New investment industry-backed scorecard assesses governance quality of Germany’s biggest companies

Aim is to trigger improvement in German companies’ boards and AGM processes.

The DVFA, the German industry association for financial analysis and asset management, has launched a new scorecard to help investors to better assess the corporate governance quality of Germany’s biggest companies in the DAX 30 index. Four German asset managers – Allianz Global Investors, Deutsche Asset Management, Deka Investments and Union Investment – initiated the project last month. IVOX Glass Lewis, the shareholder research company, is providing the governance data.
The association says the scorecard differs from previous models by mixing scores from externally available corporate governance information with qualitative information via dialogue on essential questions with the companies themselves. It also compares governance in German companies with international peers by incorporating international standards (ICGN-Principles).
Stretching the scorecard beyond a purely formal acceptance of the German governance code, the DVFA says, aims to close gaps that exist between a company’s declaration and its actual practices.
Christian Strenger, Supervisory Board Member at Deutsche Asset Management International, and a renowned governance specialist, says: “One of the key aspects we pursue [with the scorecard] is to deliver results that give a true picture of the governance quality.”
A first analysis of the DAX companies’ corporate governance quality delivered an overall medium grade, according to Strenger.Of the five scorecard measurement segments: Shareholders & General Meeting, Management Board, Supervisory Board, Transparency & CG-Commitment, Reporting & Audit of the Annual Financial Statements, no company in the DAX received an ‘excellent’ score (100%-90.1%), two were marked ‘very good’ (90%-80.1%), 16 ‘good’ (80%-70.1), and 10 ‘satisfactory’ (below 70%). Allianz and Deutsche Bank are not marked in the system due to their participation.
The analysis said the scorecard showed clear weaknesses in two governance aspects, the section of Shareholders & General Meeting and in the independence of Supervisory Boards.
Commenting on the low scores, Strenger said that ideally companies would see the voting intentions of investors only a day before the annual meeting rather than knowing the results two weeks ahead of it, enabling them to influence investors before the AGM: “We don’t want the boards to go into what could be a difficult meeting utterly relaxed because they know the votes anyway.”
An English version of the scorecard is planned, as well as one that is applicable to all listed German companies.
It is hoped that the scorecard’s results will trigger improvement in German companies’ corporate governance. Strenger expects the first effects to be seen in April or May next year after the upcoming release of annual reports and AGMs.