It is normal practice for international investors to hold discussions with a target company’s management body. When investing elsewhere, there is often only one board, which combines the company’s management, direction, and supervision, that the investors hold discussions with. However, the situation in Germany is different. Many foreign investors are not aware that they are generally not allowed to talk to the supervisory board in Germany.

However, investors expect this customary form of communication with the supervisory board/board of directors (Aufsichtsrat) in Germany. They want to talk to the management board (Vorstand) and the supervisory board (Aufsichtsrat). In listed companies, investor dialogue with the board of directors is de facto common practice – but whether they are legally permissible remains controversial.

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Investor Dialogues with the Supervisory Board (Aufsichtsrat): Dangerous Territory

Supervisory boards must be careful when they prepare investor dialogues, as it is vital to ensure that these conversations are conducted correctly. The supervisory board should set legally sound standards to avoid liability and to outline communication rules and guidelines for investors can help. There are countless legal issues to be dealt with. Investors who have been refused a request for a meeting must be sent a justification for the refusal, taking into account the principle of equal treatment.

The flow of insider information must also be prevented. Simultaneously, despite discussions by the Supervisory Board Chairman (Aufsichtsratsvorsitzender) and individual committee chairmen (Ausschussvorsitzende), care must be taken to ensure uniform capital market communication. The Executive Board and Supervisory Board must also exchange the information obtained in the dialogue in a constant flow. Overall, there are many legal problems and balancing issues inherent in the process. It is strongly recommended for supervisory boards to involve specialist lawyers in such discussions to ensure that they are legally protected.


Investor Dialogues with Supervisory Boards: bring Real Benefits

A look at the UK reveals that investor dialogues can certainly lead to better corporate governance. Studies reveal that companies that have introduced investor dialogues show an average economic growth of 7.1 per cent. Investor dialogues are limited to a few discussion topics and are suitable for setting guidelines for selection and compensation processes. They cover the composition and compensation of the management body members, board appointments, dismissals and compensation, and the management body’s internal organisation. Investors also want to influence strategy development and implementation and the required criteria for the selection of auditors.


Listed Companies: Who talks to Investors?

German listed companies must be aware that dialogues between the supervisory board and investors are difficult to reconcile with German law. A related regulation is symbolically a „foreign body“ in German stock corporation law.

Our corporate law expert Dr Matthias Wurm has investigated the extent to which the regulations in the Anglo-Saxon UKCGC can serve as a model for German listed companies and the German Corporate Governance Code. His findings provide companies with a guide, and show how investor dialogues in Germany can be implemented in practice with legal certainty. To prevent problems, the company must involve their workforce in such discussions.

Foreign investors are usually unaware that employee participation plays such an important role in Germany. Companies should involve their workforce in these discussions from the very beginning. In this way, aggressive disputes with trade unions (Gewerkschaften) can be prevented in advance.


Investor Dialogues: Economic Growth for listed Companies

The German Corporate Governance Code came into being in the context of financial crises and responds to poor corporate governance that was detrimental to companies and their shareholders. Family businesses perform significantly better in global growth than companies where ownership and management are institutionally separated. The reason for this is that family businesses place significantly more emphasis on capital preservation and innovation. In companies where ownership and management are separated, it is essential to prevent management from exploiting its knowledge advantage (moral hazard).


Expert Guidance from Corporate Lawyers at Schlun & Elseven

The legal situation for investor dialogues in Germany is complicated, and receiving specialist legal guidance must be considered. Schlun & Elseven Rechtsanwälte is a full-service legal firm based in Cologne, Aachen and Düsseldorf. Working alongside us ensures that you benefit from the guidance of our team of experienced lawyers. Here are some of the services our team provides:

  • Legal opinion on minimizing liability risks
  • Drafting of communication rules
  • Draft rejection letters to investors
  • Advice to the supervisory board
  • Advice to investors and asset managers
  • Participation in investor dialogues

Contact us today and benefit from expert support from our specialists.

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