9 - Stewardship and Shareholder Engagement in Germany

Summary

Corporate stewardship holds great promise for improving shareholder engagement and encouraging more responsible, long-term-oriented value creation. Many countries have now adopted a best practice code for the stewardship role of institutional investors and asset managers, but Germany has so far refused to follow the trend. This chapter explores the reasons for this reluctance, and whether adopting a Stewardship Code would make sense in the current regulatory framework. Despite the increased presence of shareholder engagement (and even activism), there are several possible reasons why lawmakers have refused to adopt a stewardship code. The author argues that the main political reason is the limited geographical reach of such a code, which would primarily apply to the (limited) domestic fund industry and would be unable to prescribe any meaningful principles to foreign-based asset managers. Still, adopting a code in the German context may make sense, for example to define expectations and clarify investee companiesʼ obligations. Most importantly, it would benefit domestic investors that are typically ‘home biased’ and thus frequently disproportionately invested in domestic funds.