Berlin may block board role for company bosses

21st December 2006, Comments 0 comments

21 December 2006, Berlin (dpa) - Germany's power-sharing government has come up with an idea that is likely to dampen the Christmas spirit of some of the country's top business leaders.

21 December 2006

Berlin (dpa) - Germany's power-sharing government has come up with an idea that is likely to dampen the Christmas spirit of some of the country's top business leaders.

A plan under discussion by the Christian Democrats and Social Democrats calls for legislation stopping outgoing chief executives from directly joining corporate supervisory boards.

Investors have long demanded such action, but their pleas fell on deaf ears until a bribery scandal that has engulfed engineering and electronics giant Siemens prodded the government into action.

Voices were raised when Siemens board chairman Heinrich von Pierer was called on to investigate the EUR 420 million in corrupt payments that were allegedly made when he was chief executive.

This apparent conflict of interest is just one example of a widespread practice in big German corporations where CEOs move over directly to take charge of the supervisory board.

In 14 of the 30 companies listed on the DAX, Germany's leading stock exchange index, outgoing CEOs effortlessly moved on to wield power as non-executive board chairmen.

They include Volkswagen's Ferdinand Piech, Henning Schulte-Noelle at Europe's biggest insurer Allianz, Lufhansa's Juergen Weber and Gerhard Cromme of steelmaker ThyssenKrupp.

In their new roles they monitor the work of their successors, and in some cases, how they deal with policy errors that occurred before the new CEOs took charge.

Critics of this practice argue there is not enough distance between the management boards and corporate supervisory boards of many DAX heavyweights. This fact often hinders a company from instituting strategic changes, they say.

Supporters of the cosy relationship between board and management say it is wrong to dispense with the skills of experienced and successful managers.

The latest government initiative was put forward by Volker Kauder and Peter Struck, the parliamentary floor leaders of the ruling coalition partners.

It goes much further that than a proposal put forward a year ago by a government commission on corporate governance that executives be allowed a seat on the board only in exceptional circumstances.

The German Federation of Industry (BDI) believes the commission's non-binding guidelines are sufficient and warns against adopting legislation to enforce these goals.

Justice Minister Brigitte Zypries also believes that the government should not introduce a ban, but allow companies to act voluntarily on the issue.

Some 78 percent of the firms listed on Germany's various stock indices already follow the government's Corporate Governance Code, according to the BDI.

Business leaders fear the new initiative could mark the second time that that a recommendation contained in the code is cemented into law.

This was the case recently when top managers were forced to disclose their pay after several companies refused to follow the governance commission's recommendations on the issue.

Investors have long argued that a manager should not be rewarded for his service with the chairmanship of the supervisory board. Institutional investors want to this made mandatory.

It is unclear whether the government's new initiative applies to just the board chairmanship or to all positions on the board and whether a move would be allowed after a period of grace.

Opposition Left Party leader Oskar Lafontaine is skeptical whether anything will come of the government's plan. "Experience has shown that industry has much too strong an influence on the decisions taken by the coalition government," he said.

Copyright DPA

Subject: German news

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