Prof. Ingo Saenger

Disclosure and Auditing of Corporate Social Responsibility Standards
– The Impact of Directive 2014/95/EU on the German Companies Act and the German Corporate Governance Codex

Companies are obliged to provide information in many ways. German company law provides various rules that force the management either to inform voluntary or on request. Rather broad provisions apply for a partnership or a private company. By contrast the right of shareholders to information is more restricted. Sect. 131 of the German Stock Corporation Act (Aktiengesetz) states that each shareholder shall upon request be provided with information (only) at the shareholders’ meeting by the management board regarding the company’s affairs, (only) to the extent that such information is necessary to permit a proper evaluation of the relevant item on the agenda. In other word: If a topic is not on the agenda, there is no information. Despite a broad number of accounting rules and securities law, quite often of European origin, there remain subjects of both interest and importance for shareholders that are not covered. This is why the German Corporate Governance Code (GCGC) provides detailed provisions on disclosure, especially in the context of transparency (part 6) and on reporting and auditing (part 7). However Sect. 161 German Stock Corporation Act concerning the Corporate Governance Codex Declaration states a system of comply or explain. It comes as no surprise that there are no provisions about disclosure in the field of Corporate Social Responsibility (CSR). This is of importance in the own interest of the enterprise. Shareholders, investors and the public are interested whether the company is following the law and whether there exists an effective Compliance System. CSR as well provides important benefits to companies in risk management, cost savings, access to capital, customer relationships, HR management, and their ability to innovate. Understandably enough it is of importance whether social, environmental, ethical, consumer, and human rights concerns are integrated into the business strategy and operations.

Meanwhile the European Union has reacted. EU Member States shall transpose rules that are aimed also to improve CSR reporting practices into national legislation by 06.12.2016, since Directive 2014/95/EU of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups has been adopted by the EU Parliament and the Council. While the EU Commission is preparing non-binding guidelines on the methodology for reporting non-financial information by end-2016 there is time to raise the question how the European system, stating a paradigmatic change, will comply with a national system, using Germany as example – or in other words: has the soft-law approach really failed? With this said the headline could also be: “Give voluntary Corporate Governance a (last) chance!”