4.4.3 What are the main features of the national corporate code regarding size, lay-out and subdivisions?

For the underlying empirical research three versions of the German corporate governance code (2005, 2006 and 2007) are used and the most recent code (2010) is reviewed as well in this chapter. All the versions of the German code contain a foreword in which the aim of the code is formulated and in which a few key features (such as the two-tier board and employee representation in the Aufsichtsrat) of German company law are mentioned. In its foreword the German code makes a distinction between recommendations (Empfehlungen) and suggestions (Anregungen). The recommendations are marked in the text through use of the word "shall" (soll). Companies may deviate from the recommendations but are obliged to disclose this. Although the code, in its preamble, addresses the listed companies, it is also recommended that other companies respect the code. The recommendations are in the majority compared to the suggestions. For the suggestions the words "should or "can are used. The remaining passages in the code not marked by the words "shall , "should or "can are provisions that the companies are obliged to observe under applicable law. They simply confirm the already existing legal requirements as laid down in German legislation and function as user-friendly explanations of German corporate law (Du Plessis, Großfeld et al. 2007, p. 27). Hence the communicative and descriptive function of the German code.

The foreword states that, as a rule, the code will be reviewed and if necessary adjusted annually in a pragmatic and flexible way in view of new laws and developments in the capital market (Nowak, Rott et al. 2006, p. 10). Therefore, the corporate governance commission works as a standing commission (Goncharov, Werner et al. 2006, p. 433) (Cromme 2005, p.364). Although the number of code provisions has hardly increased over the years, with respect to contents some amendments have been made. The key amendments relate to the disclosure of board remuneration, the independence of supervisory board members, corporate governance issues in financial reports and compliance to the code's suggestions (Goncharov, Werner et al. 2006, p. 433).

The German code consists of six chapters that discusses all the major criticisms usually levelled (by international investors) at Germany: inadequate focus on shareholder interests, the two-tier board system, inadequate board independence, inadequate transparency and limited independence of auditors (Nowak, Rott et al. 2006, p. 10) (Cromme 2002). Considering the number of provisions, the main key issue of the German national code is obviously the supervisory board and its functioning (Voogsgeerd 2006, p. 89) (Du Plessis, Großfeld et al. 2007, p. 28) (Ulmer 2002, p. 155). Ulmer calls it the Zentrum of the code and Du Plessis, Großfeld et al. the heart. Voogsgeerd considers the rules regarding the supervisory board impressive, although apart from some sharpening, the differences with the already existing legislation are negligible (Voogsgeerd 2006, p. 89). Cromme states that the role of the supervisory board changed from an almost exclusively monitoring role into a more advisory and co-decision making role. As a consequence thereof the rules needed to be reviewed and adapted to the current reality (Cromme 2005, p. 365).

The corporate governance committee mentions the relevant stakeholders in its aim: "to promote the trust of international and national investors, customers, employees and the general public in the management and supervision of listed German stock corporations". Moreover, in provision 4.1.1 it is explicitly stated that the management board has to take into account the interests of the shareholders, its employees and other stakeholders with the objective of sustainably creating value. Although important stakeholders and investors, banks are not mentioned in the code, in its foreword or anywhere else. Since they can often be qualified as investors no separate attention is apparently necessary. Although acknowledging the interests of all stakeholders, enhancement mostly has to be achieved as regards the functioning of the management and supervisory board and the rights of the shareholders; hence the specific code provisions provide for this.