The German Corporate Governance Code (GCGC) was introduced in 2002 to provide best practices of direction, control and communication. The GCGC focuses on board composition, powers, responsibilities and functioning, with the purpose of guiding companies to address deficiencies in their corporate governance and enhance transparency. The GCGC is a form of soft law: in opposition to so-called hard law (i.e., mandatory legislation imposing corporate governance mechanisms), the GCGC is a self-discipline tool, which contains recommendations and suggestions that companies can choose to implement on a voluntary basis. More exactly, the Code establishes stricter corporate governance standards addressed to German listed companies and other corporations with access to capital markets, although non-listed companies are also encouraged to follow the Code. According to the German Corporation Act and the Code itself, companies must declare their compliance with the GCGC in a specific statement; otherwise, they must explain the reasons why their behavior deviated from it. This solution derives from the ‘comply-or-explain’ principle, which guarantees flexibility to companies with different size and shareholding structure and increases their transparency on corporate governance. Overall, the comply-or-explain principle enables each business to implement the most effective corporate governance system, in line with its own peculiarities. An effective implementation of the GCGC also requires ethical and responsible behavior to ensure the company’s development in the interest of all shareholders, workforce and other stakeholders. To this aim, since 2019 the GCGC has also promoted sustainable value creation, recommending the fair balance of economic, social and environmental factors.
German Corporate Governance Code
luisa bosetti
2023-01-01
Abstract
The German Corporate Governance Code (GCGC) was introduced in 2002 to provide best practices of direction, control and communication. The GCGC focuses on board composition, powers, responsibilities and functioning, with the purpose of guiding companies to address deficiencies in their corporate governance and enhance transparency. The GCGC is a form of soft law: in opposition to so-called hard law (i.e., mandatory legislation imposing corporate governance mechanisms), the GCGC is a self-discipline tool, which contains recommendations and suggestions that companies can choose to implement on a voluntary basis. More exactly, the Code establishes stricter corporate governance standards addressed to German listed companies and other corporations with access to capital markets, although non-listed companies are also encouraged to follow the Code. According to the German Corporation Act and the Code itself, companies must declare their compliance with the GCGC in a specific statement; otherwise, they must explain the reasons why their behavior deviated from it. This solution derives from the ‘comply-or-explain’ principle, which guarantees flexibility to companies with different size and shareholding structure and increases their transparency on corporate governance. Overall, the comply-or-explain principle enables each business to implement the most effective corporate governance system, in line with its own peculiarities. An effective implementation of the GCGC also requires ethical and responsible behavior to ensure the company’s development in the interest of all shareholders, workforce and other stakeholders. To this aim, since 2019 the GCGC has also promoted sustainable value creation, recommending the fair balance of economic, social and environmental factors.File | Dimensione | Formato | |
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