The term "corporate governance" stands for responsible company management and control aimed to create value in the long term. Essential aspects of good corporate governance include efficient cooperation between the Managing Board and Supervisory Board, consideration of stockholder interests, as well as open and transparent corporate communication.
The first version of the code developed by the commission was published on February 26, 2002. On May 21, 2003 the commission reached decisions regarding the further development of the German Corporate Governance Code. The code is a code of best practice and not a law. It acquires legal standing in the form of a self-imposed declaration of commitment.The code is based on the law currently applicable in Germany. In the descriptions of individual points, the focus is on easy comprehensibility. At the same time, it makes no claim to portray the applicable laws comprehensively or to include all relevant aspects. In this regard, it should be treated as a supplement to the existing rules.
The code gains its legal basis through a compliance declaration. In the context of the Transparency and Disclosure Act (Transparenz- und Publizitätsgesetz, TransPubG) dated July 19, 2002, which took effect on July 26th, 2002, a new Article 161 has been added to the Stock Corporation Act.
The aim of the German Corporate Governance Code is to make Germany's corporate governance rules transparent for both national and international investors, thus strengthening confidence in the management of German corporations. The Code addresses all major criticisms - especially from the international community - leveled against German corporate governance, namely
- inadequate focus on shareholder interests;
- the two-tier system of executive board and supervisory board;
- inadequate transparency of German corporate governance;
- inadequate independence of German supervisory boards;
- limited independence of financial statement auditors.
The method of relying on self-organization in the context of a code containing internationally recognized standards for responsible business management, rather than using a legislative procedure, to create rules on transparency for investors is new to Germany and gives rise to a large degree of self-obligation for each individual company. At the same time, however, this represents a new opportunity for business and industry to create transparency and commit themselves to fair treatment of investors and thus to shape the underlying conditions themselves rather than having terms forced on them by the legislator. The code will provide those involved in the capital markets with a yardstick defined in part by business and industry representatives on the Corporate Governance commission as a standard for good, responsible corporate management. If individual companies deviate from this standard, this must be disclosed in the compliance declaration.