Germany

This chapter discusses the specifics of corporate governance in Germany and examines how it mitigates conflicts of interest arising from information asymmetry. The chapter contrasts shareholder and stakeholder models and highlights the characteristics of the German system. After showing how German companies are primarily financed, it describes the German capital market. It then outlines the main features of company law. A German peculiarity is the two-tier corporate governance system, the elements of which are discussed in detail. It follows a stakeholder approach, separates the Supervisory Board from the Management Board, and shows that banks play an influential role. German company law is supplemented by the principles, recommendations, and suggestions of German Corporate Governance Code, which are intended to ensure that the company is managed in its best interests. Co-determination is another characteristic of the German corporate governance system. Employee representatives on the supervisory board complement the shareholder representatives. In addition, most companies are required to set up a work council to monitor the application of rules in favor of employees. The chapter then provides an overview of the specific features of German accounting standards, such as creditor protection and the principle of prudence as overarching principles. Finally, the German audit regime is explained and special properties of auditing in Germany, such as the limited civil liability of auditors, are discussed.