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German Corporate Governance Code (DCGK): Composition, Election, and Compensation of the Supervisory Board
The German Corporate Governance Code (DCGK) emphasizes the importance of a well-structured Supervisory Board in ensuring effective corporate governance. In this section, we will break down the key points related to the composition, election, and compensation of the Supervisory Board.
Composition of the Supervisory Board
A diverse and experienced Supervisory Board is crucial for the success of any company. The DCGK recommends that the following objectives be established when determining the composition of the Supervisory Board:
- Diverse knowledge and expertise: Members should bring a range of skills and experiences to the table.
- International activities: Considerations should be made for members with international experience, particularly in light of global business operations.
- Potential conflicts of interest: Members must disclose any personal or business relationships with the company, its executive bodies, and material shareholders.
- Diversity (including female representation): Efforts should be made to ensure a diverse range of perspectives, including adequate female representation.
Election of the Supervisory Board
Elections for the Supervisory Board should be conducted on an individual basis. The following guidelines should be followed:
- Individual elections: Candidates should be elected individually, rather than as part of a slate.
- Announcement of candidates: Proposed candidates for the Supervisory Board chair should be announced to shareholders.
- Disclosure requirements: Candidates must disclose personal and business relations with the company, its executive bodies, and material shareholders.
Independence of Supervisory Board Members
The DCGK emphasizes the importance of independent members on the Supervisory Board. The following guidelines apply:
- Adequate number of independents: The Supervisory Board should include an adequate number of independent members.
- Definition of independence: Independent members are those who do not have substantial conflicts of interest with the company or its related parties.
Restrictions on Management Board Members
Former Management Board members may face restrictions when serving as Supervisory Board members:
- Two-year limit: Former Management Board members may not serve as Supervisory Board members for more than two years, unless they are elected by shareholders holding at least 25% of voting rights.
- Justification required: In such cases, appointment to the chairmanship of the Supervisory Board requires justification to the General Meeting.
Compensation and Training of Supervisory Board Members
The DCGK recommends that compensation for Supervisory Board members be reasonable and related to their tasks and the company’s situation:
- Reasonable compensation: Compensation should be fair and commensurate with the member’s responsibilities.
- Performance-related compensation: Performance-related compensation should be oriented towards sustainable growth.
- Individual details reported: Individual compensation details should be reported in the Notes or Management Report.