Corporate Governance current Code consultation: Concentrated criticism – also of the “Apply-and-Explain” principle. A compromise proposal.


My memory may be deceiving, but I cannot remember such concentrated resistance to a reform of the German Corporate Governance Code: From companies such as K+S to the German Investor Relations Association (DIRK) to our Association of Supervisory Boards in Germany (VARD), various stakeholders have criticised the Government Commission’s draft; more than 100 comments were received in the consultation process.

This shows that the corporate governance debate lives in Germany (which is a good thing!) – and that the Code is still far from complete. If you look at the comments, you’ll see that In addition to the unchanged depth of detail, the planned “Apply-and-Explain” principle is also causing displeasure. There is talk of an “inflation of the reports without added value in terms of content” and of a “contradiction to the proven comply-or-explain principle”.

I already explained in January why I reject the government commission’s plan. However, I would like to emphasize once again: In principle, I think the “Apply and Explain” principle is a good thing because it stimulates reflection and discussion on corporate governance issues.

The British Code as a Blueprint?

However, the government commission makes it too easy for it to simply adopt the principle originating in the monistic world without tailoring it to our corporate governance culture: In order for “Apply and Explain” to have its positive effect, it must not be allowed to come along as an additional condition that further increases the bureaucratic effort.

The clearest solution would therefore be a code consisting of a few concise guidelines – thus creating scope for discussion, individual implementation and explanation. However, a look outside the box shows that a goal-oriented cooperation of “Apply and Explain” and “Comply and Explain” is also possible.

The new British Corporate Governance Code distinguishes between 18 central “principles” (“the heart of the code”), which companies should implement individually (“apply”). In addition, there are more detailed recommendations, to which “Comply-or-Explain” applies.

VARD launches initiative #KodexWende

Sure: We can’t transfer this model 1:1 to our two-tier system either. But it shows that different approaches can complement each other perfectly. The new UK Code therefore not only provides valuable input for the forthcoming discussion on governance reform, but also identifies possible lines of compromise.

We want to conduct the discussion independently of whether and to what extent the government commission responds to the concentrated criticism within the framework of the consultation procedure. That’s why VARD launched the #KodexWende initiative this week. We are convinced that the design cannot be “repaired” by a few cuts – we need a completely new approach. A codex turn just now.

In addition, we are pleased that the pioneer of the ‘apply-and-explain’ principle and co-author of the South African code named after him (“KING IV”), Mervyn King, will attend the 15th German Supervisory Board Day (#DART15) on 27/28 June. Let the discussion begin.

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

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