securities or derivatives thereof are traded; and
  2. the Federal Financial Supervisory Authority.

An issuer may, on its own responsibility, delay the disclosure of inside information if:

  1. immediate disclosure is likely to prejudice the issuer's legitimate interests;
  2. the delay is not likely to mislead the public; and
  3. the issuer ensures the confidentiality of the inside information.

Upon the eventual disclosure, the issuer must inform the Federal Financial Supervisory Authority of the disclosure and why it was delayed.

ii Directors' dealings

Persons discharging managerial responsibilities (i.e., members of an issuer's management board and supervisory board and all other senior executives with regular access to inside information) and persons closely associated with them (i.e., owned or controlled legal entities, trusts or persons closely associated with the issuer's board members or senior executives, such as spouses, registered partners or dependent children) are obliged to notify both the issuer and the Federal Financial Supervisory Authority within three business days of transactions conducted for their own account relating to (1) shares or debt instruments of the issuer that are traded on the financial markets or (2) financial instruments linked thereto (e.g., derivatives). Relevant transactions include the purchase, sale, pledging and lending of the relevant financial instruments.

The disclosure obligation does not apply if the total value of all transactions conducted by a single person within a calendar year does not exceed €20,000.

The issuer is responsible for ensuring that information regarding the relevant transactions is published without delay, that is, no later than two business days after receiving a transaction notification, in media suitable for dissemination throughout the European Union. In addition, the issuer is required to submit the published information to the German company register and notify the Federal Financial Supervisory Authority.

iii Disclosure of shareholdings in listed companies

Any person holding shares in a company for which, inter alia, Germany is the home member state and whose shares are listed on a German regulated market must notify the issuer and the Federal Financial Supervisory Authority without undue delay (within four trading days) if its shareholding reaches, exceeds or falls below the thresholds of 3, 5, 10, 15, 20, 25, 30, 50 or 75 per cent of the voting rights of the issuer. The issuer must publish the information without undue delay (but no later than three trading days) after receiving the notification.

For the purpose of calculating the relevant threshold amounts, voting rights arising from shares held by a third party may be attributed to the person obliged to disclose the shareholding. Voting rights are attributed, for example, if the third party is a subsidiary of the person obliged to disclose the shareholding, or if the person obliged to disclose the shareholding has a controlling influence by other means on how the voting rights resulting from the shares are exercised. The same holds true for shares held by third parties who act in concert with the person obliged to disclose the shareholding.

In addition, similar notification and publication obligations apply to holdings in certain financial instruments related to shares and combinations of holdings in shares and such financial instruments. In each case, the initial notification threshold is 5 per cent of the voting rights of an issuer.

Corporate social responsibility / ESG

Publicly listed and major privately held companies have adopted modern compliance programmes and created compliance organisations that are headed by chief compliance officers or a member of the management board to whom responsibility for compliance has been delegated.

Nearly all compliance programmes emphasise the importance of the 'tone from the top' for a corporation's compliance culture, and measures are taken to ensure compliance manuals are distributed and employees are trained with respect to compliance-related issues. Many companies have established whistle-blowing hotlines, which employees can use to report misconduct anonymously (see Section VI for further details).

In addition, companies subject to the Non-Financial Reporting Directive3 must disclose non-financial information that has been deemed vital for a change towards a sustainable global economy by combining long-term profitability with social justice and environmental protection, either in their management reports or in a separate non-financial declaration. Non-financial information comprises information necessary for an understanding of a company's development, performance, position and impact of its activity, relating to, among other things, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters, including a description of the business model, policies relating to the aforementioned non-financial aspects and their outcomes, principal risks and key performance indicators. If no particular policy is pursued for one of these matters, this has to be justified in line with the comply or explain principle. As part of the EU's goal of reaching climate and energy targets by 2030 and becoming a climate-neutral continent by 2050 (European Green Deal), the EU has established a classification system for sustainable economic activities under the Taxonomy Regulation.4 Companies subject to the Non-Financial Reporting Directive must report on the extent their activities are associated with environmentally sustainable economic activities in accordance with the classification system and based on certain key performance indicators. At present, this applies only to climate change mitigation, but further environmental objectives will come into scope from 1 January 2023, such as sustainable use and protection of water and marine resources, biodiversity and ecosystems and pollution prevention.


i Shareholder rights and powers

As a general rule, all shares in a German stock corporation confer equal rights, including equal voting rights, rights to receive dividends and information rights.

