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Back to Global Corporate Governance Trends for 2025
Continued progress on gender balance
The number of women on supervisory boards of German blue-chip DAX-40 corporations has been increasing steeply throughout the past decade, driven by social expectations, investor and proxy demands, and regulatory pressure. Specifically, among the members representing shareholders, women increased their share from 7% in 2010 to more than 40% in 2024. While this would be in line with an expected European directive on improving gender balance among directors of listed companies, some voices are calling for gender parity. Certainly, boards are aware of the multitude of relevant considerations for board renewal (in particular regarding background, skills, contribution, and gender) and are very intent on reaching and maintaining a sensible balance.
However, a closer look at the different roles within German supervisory boards reveals a stark imbalance regarding “positions of power.” Only 20% of committee chairs are women, and women hold a mere 5% of board chair seats. Considering the importance and visibility of such roles, experts suspect this disparity will cause debate and increase the selection of women candidates for these roles.
Time for say-on-pay renewal
In 2021, new European regulations brought Germany into line with many other jurisdictions concerning board member compensation, with legislation requiring the AGM to approve management compensation systems. At the time, this caused an extensive debate on appropriate compensation schemes and how transparent they should be. The law stipulated that shareholders had to approve compensation if it was to be modified significantly or every four years. Many AGMs will thus have to (re)approve compensation schemes in 2025. Given a rather unsatisfactory market and profitability environment, it is expected that these resolutions will serve as a forum to debate management performance. Companies and boards will need to think carefully about the adequacy of their compensation schemes and prepare for intense scrutiny.
Increased complexity in the boards’ work
In the wake of global technological, political, economic, and societal trends, supervisory boards are facing significant challenges that require additional development. The environment in which German companies operate is becoming more complex, and supervisory boards must reflect these changes. Key vectors include:
Sustainable business: Even if current political developments worldwide may seem to revive past debates, there is no question that companies must address the impact of environmental and social developments on their business (and vice versa). And, in fact, most organizations are doing this. Growing shareholder, public stakeholder, and employee expectations have translated into comprehensive domestic and European regulations asking for transparency and insight-based action. While this is mostly a fundamental strategic and operational challenge, it also concerns the composition, committee formation, and operations of supervisory boards. This point is well-illustrated by the European Corporate Sustainability Reporting Directive’s requirements (starting with the annual reports for 2024) for supervisory boards to review and approve a comprehensive set of quantitative and qualitative criteria as an element of non-financial reporting. Boards will need to brace and skill up in response.
Technological developments: With the business world and society at large pondering the implications of constant and groundbreaking technological developments (like AI), German supervisory boards are deliberating the implications for their work. While the developments may create opportunities for faster, more thorough, and bespoke real-time information and analysis to serve as the foundation for the board’s oversight, it has not yet been deployed in actual board processes. For the time being, the debate centers around building adequate competencies on boards to address the opportunities and challenges.
Geopolitics: More than most countries, the German economy has focused on international trade during the past few decades. DAX-40 companies today generate more than 80% of their turnover abroad and, in turn, almost 90% of their ownership is international. As international political relations are currently strained with tariffs and sanctions looming large (and possibly soon dominating international trade), many German companies are struggling to understand and adapt—and this doesn’t even take into account shifts in global production, innovation, and consumption patterns. Against this backdrop, where only about 25% of supervisory board members come from outside DACH (Germany, Austria, Switzerland), international expertise could prove to be invaluable in navigating the above challenges.
When we explored this dimension of German board composition by interviewing more than one-third of international DAX-40 supervisory board members in 2024, we discovered this: Not only does the unique German two-tier governance system with parity employee representation and large boards deter international candidates, but there also seems to be a lack of effort on the part of German boards to open up to international members and integrate them effectively. This topic is expected to garner greater attention, especially for internationally active companies, when international trade patterns are redesigned over the coming years.