Deutsche Börse & ISS – Is the influence of institutional investors on corporate governance standards and management growing?


Dear readers of the GermanBoardNews,

in the past few days, there has been even more activity in Corporate Governance Germany than we had expected. Without wanting to define priorities, we will only be able to deal with some topics in greater depth in the coming issues. I am thinking here of the new quota regulation for members of the Management Board and the Wirecard Committee of Inquiry (as well as the role of Tina Kleingarn). But the subject of ThyssenKrupp is still getting under my skin and needs to be updated – with a magnifying glass.

This week’s governance headline for me is: German leading index DAX to be strengthened by additional quality criteria and alignment with international standards.

The outstanding message is that we can now expect more frequent discussions about the quality of listed companies. We have to learn to read between the lines if we really want to understand the direction Deutsche Börse has taken in terms of corporate governance. Let me venture an interpretation here:

While the current ESG consultation is still discussing how “moral” the trading platform should become, Deutsche Börse has already gone one step further – with the purchase of the US voting rights advisor ISS Governance last week. This is a clever move from an entrepreneurial point of view, which is certainly driven by the hope of increasing profits through synergy effects.

Deutsche Börse & ISS – the new power on the Main

In recent years, ISS has attracted attention – not only in Germany – with its so-called policies, i.e. voting guidelines defined by the voting rights advisor after intensive discussion with market participants. It is therefore a similar procedure to the one Deutsche Börse has just implemented for the DAX(here the ISS Guidelines for the 2021 AGM season).

It will therefore be exciting to see in which direction the marketplace operator Deutsche Börse, 96% of whose shareholders are institutional investors, will now develop its own rules and bring them into line with its ISS investment(see also the global “Voting Priciples” of ISS). At ISS, too, customers are institutional investors who have concrete expectations of their service provider (because that is what they pay for, after all).

One thing is clear: Deutsche Börse is de facto the guardian of corporate governance in Germany – German Corporate Governance Code or not. Because when it sets rules, no company that needs the capital market can afford to ignore them.

Who will define corporate governance in the future?

We also know that institutional investors have developed clear ideas about governance (think of Blackrock boss Larry Fink and his letters to CEOs). And I wouldn’t be surprised if they are increasingly vehemently trying to find ways to translate these ideas into action – possibly now with the help of Deutsche Börse?

In any case, the danger that it is increasingly the investors who define corporate governance and influence corporate management has increased with the ISS takeover. The question remains as to what capital market-oriented companies and their stakeholders have to do to counter this. I fear: too little.

This encourages me to encourage legislators to examine the cornerstones of the German corporate governance system for shortcomings – and to take action as quickly as possible. The planned new regulations in the Act to Strengthen Financial Market Integrity (FISG) can only be a start here. In addition, we need, among other things, guidelines for the profession of supervisory board member and, in particular, an amendment to the German Stock Corporation Act with a Hippocratic oath.

In this way, we would make supervisory boards accountable, without stifling them, and at the same time send a clear signal: Good supervisory boards are the key to good governance – and not the investors, who all too often pursue their own interests. The ThyssenKrupp case has impressively demonstrated this (more on this topic soon).

Best wishes and stay healthy!

Yours, Peter H. Dehnen (publisher)