Voting rights are usually exercised per share or in proportion to the par value of the share. The Stock Corporation Act prohibits the creation of shares with multiple voting rights. With the approval of the general meeting, a stock corporation may issue non-voting preferred shares in a nominal amount of up to half of its registered share capital.

The shareholders of a stock corporation, unlike shareholders of German limited companies, have no direct influence on the management board. Their influence is limited to electing the members of the supervisory board, who in turn appoint and remove the members of the management board.

Since a shareholder representing a majority of the voting rights or the share capital of a corporation may de facto have a controlling influence on the stock corporation's management because of its ability to elect and dismiss the shareholder representatives on the corporation's supervisory board, a controlling shareholder must compensate any disadvantage suffered by the corporation as a result of its exercising its influence.

The controlling shareholder may legalise its influence on the stock corporation by concluding a domination agreement with the stock corporation. Once a domination agreement has been concluded, the Stock Corporation Act recognises the shareholder's right to give instructions to the management board. To become effective, the domination agreement must be approved by the corporation's general meeting with a supermajority of at least 75 per cent of the share capital represented at the meeting. The controlling shareholder is obliged to compensate any loss incurred by the controlled company during the term of the domination agreement and to acquire a minority shareholder's shares in return for adequate compensation at that shareholder's request.

Certain decisions are reserved for the shareholders' meeting by statutory law: this includes the appointment of members of the supervisory board, the appropriation of distributable profits, the appointment of the auditor, any amendments to the articles of association, measures to increase or reduce the share capital or obligations to transfer significant assets of the company.

In addition, the shareholders' meeting must approve management decisions that could fundamentally affect the shareholders' rights and economic position, such as the sale or the hive-down of a business division into a subsidiary if the division generates a significant portion of the corporation's revenue. Apart from these exceptional cases, the management board can make business decisions autonomously without the shareholders' consent. For example, the management board can decide to delist the company from the stock exchange without the consent of the general meeting (see Section II.v for further information about general meetings voting on board compensation).

In response to the challenges posed by the covid-19 pandemic, Germany has enacted laws that provide for virtual general meetings and the ability to adopt shareholder resolutions without requiring the physical presence of the shareholders or their proxies at a meeting. The most significant deviation from the traditional in-person general meeting is that the obligation of the management board and the supervisory board to provide conscientious and precise information about the affairs of the company when responding to shareholders' questions has been limited. In a virtual general meeting, the management board has discretion over which questions it will answer and may require questions to be submitted in advance of the general meeting.

Throughout the 2020 and 2021 general meeting season, virtual general meetings have proven to have significant advantages for both companies and shareholders. Shareholder participation is possible from anywhere in the world. Virtual general meetings are also considered less costly to organise and participation requires shareholders to devote less time and effort.

ii Shareholder duties and responsibilities

All shareholders are subject to a duty of loyalty to the company and other shareholders. In particular, shareholders are prohibited from causing harm to the company.

In principle, the duty of loyalty is defined by the articles of association and the company's purpose. However, in exceptional circumstances, a shareholder may even be obliged to exercise his or her voting rights in favour of a specific measure that is deemed to be necessary for the avoidance of the collapse of the company.

iii Shareholder activism

Germany has experienced several waves of shareholder activism. Thanks to changes in the laws and restrictive court decisions, the practice of 'greenmailing' companies through lawsuits by individual minority shareholders seeking to set aside shareholder resolutions or to delay corporate transactions is largely a thing of the past. Nowadays, activist shareholders are often hedge funds that seek to influence the strategy and the share price of a company even though they hold only a minority stake in the company. This is typically done through exercising minority rights. Often, these attempts are accompanied by aggressive publicity and media campaigns designed to put pressure on the company's management to adopt the measures proposed by the activist shareholder. Another means by which activist minority shareholders exercise a disproportionate influence on a company is through proxy fights. Foreign and institutional investors, in particular, increasingly follow the voting recommendations of proxy advisers. If an activist shareholder succeeds in persuading a proxy adviser to favour the measures it proposes, this will result in a significant increase in the activist shareholder's factual voting power. Recently, Germany has also experienced campaigns of activist short sellers.

iv Takeover defences

Once a bidder has published its decision to make a takeover offer, the management board may no longer take any actions that could prevent the success of the offer. However, there are some statutory exceptions to this 'prohibition of frustrating action'. The management board remains entitled to solicit competing offers from third parties (white knights) and to take actions approved by the supervisory board. Moreover, the management board continues to be entitled to take all measures that are in the ordinary course of the company's business and not a subject of the takeover offer or measures that are intended to implement a business strategy on which the company had embarked before the publication of the takeover offer.

