Financial Crime World

Corporate Governance and Compliance in Germany: A Complex Framework

Overview

Germany’s corporate governance landscape is shaped by both statutory laws and non-binding best practice rules. The country’s stock corporations, or Aktiengesellschaften, are subject to a complex framework that requires companies to balance the interests of various stakeholders.

Statutory Laws and Best Practice Rules

Key Statutes

  • Stock Corporation Act (Aktiengesetz): Sets out the rights and duties of management boards, supervisory boards, shareholders’ meetings, and individual shareholders.
  • EU Market Abuse Regulation: Regulates market abuse and insider dealing.
  • Securities Trading Act: Regulates securities trading and provides for investor protection.

German Corporate Governance Code

The German Corporate Governance Code is a set of best practice rules that aim to promote transparency and accountability among listed companies. The code is not legally binding, but companies are required to declare annually whether they have complied with its recommendations or explain any deviations from them.

Key Players in German Corporate Governance

  • Management boards: Responsible for the operational management of the company.
  • Supervisory boards: Responsible for overseeing the management board and ensuring that the company is managed in accordance with its articles of association and applicable laws.
  • Shareholders’ meetings: Elect the supervisory board members and approve major corporate decisions.
  • Individual shareholders: Have voting rights and can participate in shareholder meetings.

Stakeholders in German Corporate Governance

  • Institutional investors: Pension funds, insurance companies, and other institutional investors that hold shares in listed companies.
  • Retail investors: Individual investors who buy and sell shares on the market.
  • Academics: Researchers and experts who study corporate governance and provide advice to companies and regulators.
  • Auditors: Independent auditors who review a company’s financial statements and report to shareholders.

Consequences of Non-Compliance

Companies that fail to comply with statutory laws or best practice rules face various consequences, including:

  • Fines and penalties
  • Reputational damage
  • Loss of investor confidence