Rivista Orizzonti del Diritto CommercialeISSN 2282-667X
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Company Law and the Corporate Governance Effects of the Pandemic – The new German Law on Virtual General Meetings of Stock Corporations and the Effect of the Pandemic on the Board (di Klaus J. Hopt)

The COVID-19 pandemic had a wide array of impacts on many areas of the law, also for corporate law and corporate governance. The two most important consequences concern the virtual general meetings of companies and the challenges for the boards. While some jurisdictions allow virtual general meetings since long, for example Delaware since 2000 already, the OECD listed 45 countries that during the pandemic have authorized the holding of virtual or hybrid general meetings. In July 2022 Germany has adopted a new law on virtual general meetings which is based on the practical experiences gained during the pandemic. The permission to hold virtual general meetings is subject to eight core requirements which are codified in detail. The key issue is to guarantee the rights of the shareholders also in a virtual general meeting. Further issues are more flexibility and more powers for the general meeting and challenges of shareholder resolutions in the general meeting. The law refrains from prescribing one or the other form of the general meeting, providing instead two models: the “classic” presence meeting, which can be supplemented by electronic participation, and the virtual general meeting which must be allowed by the shareholders in the articles of association, though the board can be authorized to make an ad hoc determination. There is an experimentation clause with a time limit for the new rules. The law of July 2022 is a big step forward, but not the more fundamental reform of the general meeting that has been called for by many legal academics and practitioners. The pandemic has also brought more responsibilities for the corporate boards (the one tier as well as two tier forms which show clear signs of functional convergence), in particular as far as the risk management and compliance systems are concerned. In Germany the Wirecard crisis has led to a new law of June 2021 which strengthened the management board and the supervisory board, in particular the audit committee of the latter. In all this stakeholder capitalism in the time of COVID-19 is at issue.

Il diritto societario e gli effetti della pandemia sulla corporate governance. La nuova legge tedesca sulle assemblee virtuali di società per azioni e gli effetti della pandemia sull’organo amministrativo

La pandemia COVID-19 ha avuto un’ampia gamma di impatti su molte aree del diritto, fra queste il diritto societario e la corporate governance. Le due conseguenze più importanti riguardano le assemblee generali virtuali delle società e le sfide per i consigli di amministrazione. Mentre alcune giurisdizioni consentono le assemblee generali virtuali da molto tempo, ad esempio il Delaware già dal 2000, l’OCSE ha elencato 45 Paesi che durante la pandemia hanno autorizzato lo svolgimento di assemblee generali virtuali o ibride. Nel luglio 2022 la Germania ha adottato una nuova legge sulle assemblee generali virtuali, basata sulle esperienze pratiche acquisite durante la pandemia. L’autorizzazione a tenere assemblee generali virtuali è soggetta a otto requisiti fondamentali, codificati in dettaglio. La questione principale è garantire i diritti degli azionisti anche in un’assemblea generale virtuale. Altre questioni sono la maggiore flessibilità e i maggiori poteri dell’assemblea generale e la possibilità di impugnare le delibere adottate dagli azionisti in assemblea generale. La legge si astiene dal prescrivere l’una o l’altra forma di assemblea generale, prevedendo invece due modelli: l’assemblea “classica” in presenza, che può essere integrata dalla partecipazione elettronica, e l’assemblea generale virtuale che deve essere autorizzata dagli azionisti nello statuto, anche se il consiglio di amministrazione può essere autorizzato a fare una determinazione ad hoc. È prevista una clausola di sperimentazione con un limite temporale per le nuove regole. La legge del luglio 2022 rappresenta un grande passo in avanti, ma non la riforma fondamentale dell’assemblea generale che è stata richiesta da molti studiosi e professionisti del diritto. La pandemia ha comportato anche maggiori responsabilità per i consigli di amministrazione delle società (sia nel modello “one tier”, sia nel modello “two tier”, i quali mostrano chiari segni di convergenza funzionale), in particolare per quanto riguarda i sistemi di gestione del rischio e di compliance. In Germania la crisi di Wirecard ha portato a una nuova legge del giugno 2021 che ha rafforzato il consiglio di amministrazione e il consiglio di sorveglianza, in particolare il comitato di revisione contabile di quest’ultimo. In tutto questo è in gioco il capitalismo degli stakeholder al tempo del COVID-19.


