AnalysisCorporate Governance

Supervisory boards are opening up to their investors

Supervisory boards are increasingly engaging in dialogue with investors and other stakeholders. The focus lies on governance issues.

Supervisory boards are opening up to their investors

In the past, the extent to which supervisory boards were allowed to communicate externally was controversial. In the meantime, dialogue between company controllers and shareholders has become common practice. "Discussions between investors and other stakeholders with the chairman of the supervisory board have become established. There is a general willingness to communicate," according to a study conducted by the law firm Noerr in cooperation with the communications consultancy FGS Global and the Berlin academic Axel v. Werder, founding member of the Corporate Governance Code Commission.

The supervisory board chairmen of the companies in the Dax family were surveyed. In addition, the study analyses the rules of procedure of the supervisory boards of all Dax 40 companies with regard to regulations on external communication and also evaluates media reports.

Legal framework consolidated

From the lawyer's perspective, the legal framework for dialogue has also been consolidated: "The majority of legal scholars consider it permissible for the chairman of the supervisory board to hold discussions with investors and other stakeholders, at least on issues specific to the supervisory board." The German Corporate Governance Code also provides for this in a suggestion. This requirement is now reflected in the rules of procedure for the supervisory bodies of the Dax 40 companies, which, according to the study, predominantly contain regulations on supervisory board communication.

However, the study classifies the level of organisation as low. Although the rules of procedure contain basic regulations, there are hardly any separate communication rules with further detailed regulations. The supervisory boards also did not have committees that deal specifically with communication. Only two companies had drawn up communication regulations for the supervisory board in addition to the rules of procedure. These stipulate, among other things, that the chairman informs the other members of the supervisory body following stakeholder contacts.

Channels into the company

In the past, the extent to which supervisory boards are allowed to bypass the management board and make contact with the company has been a recurring point of discussion. Here, the Act to Strengthen Financial Market Integrity (FISG) initiated after the Wirecard scandal has strengthened the position of supervisory boards and granted the controllers new competences.

The law obliges listed companies to set up an audit committee. As part of their monitoring activities, the members of the audit committee are granted additional rights to information on relevant topics. For example, they can contact the heads of risk management or internal audit without first obtaining the approval of the Management Board.

The traditional topics

According to the study, investors dominate the dialogue partners of supervisory board chairmen in external communication, ahead of representatives of the media and non-governmental organisations as well as other stakeholders – including politicians and top officials. The dialogue between the supervisory board and investors and the general public continues to focus on the traditional topics of board appointments and remuneration as well as supervisory board remuneration.

Looking at the topics of dialogue in the context of sustainability and ESG, governance issues also take centre stage. Environmental and social aspects were discussed much less frequently overall, but at least to some extent. Some supervisory board chairmen commented on Russia's invasion of Ukraine during the period under review, while few commented on environmental issues.

In view of the competences of the supervisory board, this finding is hardly surprising from the lawyers' point of view. "Governance issues are part of the core area of the supervisory function, so it is not surprising that they are also the focus of the discussions," says Ingo Theusinger, partner at Noerr and expert in stock corporation law and corporate governance issues.

More topics for discussion

According to the study, the discourse could broaden thematically in the future. The more intensive debate on sustainability and the advancing regulation should support this, according to the assessment. Various EU regulations and directives provide for stakeholder dialogues. Stakeholders in this sense also include NGOs, for example. The Executive Board is the first point of contact here. However, it would not be out of the question for the supervisory board to be included in the discussions as part of its advisory and monitoring function. "Supervisory board members seem to be open to ESG issues. At least this is what the analysis of our questionnaires suggests," concludes the law firm.

ESG at the annual general meeting

With regard to sustainability issues, Sebastian Beyer, a specialist in stock corporation and capital markets law at Taylor Wessing, recently emphasised at an event organised by the law firm that ESG aspects are also gaining relevance through the inclusion of sustainability targets in management board remuneration and thus reach the annual general meeting via detours.

Say on Climate could also slowly pick up speed here in Germany. The technology group Gea has announced that it will be the first company in the DAX family to hold a consultative vote on its climate protection plans at the next Annual General Meeting.

Taylor-Wessing lawyer Beyer also pointed out that the EU's Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to draw up a climate transformation plan. Although it is not planned to present this plan to the Annual General Meeting, it will nevertheless provide an impetus for this.