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The New German Corporate Governance Code

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The New German Corporate Governance Code

9 Apr, 2020 | News, Pressemitteilung, Uncategorized

The new German Corporate Governance Code (GCGC) brings with it some fundamental innovations. It was published in the Bundesanzeiger (Federal Gazette) on 20 March 2020 and thus came into force immediately. It was aligned with the Act Implementing the Second Shareholders’ Rights Directive (ARUG II), which has been in force since 1 January 2020, and applies to listed companies in the regulated market as well as companies with access to the capital market (see § 161 AktG). However, considering that the GCGC contains recommendations for good, responsible corporate governance, it is also a useful guide for non-capital-market-oriented companies. The new Code in the version dated 16 December 2019 replaces the previous Code in the version dated 7 February 2017 and now forms the basis for the declaration of compliance.

New revised structure

As part of the revision, the GCGC was restructured with the primary aim of improving readability. The Code now contains 25 principles that reflect the legal requirements and also serve as the basis for recommendations and suggestions. There are two types of recommendations which can be distinguished based on the wording used in the Code. On the one hand, there are those from which companies may only deviate if they first, openly acknowledge the deviation and second, are able to provide an explanation as to why they deviate (comply or explain). In the text, these binding recommendations are marked with “shall”. Then there are recommendations which should ideally be implemented, but from which deviations are permitted even without appropriate disclosure. Accordingly, these recommendations are marked with “should”.

Important changes for the Management and Supervisory Boards

The new GCGC contains a number of important new regulations for both management and supervisory boards of listed companies. The initial appointment period for members of the Management Board has been reduced from five to three years. The appointment period for the Supervisory Board remains unchanged and may still not exceed five years (see §102 (1) AktG). The Code’s requirements for the remuneration of members of both boards were also revised significantly.

In accordance with ARUG II, the maximum remuneration for members of the Management Board is to be capped and may not exceed a fixed amount. The total remuneration should also be linked to the achievement of previously defined targets and thus also act as an incentive for the implementation of strategic goals. In the case of the variable remuneration of the Board of Management, the long-term component should now exceed the short-term component and, if possible, it should not be paid in cash but in company shares or share-based. Furthermore, the new GCGC makes recommendations for payments and benefits upon contract termination. The Code also recommends that if a member of the Management Board assumes a position on a Supervisory Board, the renumeration paid for this mandate shall be taken into account when determining their renumeration at the company.

With regard to the remuneration of the Supervisory Board members, the higher time commitment of the Chairman and Deputy Chairman of the Supervisory Board as well as the Chairman and members of committees shall henceforth be taken into account. The remuneration shall also be a fixed remuneration. If members of the Supervisory Board are granted performance-related remuneration, it shall be geared to the long-term development of the company. A particularly important innovation of the new GCGC is that it provides a number of concrete indicators by which to check and assess the independence of individual members of the Supervisory Board. Was the respective member of the Supervisory Board or a close family member a member of the Management Board of the company in the two years prior to the appointment? Have they been a member of the Supervisory Board for more than twelve years? Or are they a close family member of a Management Board member? If the answer to any of these questions is “yes”, it is quite possible that the independence of the respective Supervisory Board member can or even must be questioned.


As a result of the amendments, the GCGC has become clearer and more concrete. Nevertheless, full compliance and reporting can appear challenging and complex. Companies that have already submitted their declaration of compliance as part of their current reporting do not need to initiate an update. However, if a company has not yet done so, the declaration of compliance must be prepared in accordance with the new requirements. We at cometis are experts in financial reporting and are happy to assist you in all communication matters relating to your declaration of compliance.