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State Street pushes for German governance changes

Under current rules, firms elect board every five years which blocks efforts to address underperformance, US group claims


David Robinson

State Street Global Advisors (SSGA) has called for a change to the German Corporate Governance Code, claiming that the existing rules make it too easy for companies to protect underperforming executives.

SSGA head of asset stewardship for the EMEA region, Rob Walker, told sister publication ESG Clarity that the firm is considering approaching German rule-makers to request changes to the German ‘Kodex’ as the current rules allow for companies to maintain the same board for up to five years.

The German Corporate Governance Code (Kodex) presents essential statutory regulations for the management and supervision of German listed companies.

“As an investor, one of the biggest and most important tools that we have is our ability to elect, or not elect, members of the board. In other European markets outside of the UK, Ireland and Switzerland, your ability to elect directors is very sporadic,” Walker said.

“In France, you have the opportunity to elect a proportion of the board, but in Germany, you are only able to elect the board once every five years.”

Walker said that not having the ability to immediately threaten to vote against board members drastically affects the way that fund managers can engage with a company.

“It matters because it can impact the way a company engages with you. We recently had problems with an un-named German investment bank that had been experiencing CEO succession problems. We were very concerned with what had happened. Over three years, they had had a number of CEO successions,” he said

“We had a face to face meeting with the chairman and we were unsatisfied with that discussion. We had wanted to take voting action, but we were prevented from doing so, because the board had voted the year before.

“Our feeling was the board was a little more combative because they were insulated. We felt that that was wrong. Our ability to hold the board accountable was diluted. If I compare that to a large advertising company which recently had a CEO succession problem, we had a very different conversation.”

Walker said that State Street may now decide to approach the policymakers for the German Kodex to ask them to justify “why they are such an outlier” in Europe.

State Street Global Advisors is a division of US financial services group State Street.

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