Introduction. - I. A Virtual General Meeting of Shareholders - 2. The rights of the shareholders in a virtual general meeting. - 3. More flexibility and more powers for the general meeting. - 4. Challenges of shareholder resolutions in the general meeting. - 5. Time limit for the new rules and experimentation clause. - II. The Effects of the Pandemic on the Boards. - 2. Towards more responsibilities of the board. - 3. Stakeholder Capitalism in the Time of COVID-19? - NOTE


The COVID-19 pandemic has proven to be the most global and serious crisis since World War Two and has had a wide array of impacts on many areas of the law [1] and even more so on business, economy and society – consequences which may be much more important than the legal impact on corporations [2]. Here I need only mention the dramatic increase in disruption and inequality in society. The topic chosen for today is “Company Law and the Corporate Governance Effects of the Pandemic”. It is challenging and most timely. Presently, on 2 June 2022 the European Corporate Governance Institute (ECGI) held a conference in Oxford on “Corporations and COVID-19”, this following up on an online-workshop held earlier in summer 2021. It is part of a European Corporate Governance Institute project. In June 2021 the OECD issued a detailed report on “The Future of Corporate Governance in Capital Markets Following the COVID-19 Crisis” [3]. Its main finding is that today’s corporate governance rules and practices will need to be adapted to the post-COVID-19 reality. This amounts to five key policy messages of the OECD Corporate Governance Committee: 1) making equity markets support recovery and long-term resilience; 2) adapting the corporate governance framework; 3) improving the management of environmental, social and governance risks; 4) addressing excessive risk-taking in the non-financial corporate sector and 5) adapting the insolvency/restructuring framework for recovery and resilience [4]. As far as adapting the corporate governance framework in more specific terms, the report mentions the following challenges: – improving the quality of risk-related disclosures, including disclosure with regard to health and to supply chains and this with a focus on the increased number of company group structures [5]; – responding to the increase in ownership concentration and growing state ownership during the pandemic; – ensuring the link between executive remuneration and long-term corporate performance; – and in particular using the experience made with shareholder meetings during the COVID-19 crisis in view of necessary reforms [6]. To this list I would add the problematic trend of limiting foreign ownership along with an increasing use of anti-takeover measures and even outright protectionism [7]. It would be tempting to address and discuss each of these important [...]

I. A Virtual General Meeting of Shareholders

1. The reform of the general meeting in reaction to the pandemic: The German example. The most important impact that the pandemic has had in the area of company law and corporate governance is probably on the general meeting of public limited companies, namely the permissibility of conducting general meetings exclusively virtually even after the COVID-19 crisis has ebbed. At least this is the view in Germany, where a reform of the law on general meetings has long been called for. In February 2022, the Federal Ministry of Justice presented a draft law on the introduction of virtual general meetings for public limited companies [13] and, as already mentioned, on April 27, 2022, the Government issued a formal Governmental Draft Act on the Introduction of Virtual General Meetings in Stock Corporations which has just been finalized as new law by the Parliament on 20 July 2022 [14]. Although the virtual participation of shareholders in general meetings and the electronic exercise of shareholder rights was already permissible in the past by means of a provision in the articles of association, an exclusively virtual general meeting was not possible [15]. But since the COVID-19 pandemic had made face-to-face meetings impossible, Germany, like many other countries, passed a special law for the time of the pandemic allowing virtual general meetings for the first time [16]. As the Explanatory Memorandum of the draft stated, the practical experience gained in 2020 and 2021 with the virtual general meetings, both ordinary and extraordinary, was on the whole good. The participation rate in the meetings increased [17], and by shifting the right to ask questions to the time before the meeting – as was now allowed – the quality of the answers to share-holders’questions increased [18]. Based on this experience and in view of the increasing digitalisation of stock corporation law, virtual general meetings without the physical presence of all shareholders are now to be permitted for all stock corporations, not only for listed companies [19]. This is a drastic change for the approximately 14,000 joint-stock corporations (of which 458 are listed companies) and the 5.3 million shareholders in Germany [20]. The reactions of practitioners to the draft viz. the new law were predominantly positive [21], though shareholder associations disagreed, some of them vividly [22]. To begin with it must be conceded that a [...]

