Dr. Andreas Rühmkorf

The interest of the company in German public limed companies: Opportunities and barriers for the promotion of sustainable development?

This paper critically discusses to what extent directors of German public limited companies (Aktiengesellschaften) can promote the goal of sustainable development. The paper thus engages with the debate about corporate theory in German company law and corporate governance which has practical effects on the decision-making process of directors. In international debates, Germany is usually referred to as a bulwark of stakeholder value and pluralism. It is usually said to be a system that is opposite to the Anglo-American system of shareholder value. And indeed, from an international perspective, German company law is an interesting model to study as it has some characteristic features which differ notably from the Anglo-American company law and corporate governance structures such as the two-tier board structure and the mandatory employee boardroom representation (co-determination).

However, the German Act on public limited companies (Aktiengesetz) is rather silent on the issue of shareholder value vs. stakeholder value. Section 76 of the Act on public limited companies stipulates that ‘The management board shall have direct responsibility for the management of the company’. It thus only notes that management board can make its decision at its own discretion. Although this section does not contain an express statement that the management board has to act in a pluralistic way, the discretion has to be oriented towards the interest of the company (Unternehmensinteresse). For long, it was widely assumed that this interest of the company is to be understood in a pluralistic way (i.e. stakeholder value), but this view has come under some pressure in recent years.

This issue is of central importance for the question to what extent directors of German public limited companies can pursue the goal of sustainable development in their decision-making process or if they have to subordinate sustainability under the interests of shareholders. The paper will revisit the issue, partly by assessing documents about the legislative process leading up to the passing of the Act in 1965 in order to determine the intention of the legislator at the time. Moreover, the paper will also look at amendments that were made to both the German Act on public limited companies and the German Corporate Governance Code in the aftermath of the Global Financial and Economic Crisis. The paper argues that whilst, at first sight, German corporate theory looks rather promising for the promotion of sustainable development, at least, by creating fewer barriers than shareholder value systems, one should be rather hesitant as to the actual opportunities that it provides.