German Law Journal
[Vol. 11 No. 02
in order to change the corporate governance system of the Germany stock corporation fundamentally, but rather to improve more or less important details of control mechanisms that were already in place. In this regard, the reform did not only focus on the supervisory board, but also on the management board, shareholders’ meeting, and auditors. This approach was absolutely convincing, because only an improvement of every individual controlling sub‐system and of the cooperation between those sub‐systems made the corporate governance system more efficient. 17
Accordingly, the Law on Control and Transparency of Enterprises advanced the corporate risk management by requiring the management board to set up a risk management system (Section 91(2) German Stock Corporation Act18). Furthermore, the law of 1998 improved the flow of information from the management board to the supervisory board, in particular with regard to information on corporate planning (Section 90(1)). Concerning its organization, the new law obligated the supervisory board to meet more often (Section 110(3)), and to inform the shareholders’ meeting of publicly held companies with regard to which committees the supervisory board has established and how often the supervisory board and its committees have actually met (Section 171(2)). Finally, the law of 1998 improved the cooperation of the supervisory board and the auditors.
I. Risk Management System
With regard to the management board, the newly created Section 91(2) requires the management board to take appropriate action in order to detect detrimental developments as soon as possible if they may endanger the survival of the company. In particular, the management board is obligated to establish a risk management system. Background and reason for the new duty were occurrences at Metallgesellschaft AG that broke down because of incautious use of derivatives and other risk‐hazardous financial instruments.19 Under Section 91(2), risk management has become a major task of the management board. This is consistent with empirical studies stating that companies being aware of business‐related risks are run more prosperously.20
17 See, Begründung zum Regierungsentwurf eines Gesetzes zur Kontrolle und Transparenz Unternehmensbereich (Official Explanatory Statement), Bundestagsdrucksache 13/9712, 11 (1998).
18 All of the following sections are from the Aktiengesetz – AktG (German Stock Corporation Act) unless otherwise indicated.
See, e.g., MARCO ALBERS, CORPORATE GOVERNANCE IN AKTIENGESELLSCHAFTEN 276 (2002); LIEDER, (note 2), 516.
20 Thomas Kless, Beherrschung der Unternehmensrisiken: Aufgaben und Prozesse eines Risikomanagements, 36 DEUTSCHES STEUERRECHT (DSTR) 93 (1998).