Corporate governance - an important competitive factor
The building blocks for improving competitiveness are the legal framework and corporate governance of listed companies. Good corporate governance not only protects the rights of investors and other important stakeholders, it also makes the management and financing of companies easier and more flexible. This is particularly important in view of the high capital requirements for the ecological and digital transformation. The ability to finance the necessary investments cost-effectively is a key competitive factor that will become even more important in the coming years. It is not just the cost of capital itself that needs to be considered. The institutional environment in which equity or debt capital can be raised is also highly relevant. In Germany, this environment is determined by the German Stock Corporation Act, the fundamental reform of which we are commemorating exactly 60 years ago this year. It has been constantly adapted to new developments since 1965. Since 2002, it has been supplemented by the German Corporate Governance Code, which opens up German stock corporation law to international investors and contains important but justifiably flexible additional rules. 60 years of the reformed German Stock Corporation Act are a good reason to reflect on the need for and possibilities of reform, despite all the developments that have taken place in the meantime, as numerous German companies have not only decided to go public abroad in recent years, but have also opted for a foreign legal form. A few changes to the German Stock Corporation Act could already help to make Germany more competitive as a legal centre and thus also the stock exchange listing here.
Location factor corporate law
Some examples: More flexibility in increasing capital improves the attractiveness of the legal form of a public limited company. Authorised capital is currently limited to 50 percent of the share capital. In other countries, such as the Netherlands, this restriction does not exist. Therefore, the short-term capital increase of a Dutch N.V. can in individual cases amount to a multiple of the share capital. Legislators should take this as an example and significantly raise the limit for raising authorised capital. In disruptive times, we need a lot of innovative strength, which includes raising equity capital at short notice. This not only benefits young growth companies that need significantly more equity for the next phase. Uncertainty as to whether dividend payments are insolvency-proof is also counterproductive. In 2023, the Federal Court of Justice ruled that the protection of dividend recipients acting in good faith under stock corporation law does not exclude a challenge of non-remuneration. Shareholders acting in good faith must also repay dividends received up to four years before filing for insolvency. This means that in the event of insolvency, there is not only the risk of the total loss of the share investment, but also the subsequent loss of the dividend payments. This will not create confidence in the German capital market among international and private investors, and the administrative costs of reversing dividend payments will significantly exceed the potential benefits.
Utilising the opportunities of shares in retirement provision
Pension provision is also back on the agenda in the new legislative period. The consequences of demographic change for the pay-as-you-go system are well known and have been analysed; now is the time to finally take action. Ready-made concepts for all three pillars are on the table: the generation capital in the statutory pension scheme, the 2nd Company Pension Strengthening Act for occupational pensions and the pension deposit for private pensions. Despite all the discontinuity in the legislative process and all the potential for improvement in detail, it must not take until the end of another legislative period for decisive progress to be made. As international comparisons show, it is hard to overestimate the benefits of supplementing old-age provision more strongly with equity-based elements. In addition to better protection of the living standards of broad sections of the population in retirement, all countries with appropriately sized pension funds also have a better equity injection for young companies, which increases economic dynamism and creates modern jobs. The many advantages of the capital market offer us numerous opportunities that we should definitely seize. Let us use the coming years to modernise the capital market and integrate it more strongly into our social policy.
More information: dai.de/en/kurvenlage
An article by Melanie Kreis, President of Deutsches Aktieninstitut and Chief Financial Officer DHL Group
Translated with DeepL.com