The German Supervisory Board on Its Way to Professionalism
interdependencies of accounting, auditing and risk management137 and it provides the supervisory board, particularly the members of the audit committee, with valuable information on a company’s current economic situation and a company’s state of internal control and risk management.
Furthermore, under Section 171(1) the reporting obligations of the auditor vis‐à‐vis the supervisory board and the audit committee, respectively, have been improved, as the auditor now has a duty to report, in particular, on the major weaknesses of the internal control and risk management system with regard to the auditing process. Those enhanced reporting obligations may raise the awareness of supervisory board and committee members as to systemic weaknesses and a company’s risk profile138, and it may make them more sensible for their supervisory obligations as to internal control and risk management. Furthermore, both the supervisory board and the audit committee now receive more and better information on the company’s accounting and auditing, and they may cooperate with the auditor more intensively.
At the same time, the auditor is required to disclose any fact that may cause doubt about her impartiality, and she has to report on any benefit she receives in addition to her regular auditing fees (Section 171(2)). These new disclosure obligations lead to a higher level of transparency as to the cooperation between the supervisory board, its audit committee and the auditor. Additionally, the new law facilitates an auditor’s independence vis‐à‐vis the management board. This is also true for Section 124(3). According to this provision, the audit committee is entitled to make a recommendation towards the supervisory board as a whole regarding the person who will be proposed towards the shareholders’ meeting to be elected as an auditor.
IV. Intermediate Result and Transition
So far, this paper demonstrated how recent legislative developments significantly improved the German supervisory board system that is characterized by both a dichotomy of the supervisory board and the management board as well as conventional German codetermination. The above reviewed amendments of the German stock corporation law and the German Corporate Governance Code addressed issues of the said dichotomy. Those changes focused on the supervisory board as a body of the stock corporation that needs information and effectual means in order to monitor the management board efficiently. Conversely, until today, every legislative attempt to address any critical point of German codetermination failed, although the weaknesses of the current codetermination regime are today more than obvious. Therefore, the subsequent passages of this paper will
See, Melcher & Mattheus (note 118), 78.
See, Withus (note 118), 83.