Good Corporate Governance in the long term

Wirecard, Dieselgate, truck and train cartel, Libor fraud or Cum-Ex - the list of scandals in the economy that the judicial system and the media are dealing with, could be continued. Whether finance or real economy or consultants, whether large or small, international or national companies - it doesn't seem to make a difference. Black sheep, so it seems, are everywhere. What relevance the principles of good corporate governance have for the economy and how important the clear positioning of companies towards outliers is, is shown by the following article: A plea for an active public positioning for a good corporate governance and more trust.

The Regulation Reflex

Just like scandals regularly emerge from enterprises, the typical reflexes of politics and the broader public are repeated. Rapidly, there is the call for increased penalties or an even stricter regulation, be it by further tightening the rules or improved surveillance. Higher penalties or stricter rules are meant to ensure that, in future, there will not be any lapses in the economy. The typical reflex also includes the fact that measures are already proposed at a time, when the causes have often not yet really been found. Thus, also in the case of Wirecard. Although the facts are nowhere near clarification, important persons are still not available, the Federal Minister of Finance submits a plan with 16 items that is supposed to prevent Wirecard II. lt is important to act for the perception. For, the proposal of an action alone gives the observer the impression that the problem is solved. All the more disappointed are the observers, when the action leads to nothing and another Wirecard occurs nonetheless.

From the Gap in Trust to Distrust of the Economy

lt is therefore no surprise when the citizens' trust in institutions, but also in the economy has remained on the lowest level - just like interest rates - over the past years. Only Corona has brought an improvement recently. This is where the crisis effect, which makes people stand together, comes into effect.

Adjusted for the Corona effect, studies like the annual international Edelman Trust Barometer show that less than half of all people still trust in governments. At the beginning of the year, the value for Germany with only 45 % was even below the global average.

Going into detail, the picture looks even gloomier. The trust gap, for instance, between the informed population and the less well-informed woman or man in the street is getting bigger and bigger. According to Edelman this "trust gap" is meanwhile 20 percentage points in Germany. A figure that makes clear that the country is on the path to losing a large part of the society.

Distrust does not only exist vis-a-vis politics, but also towards the economy and its representatives. Only journalists - with a value of 50 % - are trusted less than the CEOs, who reach a value of 51 % approval. Wealthy individuals are only trusted by 36 %. In the eyes of people, NGOs are considered to be less competent, but ethical. The economy is considered to be competent, but unethical.

Disappointment also becomes palpable, when the clear majority of 56 % says that the capitalistic economic system works against them - meaning, they do not see that the free economy creates opportunities. On the contrary, the society is subjectively not seen as being pervious; a society that is constantly being more and more divided.

With the increasing degree of distrust, the "license to operate" and thus the operating license of companies is ultimately challenged. After all, also enterprises and entrepreneurs need societal acceptance for their actions. Policies are made less and less according to the principle of making unpleasant decisions and make the case for them among voters. On the contrary, the supposed will of the people, gathered in opinion polls, is implemented. Consequently, it seems to be only a matter of time until discontent is turned into new regulation. A regulation that further restricts entrepreneurial action and ultimately brings more disappointment, as regulation rather leads to less than to more contemplation regarding one's own actions. The next undesirable developments seem to be almost preprogrammed.

Corporate Governance as the Barometer

The fact that the existing principles for good corporate governance actually do focus on the relevant points is demonstrated by the fact that for those who wanted to see it, it had been clear for years that, for instance, Volkswagen or Wirecard did have corporate governance problems. The HHL Center for Corporate Governance thus determined in its annually published report on code acceptance that these companies had shortcomings regarding their monitoring, thus the supervisory board, early on. In the case of Wirecard this was documented immediately with its entry into the DAX30. In the case of Volkswagen, too, the indication was given long before the media reported about the problems at the Wolfsburg-based group. The HHL Center for Corporate Governance bases its analysis exclusively on publicly available information that is open to all interested parties, namely the statements of compliance. In these, the companies annually state how they live the German Corporate Governance Code. The knowledge is there, however, only few people take note of it.

What to do? lnstead of working on a new, detail-related regulation, with even more checklists and individual provisions making the contemplation of one's own actions rather obsolete, as one must only tick lists, we should consider whether we actually do have a regulation deficit or rather a deficit of application.

The idea of the "Respectable Merchant", which was reintroduced into the debate by Manfred Gentz as the Chairman of the Governmental Commission German Corporate Governance years ago, is also linked to this issue. The term that seemed too old-fashioned to many in the era of digitization and was therefore rejected immediately, stands for the principle of written and unwritten laws, reflecting on what is right and wrong, but also for sanction by the society. The respectable merchants did not only have principles, they lived them as weil. And whoever broke the rules, was excluded from the group.

Repeated non-compliance of Corporate Governance principles without any reasonable grounds does not lead to public sanctioning by the peers in these parts, at least, not until the public prosecutor investigates. The lacking voice of the enterprises in cases like Wirecard or Volkswagen can, in case of doubt, be misinterpreted as a false understanding of esprit de corps. However, many companies will only follow the principles of "cobbler, stick to your last" and "everyone should put their own house in order". To this day, business leaders still have problems to publicly talk about things that do not directly concern their own business. The danger is considered to be too great that one's opinion might give offence to some stakeholder, that one becomes the object of public debate oneself.

Conclusion

lt is, however, attitude and leadership, what the woman or the man in the street expects from corporate leaders. 74 % of the persons surveyed by Edelman worldwide said that CEOs should take on the leadership of the change, not politics. A clear mandate, which goes hand in hand with the expectation that companies should show their attitude, make clear for what they stand, and do not hide their opinion. Nowadays, consumers are not so much frightened off by the fact that one has an opinion, but rather won over by it, if one wants to believe the polls. Thus, 70
% of those surveyed for the Brand Trust Barometer 2020 say that the importance of trust in a brand is more significant today. Since the first publication of the book "Start with Why: How Great Leaders lnspire Everyone to Take Action" by Paul Sinek in 2009, we know: "People don't buy what you do; they buy why you do it. And what you do simply proves what you believe". Accordingly, 64 % of those surveyed worldwide in 2020 say that they have made a decision only recently for a brand on the basis of its attitude towards social issues. And 84 % of respondents in Germany are convinced that a brand will rise in terms of reputation and acceptance, when it actively contributes, for example, to the debate on racism. Attitude generates trust. This is impressively shown by the figures. Attitude should therefore - totally in the tradition of the respectable merchant - also be shown by corporate managements, when it is about the issue of Corporate Governance. As an active part of the economic system, which lives from the population's trust, it is not only important to observe, but to publicly contribute to debates in the sense of the living, lived, modern and sustainably good Corporate Governance.