Country Analyses, Second Edition
Edited by Christine A. Mallin
Chapter 3: Corporate governance in Germany: basic characteristics, recent developments and future perspectives
Axel v. Werder and Till Talaulicar INTRODUCTION Corporate governance can be defined as the system and the processes by which companies are directed and controlled (see Cadbury, 2002, p. 1). Corporate governance deals with the alignment of managerial decision making with the interests of (other) corporate stakeholders and shareowners in particular. Since the interests of top management and stakeholders can diverge, corporate governance mechanisms for controlling managers are essential. Corporate governance includes the general framework of governance rules and regulations which are to be specified on different levels of regulation. The first level consists of mandatory stipulations set down by law (for instance, in the German Stock Corporation Act 1965, last amended on 31 July 2009). Beyond this level of legislative regulation, there are rules of soft law like international and national codes of corporate governance (for instance, the German Corporate Governance Code 2002, last amended on 18 June 2009). Finally, within the remaining discretion, the single firm can decide upon specific regulations as they are constituted in, for instance, the statutes of the company, firm-specific codes of corporate governance, the rules of procedure for the organs of the company and in the individual contracts with the organ members. Indeed, corporate governance depends not only on this regulatory framework but also on the factual processes that develop in these rules and activate governance practices. Nonetheless, these frameworks give direction to governance processes and specific governance solutions. Governance-related subject matters have a long tradition in Germany under the heading of corporate...
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