The management board may also take defensive measures that were authorised by the general meeting before the takeover offer was announced and approved by the supervisory board, including:

  1. purchasing shares equalling up to 10 per cent of the registered share capital;
  2. establishing increased majority requirements for shareholder votes;
  3. selling important assets of the corporation; and
  4. acquiring a direct competitor of the bidder.

Further, the general meeting may elect shareholder representatives to the supervisory board at different points in time to create a staggered board and increase the majority requirements for their dismissal.

v Contact with shareholders

Each shareholder may request the management board to provide information regarding the affairs of the company. A shareholder's information right may only be exercised, however, during a general meeting and is limited to information that is reasonably required by the shareholders to appropriately assess the topics on the agenda of the general meeting. The management board may refuse to provide the requested information only for a limited number of reasons enumerated in the Stock Corporation Act, in particular if providing the information would, in the assessment of a reasonable business person, be harmful to the company. To the extent the management board proactively communicates with shareholders, it must observe the principle of equal treatment of shareholders and the rules regarding disclosure of inside information.

Corporations must identify their shareholders (know your shareholder). In particular, at the request of a company, financial intermediaries must provide the information that is necessary to identify the shareholders, including names and contact details.

Although fostering investor relations and communication with (potential) investors and other stakeholders of the company generally falls within the remit of the management board, the supervisory board and, particularly, its chair may, within certain limits, also communicate with the company's stakeholders. The Corporate Governance Code suggests that the chair of the supervisory board should be available – within reasonable limits – to discuss supervisory board-related issues with investors. The chair of the supervisory board, in particular, may also converse with political representatives and the press.

However, investor communication by the (chair of the) supervisory board is limited to issues that fall within the remit of the supervisory board. In particular, these do not include corporate strategy and the management of the company, which are the sole responsibility of the management board.


i Digitalisation and other developments in company law

As in many other areas of life in general and with business activity in particular, the covid-19 pandemic has driven developments in the use of technology that seemed impossible some years ago. Many of the changes to corporate law that were enacted to respond to the effects of the pandemic will probably remain in force after the current crisis has ended. The positive experiences from using digital technologies, in particular for virtual general meetings, will almost certainly lead to permanent amendments of the Stock Corporation Act that will firmly establish digitalisation as an element of corporate law and corporate governance, which has already been underpinned by the intention to permanently permit virtual general meetings expressed in the Coalition Agreement between the parties backing the German government in office since December 2021 (Social Democrats, Greens and Free Democrats).

ii Co-determination

With regard to employee representation at the supervisory board level, the Coalition Agreement expresses the ruling parties' intention to extend the attribution rules of the Co-Determination Act to the One-Third Participation Act for the purpose of determining whether the 500-employee threshold has been reached (see Section II.ii). In addition, the ruling parties intend to remove the 'freezing' effect that a conversion of the legal form from a German company to a European company (societas Europaea) has on co-determination, whereby the status quo pre-conversion continues to apply post-conversion regardless of whether employee representation thresholds are crossed under the One-Third Participation Act or the Co-Determination Act. The details of these proposals and of the legislative timeline are not yet known.

iii Protection for whistle-blowers

Germany has yet to implement the Directive of the European Parliament and of the Council on the protection of persons reporting on breaches of Union law (2019/1937), which is aimed at better protecting whistle-blowers, improving law enforcement and protecting freedom of speech and freedom of information.

The Directive has a wide scope as it protects EU citizens and third-country nationals as well as company employees and other persons related to a company, such as suppliers, interns and job applicants. It provides for rules that deal with whistle-blower reports of serious concerns regarding unlawful actions or abuses of law. In the Coalition Agreement, the ruling parties have stated their intention to go beyond the scope of the Directive to achieve comprehensive protection for whistle-blowers.

iv Corporate social responsibility

The European Commission has proposed to replace the Non-Financial Reporting Directive with a new Corporate Sustainability Reporting Directive aimed at reducing the costs of sustainability reporting and improving clarity and certainty on mandatory non-financial disclosure items in a company's management report. The proposal also extends the scope of non-financial reporting to all large and listed companies.


1 Carsten van de Sande and Sven H Schneider are partners at Hengeler Mueller Partnerschaft von Rechtsanwälten mbB. The authors thank Dr Pascal WF Brandt, senior associate at Hengeler Mueller Partnerschaft von Rechtsanwälten mbB, for his contribution to this chapter.

2 Directive 2017/828/EU of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement.

3 Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups.

4 Regulation (EU) No. 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) No. 2019/2088.

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