Corporate Governance aktuell – What constitutes “good” corporate management must be decided by entrepreneurs themselves (may)

“Corporate Governance” – What sounds modern is not an invention of the 21st century. After all, it is essentially about the ‘principles of corporate management’.

First of all, let me make a few remarks: in order to be able to manage companies, the legislator has created a colourful bouquet of legal forms and laid down rules from which it emerges who, how, what, when and with whom may, should and must do business.

These rules only become ‘corporate governance’ when an entrepreneur selects a legal form and begins to conduct his business within the set framework – on the basis of a corporate constitution, the so-called articles of association, which define the organs of the company and the essential rules for decision-making and monitoring processes.

But a small baker will run his business differently than a large bakery with 500 employees or a food company with thousands of employees. And since there is hardly a company that is comparable 1:1 with another, there are also almost infinitely many variants of corporate constitutions: Depending on the market, industry, size, shareholders, internationality and extent of co-determination, they differ profoundly.

In addition, the principles of corporate management are constantly changing – not just since the digital transformation.

Code Commission puts company into straitjacket

So let’s not be fooled: There is no such thing as corporate governance. Every company in Germany – whether it wants to or not, whether it writes them down or simply lives them – has its own principles of corporate management, its own individual corporate governance.

What does this mean for our Corporate Governance Code, which is currently under discussion because of the planned reform? I am convinced and have already written it at this point: A code must not be a rigid corset or even a straitjacket, but must take into account the wide range of completely different companies – and thus the uniqueness of each one of them.

To this end, we need guidelines that give advice and orientation on how the company code can look in order to meet international standards and make the company even better – with a view to international competition and the digital future. Regardless of market, industry, company size and other factors.

In other words: A code must be help for self-help. Some time ago I wrote down here what such a set of rules could look like.

Declaration of conformity: Signpost in the wrong direction

Unfortunately, at the beginning of November the Government Commission on the German Corporate Governance Code proposed a reform that can at best be called half-hearted. With its draft, it maintains the idea that there is ONE optimal corporate governance that all companies should strive for. The motto of this “one-size-fits-all” approach is “obey and parry”.

In my view, the core of the problem is the statutory mandate and the declaration of compliance, which the Government Commission and the Code enshrine in the Stock Corporation Act: the Management Board and Supervisory Board are disciplined by having to declare in writing every year whether or not they have complied with the requirements.

The clear message of this approach is: The Code outlines the best way forward – and those who deviate from the Code are reform opponents who have not recognized the signs of the times and who are to apologize shamefully for them. The Declaration of Conformity is therefore an expression of coercion and a signpost in the completely wrong direction.

Whoever came up with this idea has done no service to German corporate governance. Because you immediately see that it was not about helping the companies to develop their individual culture – not to mention the fact that nowadays hardly any investor needs all the information required in the declaration of conformity. A short checklist would be quite enough.

How we get family businesses on board

In conjunction with the declaration of conformity, the rigid code also prevents the company’s own corporate code from playing any role at all in communication with stakeholders. With the explanation is yes – apparently – everything said.

I think it would be much more purposeful if the respective corporate code were at the centre of the discussion. This would lead to companies taking a closer look at themselves, which could, for example, revive the discussion on the topic of corporate culture.

In addition, we could finally get the large family-owned companies on board a uniform German corporate governance system by focusing on company codes. This is because the current Code, whose requirements are tailored to listed groups, excludes most family-owned companies – and should therefore not even be called the “German” Corporate Governance Code.

I am convinced that we do not need reform, but a Codex revolution. We must finally move away from the idea that there is ONE optimal one-size-fits-all solution that everyone should strive for. Instead, we should define concise principles that leave room for tailor-made company codes.

This would motivate companies to find and live their own special governance – and thus strengthen it just as much as Germany as a business location. That’s exactly what my KODEX2018 is aiming for. That’s all good governance is.

Any additions, comments, objections? I look forward to your feedback:

Editorial by Peter H. Dehnen -> About the Person.