[Last updated: 1 January 2024, unless otherwise noted]

There are no corporate governance requirements for a foreign company in order to qualify to list its securities on the FSE. However, if the foreign enterprise is listed via a special listing vehicle in the form of a German AG or SE, the German Corporate Governance Code (the Code) applies, which has been drafted by a governmental commission and which is amended from time to time. The currently applicable version dates from 2022.

While compliance with the recommendations of the Code is voluntary, companies must give a declaration of adherence or must disclose which recommendations of the Code have not been (or will not be) observed, including the reasons therefor. German investors will certainly feel more comfortable if the Code is observed.

The provisions of the Code fall into three categories:

• Provisions that simply summarize German stock corporation law.
• Recommendations.
• Suggestions.

Only compliance with the recommendations must be disclosed, although, in practice, compliance with the suggestions is disclosed as well.

Since the provisions of the Code tie into specific provisions of German corporate law to enhance best practice, it would be rather complicated for a company organized under a foreign law to try to follow the Code and report compliance on a voluntary basis. In this case, it would be preferable if the company followed any corporate governance code or best practice established in its home jurisdiction.

In addition to the provisions of the Code, any foreign company listing through a German AG should familiarize itself with the numerous provisions in the German Stock Corporation Act and the Commercial Code that apply specifically only to listed companies. Within the scope of this summary, it is not possible to list them all.

Since the 2019 version, the Code no longer summarizes points of binding law, but rather states a significantly reduced set of "principles" (still reflecting material governance obligations imposed by law) complemented by recommendations and suggestions. This makes it significantly easier to identify recommendations and suggestions in the Code. Key substantive changes to the Code include amended recommendations regarding compensation of the members of the management board and a new catalogue of indicators for a lack of independence of members of the supervisory board. Moreover, the commission resolved to simplify corporate governance reporting by integrating the corporate governance report with the declaration of compliance with the Code.

The changes for 2022 include a recommendation that the company shall evaluate ecological and social risk and opportunities for the company. The corporate strategy shall state how economic, ecological and social targets shall be implemented in a balanced manner and shall include financial and sustainable goals. By the same token, the internal controls and risk management shall include sustainability aspects and the supervisory board shall monitor the ecological and social sustainability in the strategic direction of the company. Another focus area of the proposed changes are more refined rules regarding the audit committee of the supervisory board, in particular the expertise of the audit committee members.