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Prof. Dr. Carl-Friedrich Leuschner, Chief Executive Officer

Cooperatives – between Corporate and Cooperative Governance. Prof. Dr. Carl-Friedrich Leuschner, Chief Executive Officer German Cooperative and Raiffeisen Confederation Second European Corporate Governance Conference Luxembourg 28 June 2005. Content.

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Prof. Dr. Carl-Friedrich Leuschner, Chief Executive Officer

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  1. Cooperatives – between Corporate and Cooperative Governance Prof. Dr. Carl-Friedrich Leuschner, Chief Executive Officer German Cooperative and Raiffeisen Confederation Second European Corporate Governance Conference Luxembourg 28 June 2005

  2. Content 1. The need for a corporate governance codefor cooperatives 2. Elements of the corporate governance codefor cooperatives 3. Further development and prospects

  3. Content 1. The need for a corporate governance codefor cooperatives 2. Elements of the corporate governance codefor cooperatives 3. Further development and prospects

  4. The need for a corporate governance code for cooperatives (1/2) Despite similarities in the character of eG (reg. co-op) and AG (stock company), there are significant differences which justify a (separate) code. facilitates the description of specific features ofthe legal and corporate form of a reg. co-op • 3 major differences: • identity principle • mandate to provide benefits to members (Förder- auftrag) pursuant to §1 para 1 of the Co-op Act • compulsory audit

  5. The need for a corporate governance code for cooperatives (2/2) The cooperative code is a voluntary offer. It sets out guidelines which focus on the specific corporate culture of cooperatives: • focus on member values • no application of the code in the form of „comply or explain“ • cooperative members are directly involved in corporate governance

  6. Content 1. The need for a corporate governance code for cooperatives 2. Elements of the corporate governance code forcooperatives 3. Further development and prospects

  7. I. Preamble • scope • cooperatives with a focus on capital markets(credit cooperatives) • other forms of cooperatives, e.g. those with a full-time board of directors and/or annual audit • member orientation of a reg. co-op

  8. II. Members and General Meeting • members are shareholders and customers at the same time • voting rules according to the principle:1 member, 1 voteproblem: multiple voting rights • „power of the purse“ of members

  9. III. Board of Directors and Supervisory Board (1/3) • position on the boards is linked to membership • attention paid to member interests • participatory rights of the supervisory board • no „hostile“ takeover of reg. co-op • extensive lending requirements

  10. III. Board of Directors and Supervisory Board (2/3) • remuneration of board members • fixed and variable amounts • individualised recordscurrent debate • stock option incentives are balanced by member status of the board of directors

  11. III. Board of Directors and Supervisory Board (3/3) • remuneration of members of the supervisory board • § 338 para 3 German Commercial Code • no remuneration by results: § 36 para 2 Co-op Act • setting-up of qualified committees • age limit for members of the board of directors: 65 years • supervisory board: no former members of the board of directors

  12. IV. Accounting and Auditing • annual financial statements and consolidated statement, if required; no obligation to submit semi-annual reports • cooperative auditing association • no transparency requirements as regards the choice of auditor • reason: statutory auditing mandate for the cooperative auditing federation responsible • rules for conflicts of interest contained in the Co-op Act if impartiality is challenged

  13. Content 1. The need for a corporate governance codefor cooperatives 2. Elements for the corporate governance codefor cooperatives 3. Further development and prospects

  14. Development • democratic legal form • older corporate governance structure than stock companies • ideal for solving our society problems: • - privatisation of public tasks • - public health • - small trade •  code for reg. co-op owing to specific differences in legal form

  15. Development at EU-Level • no European code in the pipeline, but: • draft EU-directive of 27-10-2004 to amend the 4th and 7thcompany law directives • EU recommendations • of 14-12-2004 as regards adequacy of remuneration of board of directors • of 15-02-2005 as regards the functions of supervisory board members

  16. thank you! leuschner@dgrv.de

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