The Dual Board System and Sustainable Corporate Governance

Date: 23 March 2021

Host:

CGI Germany

Speaking on day two of the CGI’s Global Summit, Joe Kaeser, chair of the supervisory board at Siemens Energy AG, explained that cultural changes typically have a top-down approach, with bosses having unparalleled power to change the culture of a company. 

CEOs, he argued, should be encouraged to speak openly on climate issues – pointing to a study that found that nearly 90% of company employees want to hear where their bosses stand on key topical issues. CEOs in turn need boards, in order to guarantee that stakeholders are represented. Supervisory boards allow for the views and interests of employees to get a fair airing. It’s this idea that really was at the heart of this discussion: the dual board system in Germany, made up of a management committee and a supervisory board. 

The panel discussed the need for employee representatives to sit on those supervisory boards in order for them to make sustainable decisions, as they tend to have a longer-term perspective than shareholders. It was agreed that a long-term view is essential for successfully aligning business models with ambitious climate policies. 

The responsibility of ESG targets sits with every member of the management board and senior leadership team, which is why, for cultural change to happen, boards have to increase their awareness of the issues. As Kaeser went on to stress: “ESG is not a fashion, it is here to stay.”

What might these boards look like? Board Academy eV representative Katherina von Frankenberg pointed to research that suggests younger supervisory boards tend to perform 7% higher than average when it comes to ESGs. That’s why Reiner Hoffman, president of the German Trade Union Confederation, believes that employees are ‘drivers of change’, pushing companies towards a more sustainable future. Employees want to see how their companies are going to become more ethical.

Dr Simone Bagel-Trah, chair of the supervisory board at Henkel AG & Co., stressed the importance of acting on climate change now, suggesting that standardisation is required to encourage the transparent reporting of carbon emissions. She advised companies to complete their reporting themselves in order to avoid greenwashing. How we achieve a more standardised approach to sustainable reporting, however, is the next challenge on the horizon – along with building resilience in sectors most affected by the Covid-19 pandemic.