Climate protection: The Corporate Governance Code is supposed to fix it – a dangerous aberration.

Klima

Dear readers of GermanBoardNews,

after the Federal Ministry of Justice, the German Corporate Governance Code (GCGC) is now also on the minds of the environment, finance and economics ministries. The German government’s Sustainable Finance Advisory Board, which was set up by the three ministries, has high hopes for the Code: in its latest report, the board recommends that “minimum standards for the sustainability competencies” of management and supervisory boards be included in the Code.

Let’s get this off our chest: A code that has been revised umpteen times in recent years and failed to prevent scandals à la Wirecard is suddenly a beacon of hope in the fight for climate. If politics and business want to convince young people that they are serious about climate protection, they should quickly come up with something better.

The core problem with the code is that it promotes a formalistic habitus. Instead of discussing responsible corporate governance, many decision-makers tend to tick off the recommendations. This is not nearly enough for real change. And precisely because of the urgency of climate protection, we must not waste time with a tool that has already proven its limited usefulness.

Why personal governance is the key

But what is the alternative? I am convinced: more urgently than ever, we need practical rules that are neither ridiculed nor lamented. Therefore, instead of bullying decision-makers with new bureaucratic requirements and thereby encouraging formalism or even triggering resistance, we should hold them accountable.

In the wake of the Wirecard scandal, I proposed a kind of “Hippocratic oath” for supervisory boards and management boards, in which they would commit to key personnel governance principles. This would leave room for manoeuvre and would therefore encourage discussions – and in my view these are crucial for a new awareness to emerge. In other words: Corporate governance does not work without personal governance.

To enshrine this in law, I advocate a new paragraph in the German Stock Corporation Act that makes the commitment a prerequisite for a supervisory board mandate. The basis for a personal governance code could be the VARD professional principles. Through their recognition, supervisory board members undertake, among other things, to undergo “systematic and regular” further training.

Helping supervisory boards understand the implications of climate change

This also means acquiring the expertise to understand climate change and its implications for the business model (as well as being able to assess corporate strategic options).

Instead of further overburdening the Corporate Governance Code, we should therefore discuss what “personal governance” means with regard to climate protection – and how we can ensure that new requirements become neither bureaucratic monsters nor paper tigers.

However, the fact that three more ministries are now getting involved in the code debate does not bode well for me. Particularly in the environment and finance ministries, presumably no one has read or understood the mandate of the so-called DCGK government commission – not to mention a critical look at the rules and regulations.

At best, this could come from the Ministry of Economics. But that seems to play only a marginal role once again.

Sincerely

Yours, Peter H. Dehnen