Corporate Governance in Germany: An Economic Perspective

Abstract

A financial system can only perform its function of channelling funds from savers to investors if it offers sufficient assurance to the providers of the funds that they will reap the rewards which have been promised to them. To the extent that this assurance is not The German corporate governance system is generally regarded as the standard example of an insider-controlled and stakeholder-oriented system. Moreover, only a few years ago it was a consistent system in the sense of being composed of complementary elements which fit together well. The first objective of this paper is to show why and in which respect these characterisations were once appropriate.However, the past decade has seen a wave of developments in the German corporate governance system, which make it worthwhile and indeed necessary to investigate whether German corporate governance has recently changed in a fundamental way. More specifically one can ask which elements and features of German corporate governance have in fact changed, why they have changed and whether those changes which did occur constitute a structural change which would have converted the old insider-controlled system into an outsider-controlled and shareholder-oriented system and/or would have deprived it of its former consistency. It is the second purpose of this paper to answer these questions.Key words: Corporate governance, financial systems, complementarity, stakeholders, Germany JEL classification: D 21, 23, G30, L 21 P51 I. The problemA financial system can only perform its main function of channelling funds from savers to investors if it offers sufficient assurance to the providers of the funds that they will reap the rewards which have been promised to them. 1 To the extent that this assurance is not provided by contracts alone, potential financiers will want to monitor and influence managerial decisions. At least they will want to be sure that some persons, institutions or mechanisms have assumed the role of monitoring and i nfluencing the activities of the firm and its management, and are performing that role in their, the financiers', best interests. If they do not have this assurance they will abstain from providing capital in the first place. Therefore, corporate governance is an essential part of any financial system.It is obvious that providers of equity have a genuine interest in the functioning of corporate governance. However, corporate governance encompasses more than investor protection.Considerations similar to those which underlie the logical link between equity capital and governance also apply to other stakeholders who invest their resources in a firm and whose expectations of later receiving an appropriate return on their investment also depend on decisions at the level of the individual firm which would be extremely difficult to anticipate and prescribe in a set of complete contingent contracts. Lenders, especially long-term lenders, are one such group of stakeholders who may also want to play a role in corporate governance;employees, espe...

Is the German system of corporate governance converging towards the Anglo-American model?

“…The long-term lending relationships give banks considerable power, which is frequently strengthened by bank representation on the supervisory board of the firm. Schmidt (2003) states that membership of a supervisory board provides an important source of privileged and valuable information. In contrast, Edwards and Nibler (2000, p. 260) conclude that ''German banks do not play a role in the governance of large listed firms which is distinct from their position as one of several types of large shareholder''.…”

Stakeholder Capitalism, Corporate Governance and Firm Value

“…6) point out in their survey of international corporate governance: "in many European countries shareholder wealth maximization has not been the only -or even necessarily the primary -goal of the board of directors." In Germany, for example, firms are legally required to pursue the interests of parties beyond just shareholders through the system of co-determination in which employees and shareholders in large corporations have an equal number of seats on the supervisory board of the company (see Rieckers andSpindler, 2004, andSchmidt, 2004).…”

Governo das sociedades, custos de agência e crise financeira: que relação?

“…Adicionalmente, os trabalhadores podem ter encetado processos no quais trabalham, o que sendo benéfico para a sua empresa em concreto pode tornar o seu capital humano menos valioso no mercado (SCHMIDT, 2003;GOERGEN, 2007). Nesse sentido, muitos advogam a necessidade de considerar a proteção dos interesses de todos os stakeholders e não apenas dos acionistas, defendendo Tirole (2001) que a abordagem tradicional baseada na criação de valor para o acionista é demasiado limitada para a análise do governo das sociedades.…”