Expert calls for easing of regulations for smaller companies

[MUNICH, Germany]—Small-to-medium-sized privately-owned companies in Germany must be released from the ever-strengthening shackles of strict corporate governance rules to help Europe's biggest economy pull itself out of its current trough, according to a leading German corporate governance expert.

Over-regulation

Dietrich Dörner, economist and tax expert and a former chairman of the board at the German operation of accountancy firm Ernst & Young, told delegates at the Deutscher Versicherungs-Schutzverband e.V. conference in Munich last week that corporate governance rules were getting out of control.

He identified a long list of rules introduced since 1998 designed to improve the way German business is managed.

The recent corporate governance explosion started in Germany in 1998 with the Law for the Control and Transparency in Companies for listed companies—the so-called KonTraG.

Most observers outside of Germany probably think that corporate governance rules in Germany stop with the KonTraG, but emphatically not so, said Mr. Dörner.

In 2002, there was the law for the further reform of balance-sheet rules for transparency and publicity; in December 2004 came the balance-sheet reform law and later that month saw the balance-sheet control law. During 2005, there were five more significant new rules introduced to try and impose stricter corporate governance controls upon German management, he said.

And then, June of this year saw the arrival of the German Corporate Governance Code, or the DCGK as it is known.

Mr. Dörner—who was until recently also the president of the Swabian chamber of commerce—said that the rules-based approach is simply not relevant for privately-owned small-to-medium-sized firms in Germany that have for so long provided the lifeblood of the economy and particularly its renewal during tough times.

Moral compass?

The former accountant said that management should be judged on their ethics, not ability to tick boxes and follow rules.

"We do not need any more law for corporate governance; we need more ethical management with self regulation of all companies. Our recent corporate governance law is necessary for listed companies, but not for others, if only because of the cost for those small-to-medium-sized firms," said Mr. Dörner.

"My thinking is that a good and successful leader or manager possesses corporate governance thinking as a result of his or her success. Listed companies need standards for shareholders and analysts, but not private companies and small-to-medium enterprises," he continued.

Mr. Dörner later said that the only way to stop the flood of new regulations at a national, European and transnational level would be if American firms and the U.S. Securities and Exchange Commission were able to make the shift from the traditional U.S. rules-based approach to a more principles-based form of regulation.