Amendments to the German Corporate Governance Code 2022

Practically all financial market participants have taken up the sustainability topic, whether they sell it under ESG, CSR or other headlines – the latest draft amendments to the Code also address it:

The stated goal is to balance the economic requirements and the ecological and social impacts of corporate activity. The Executive Boards shall systematically identify and assess risks - and opportunities – associated with social and environmental factors; corporate planning shall include financial and sustainability-related targets. Internal control and risk management systems shall include recording and processing sustainability-related data, with key features being described in the management report. The Supervisory Boards shall monitor that environmental and social sustainability are taken into account, and that operational plans and compliance systems are geared to sustainability-related concerns.

Last year, the Financial Market Integrity Strengthening Act (FISG) established considerable innovations for listed companies – the Code follows that trend:

• the mandatory Audit Committee shall operate in constant dialog with the auditor and the CFO to ensure the effectiveness of internal control systems;
• the Code describes details on the expertise of the Committee Chairman, which shall be disclosed on the corporate governance statement;
• the Audit Committee shall meet regularly with the auditors, also without the Executive Board present; this reflects § 109 (1) 3 German Stock Corporation Act which limits the participation rights of the Executive Board in meetings with the Supervisory Board and the Audit Committee.

The Second Leadership Positions Act (FüPoG II) gained public attention mainly with new regulations on quota for women and equality in stock corporations at management board level – the Code tries to reflect these ideas:

• §76 (3a) 1 German Stock Corporration Act sets out gender-specific minimum shareholding quota which shall now also apply to management boards of companies which are listed and at the same time governed by equal (paritätisch and montan-) codetermination;
• the Code reflects this in a reworked version, and also provides for the Supervisory Board to set targets for the proportion of women on the management board in cases of companies that are not listed or not subject to parity codetermination.

„Compliance with the Code`s recommendations are not mandatory, but deviations have to be explained. The Code relies on acceptance without compulsion. This principle gives essential flexibility to companies so that they can take industry or company specific needs into account. Simultaneously, it ensures the necessary transparency“ (Prof. Dr. Rolf Nonnenmacher).