Dusseldorf It is no longer just politics that is increasing the pressure on German companies to ensure more diversity in their top committees with legal requirements such as the women’s quota. Investors are also increasingly demanding this.
“We are increasingly urging German companies to be more diverse in their management bodies,” says Antje Stobbe, Head of Stewardship at Allianz Global Investors and thus responsible for voting behavior at around 200 annual general meetings in Germany and 10,000 worldwide. She adds, “We believe that companies with diverse boards deliver better results and are more innovative.”
It’s not just Allianz Global Investors that’s increasing the pressure. According to a study, German companies are generally well advised not to limit themselves to the legal minimum in their efforts to ensure diversity in the composition of top committees.
According to the “Investors for Diversity” initiative, an expert network of the Berlin School of Economics and Law (HWR), 73 percent of the 30 most influential institutional investors in the German market now have corresponding requirements for their portfolio companies. That’s a significant increase.
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In 2020, when the study, which is funded by the Federal Ministry for Family Affairs, was first drawn up, only every second investor did so. As part of the study, the investment guidelines of 30 investors were examined, which held 23 percent of the total voting rights in the Dax and MDax in 2022 and thus represent an investment volume of around 490 billion euros. In addition to Allianz Global Investors, they include JP Morgan, Vanguard and Blackrock.
Without diversity there is no new capital
The companies that do not meet the increased diversity requirements of investors risk losing access to equity or getting poorer voting results at general meetings. “The pressure has increased significantly,” says Philine Sandhu, the academic head of the supervisory board program at the HWR and co-author of the study.
A more mixed composition of the supervisory board and management board, which corresponds better to the company’s strategy and business model, would be increasingly sought. “This brings the members’ professional background and nationality more into focus,” says Sandhu.
Expert Sandhu says: The companies not only have to provide more diversity in their top management bodies, but also more transparency overall – for example with regard to their basic diversity strategy. Corporations should disclose more to what extent gender, origin, age or other diversity aspects are taken into account when recruiting new executive and supervisory boards.
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Investor pressure often anticipates what is regulated by law. The European Corporate Sustainability Reporting Directive (CSRD), which will also apply to the sustainability reports of many German companies from 2024, should bring more perspective.
As part of the study, the investment guidelines of 30 investors were examined. In addition to Allianz Global Investors, they include JP Morgan, Vanguard and Blackrock.
(Photo: Reuters)
This should not be the last regulation in this area. Federal Family Minister Lisa Paus invited numerous investor representatives to the presentation of the study. In addition to Antje Stobbe, these included Ingo Speich (Deka), Birgit Ludwig (Blackrock) and Hendrik Schmidt (DWS); also the sustainability officer of Deutsche Börse, Nicolaus Heinen, the general manager of the German Association for the Protection of Securities, Marc Tüngler, and the multiple supervisory board members Simone Menne and Janina Kugel.
They were advised to influence the companies. Sandhu recommended: “With your weight, you can further break up the still very pronounced homogeneity of the management bodies in German listed companies.” For example, by urging “to include more international perspectives and different educational backgrounds or to force the representation of ethnic minorities”.
So far, investors have often fallen short of their own targets when it comes to voting behavior. The study shows that the institutional investors examined did not use their influence for more gender diversity in 53 percent of the cases in 2022. For example, they did not vote against a male candidate, even if it went against their own guidelines, or did not use their vote.
Antje Stobbe explains: “Basically, we try in advance to use our influence for more diversity. If we are not satisfied with the composition or the progress, then we will vote against the chair of the nomination committee at the Annual General Meeting.” This is what happened most recently at the Swiss Life shareholders’ meeting. There, Allianz Global Investors voted against the re-election of a committee chair in view of gender diversity.
Simplicity in diversity: Above all, more women
The concrete requirements for gender diversity have increased many times compared to 2020. Almost half of the investors are now calling for at least 30 percent women on the supervisory board. In 2020, that applied to just five investors.
In JP Morgan’s investment guidelines, the required share is even 33 percent, and BNP Paribas has also announced a 40 percent requirement for the current year – a plan that UBS intends to follow by 2025.
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The investment guidelines only exceed the legal situation in exceptional cases. The Management Positions Act in force in Germany prescribes a gender quota of 30 percent for listed and co-determined companies on the supervisory boards. In addition, there is a minimum participation requirement of one woman on executive boards that consist of more than three members. So far there are no specifications for other groups such as foreigners, average age or education.
In addition, the diversity debate in Germany continues to be narrowed down to the gender dimension. Analysts had expected that investors would also consider other dimensions in 2022. So far, however, specific requirements, such as ethnic diversity on the supervisory board, can only be found in individual cases, such as in the guidelines of Artisan Partners. DWS writes that it “welcomes” age diversity and better representation of underrepresented minorities.
Marc Tüngler, the general manager of the German Association for the Protection of Securities, demands that board members and supervisory boards have a broad range of backgrounds, ages, training and skills.
More: “Diversity is a success factor”