What is the German Corporate Governance Code?
The German Corporate Governance Code is set of non-legally binding rules and recommendations to encourage best practice in the corporate governance of stock corporations. It has had a significant impact on the practice of corporate governance in Germany.
Although measures stipulated by the Corporate Governance Code aren’t legally binding, if firms fail to comply they must be able to explain why this is the case, and the extent of their failure. This is known as the ‘Comply or Explain Principle.’
Why is the German Corporate Governance Code important?
The German Corporate Governance Code was introduced to improve the transparency and understandability of the dual German corporate governance system. The DGCK includes principles and suggestions regarding the governance, management and monitoring of German listed companies. The aim is to make them accepted internationally as standards of good and responsible governance, thus improving the standing of German governance in the global corporate landscape. This will in turn promote confidence in German listed companies by all relevant stakeholders: whether they be investors, employees or the general public.
What does it cover?
The DGCK outlines the responsibility of Management Boards and Supervisory Boards to consider the impact of their enterprise’s conduct on shareholders, employees and other stakeholders. Companies must operate in line with the principles of the social market economy to ensure their survival and sustainability. The Code requires compliance with legislation, but also demands that companies operate with strong and accountable ethical practice.
Companies and their governing bodies must be aware of the role they play in the community, and this must be reflected in their conduct – demonstrating awareness of their responsibility to society. In the enterprise’s best interests, Management Board and Supervisory Board ensure that the potential impact of these factors on corporate strategy and operating decisions is identified and addressed.
On an annual basis, as previously mentioned, companies must explain why they have failed to comply with measures. This allows the German governance bodies to take into account sector- or company-specific exceptions – there may be a good reason why they are not able to comply with a certain aspect of the DGCK.
Well justified departures from the Code may be in the interests of even better corporate governance than that which would be seen as ‘compliant’. The Code contains suggestions from which companies may depart without disclosure; suggestions are indicated in the text by using the word “should”.
The Code also ensures efforts towards fair representation. The Corporate Governance Code requires that, when appointing management board members, diversity must be considered. There is a specific emphasis on the appropriate representation of women on management boards. As of August 2022, it is an obligation that the management board of a listed company, which contains more than three members, must contain at least one woman and at least one man.
How does it protect whistleblowers?
According to the recommendations of the German Corporate Governance Code (Principle 5, Recommendations and Suggestion A.2) employees and third parties must be given the opportunity and means of reporting on any:
- violations of law
- suspected wrongdoing
- compliance issues
They must be able to do so in a secure and protected manner. This stipulation is specified in the EU Whistleblower Directive. It is foreseeable that it will soon be enshrined in German law.
How can Safecall help with compliance?
We are an external whistleblowing hotline provider – protecting whistleblowers begins at the point of making a report.
DGCK demands employees are able to make disclosures confidentially, and only through utilising an anonymous employee hotline can this be guaranteed. Independent whistleblowing service providers, such as Safecall, ensure employees have a defined anonymous whistleblowing channel to report misconduct.
It enables your employees, contractors and suppliers to report issues relating to their working environment in a safe and secure way via phone and web.
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