A taskforce has developed guidelines for dialogue between investors and the supervisory boards of listed companies in a move designed to modernise shareholder engagement in Germany.

The guidelines are the work of a Developing Shareholder Communication initiative, spearheaded by Hermes EOS and Ernst & Young.

They are significant because of the specificity of Germany’s corporate governance model, company law in the country, and what has been the dominant practice in this regard, despite some changes in recent years.   

Germany has a two-tier corporate governance model, with employee co-determination.

Under German company law, the supervisory board (comprising non-executive directors) has a right to a dialogue with investors but only pertaining to topics that fall within its remit, with responsibility for communication with investors remaining with the management board for all other matters.

Hans-Christoph Hirt, co-head at Hermes EOS, told IPE: “If you just look at the law, it isn’t envisaged that non-executive directors in the German two-tier system speak with investors, and it also certainly hasn’t been common practice.

“Unlike in the UK, where it’s sort of part of the job description of non-executive directors to speak to investors, in Germany, it’s not in the tradition, and if you strictly interpret the law, you may come to the conclusion it’s not aligned with or even prohibited by the law.”

The guidelines were produced by a small working group, crucially including some of the top legal authorities in Germany, with input from a stakeholder advisory group.

Investor representatives included Claudia Kruse, managing director of sustainability and governance at APG Asset Management; Ingo Speich, head of sustainability and engagement at Union Investment; and Henning Gebhardt, global head of equities at Deutsche Asset & Wealth Management.

Thomas Richter, CEO of BVI, the German investment fund association, welcomed the work of the taskforce, including as a response to the EU shareholder rights directive; this foresees institutional investors playing a more active role in corporate governance.  

“The eight guiding principles are a great way for both German and international investors to establish a more formal dialogue with the supervisory board,” he said. “We have noticed increasing demand especially from institutional investors to speak to the supervisory board and not only the management board.”

Richter was also involved in the stakeholder group.

The guidelines are intended to serve as a practical tool but also to “establish a framework for the communication of listed companies and to contribute to good dialogue practices”, according to the group behind the principles.

They also have a wider purpose, according to Hirt.

“This initiative was also about putting the issue firmly on the table and having a bit of a discussion around the current legal framework,” he said.

“The view of the working group and the stakeholder group was that it is perfectly possible under the current legal framework to have this dialogue, provided you recognise there are certain boundaries.”

Pushback is expected but also welcome.

“We expect a very fierce, particularly academic legal discussion around this issue,” said Hirt.

“The politicians are on board, but there are strong pockets of practising lawyers and particular academic lawyers who I think will take issue even with the starting point that you can have a dialogue if you stick to certain rules.”

The government commission for Germany’s corporate governance code, in what is understood to be a departure from its previous position, has indicated that it intends to consult on a proposal to amend the code with respect to the topic of communication between supervisory boards and investors.

The head of the government commission, Manfred Gentz, was a member of the stakeholder group advising the Hermes/E&Y initiative.

Two other members of the stakeholder advisory group are also on the government commission: APG’s Kruse and Joachim Faber, head of the supervisory board at Deutsche Börse and on the board of directors of HSBC.

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