2. The rights of the shareholders in a virtual general meeting.

The core problem of the virtual general meeting is how to ensure, as far as possible, that in addition to the right to vote, the shareholder rights to comment, to speak, to ask initial as well as supplementary questions, and to object remain intact, even though they can only be exercised by way of electronic communication. It is noteworthy that in this respect the Governmental Draft Act and the new law go further than the Ministerial Draft Act as far as shareholder rights are concerned; in particular, the rights to speak, to ask supplementary questions and to ask questions concerning facts that arose after the pre-meeting question period are now possible also in the virtual general meeting. It is hardly surprising that this is applauded by shareholder associations, while business and corporate law practitioners criticise that the legislature has missed the opportunity to deregulate the general meeting according to according to the needs of practice [33]. The exercise of shareholders’ voting rights must, as already mentioned as one of the eight preconditions, be possible by means of both electronic communication (in particular electronic participation [34] or electronic postal vote, hereinafter referred to under the umbrella term of: electronic communication) as well as by proxy. A written absentee ballot by mail may additionally be offered, as is often the case in practice. The exercise of the voting right must be possible until the time of the closing of the voting by the chairman of the meeting [35]. The company must allow comments on items on the agenda [36] up to five days before the meeting by means of electronic communication. This allows the comments to be made with knowledge of the report of the board of directors or of its main content, as this must be made available seven days before the meeting [37]. The scope of the statement may be reasonably limited, for example, by a certain number of characters or, in the case of video contributions, by a specified number of minutes [38]. The submitted statements must be made available to all shareholders. Those who have submitted a statement must still register to be admitted to participate electronically and to speak [39]. The company does not have to translate statements submitted in foreign languages [40]. Shareholders who are admitted to participate electronically must be granted an opportunity to speak [41] by means of video [...]

3. More flexibility and more powers for the general meeting.

The Gesellschaftsrechtliche Vereinigung has advocated leaving it up to the companies to decide whether they want to opt for a (hybrid) presence general meeting or a purely virtual general meeting. Arguments in favour of retaining the option of face-to-face meetings include the pointed possibility of criticising management, better communication among shareholders and the possibility for other stakeholders, such as workers’ associations and NGOs, to participate as well [55]. The new law has followed suit and refrains from prescribing one or the other form of general meeting [56], providing instead two models: the “classic” presence meeting, which can be supplemented by electronic participation, and the virtual general meeting. It leaves the decision in this regard to the autonomy of the articles of association, which is to be welcomed in view of the much narrower limits in terms of the autonomy enjoyed by the articles of association in Germany [57] in international comparison. The “basic form” is still the ge-neral meeting in person, but the virtual general meeting, in favour of which the articles of association can opt, may well become the basic form of practice in the future [58]. Thus, the articles of association themselves can provide or – and this might very well become the standard in practice in the near future – can authorise the board to hold virtual general meetings in the future [59]. But here again, the new law did not follow the interesting suggestion of the Gesellschaftsrechtliche Vereinigung that groups of companies require not only a qualified majority of 75% for such amendments to the articles of association, but also a special resolution of the outside shareholders with a corresponding majority in order to protect minority shareholders [60].

4. Challenges of shareholder resolutions in the general meeting.

Current German company law provides for a very extensive right of shareholders to challenge resolutions passed by the general meeting. This applies in particular to incorrect and incomplete information provided by the board of directors. The consequences are unfortunate: individual professional shareholders have specialised in challenging general meeting resolutions on the basis of such errors or using the threat of a challenge to gain special advantages for themselves. It is true that this problem of predatory shareholders [61] has been reduced by procedural reform, but it has not been fully eliminated. Calls for a fundamental reform of the law on defective resolutions have been made for many years for example by the 72nd German Jurists’ Conference [62] and the Working Group on the Law on Defective Resolutions [63]. The Gesellschaftsrechtliche Vereinigung had proposed to combine the introduction of the virtual general meeting with such a more fundamental reform [64] also because German general meetings, which, as already mentioned, typically last four to ten hours, with their sprawling lists of questions, are dysfunctional for all shareholders, not only the foreigners who indeed tend to be the majority [65]. By contrast, the new law is limited – apart from the nullity of resolutions in the case of convocation errors [66] – to the exclusion of grounds for contestation that are specifically related to the virtual general meeting, and in this respect the new law falls back on the regulations found in the COVID-19 pandemic special laws mentioned at the outset. According to these special laws, technical malfunctions that violate the exercise of rights in the virtual general meeting, such as transmission errors and notification errors, are grounds for contestation only if intent on the part of the company can be established [67]. This was intended to prevent that companies would refrain from holding virtual general meetings during the pandemic due to concerns about excessive risks of contestation as a result of technical malfunctions. The new law adopts this approach, but with the proviso that not only intent but also gross negligence constitutes a ground for an action [68]. However, the companies may stipulate a stricter standard of culpability in their articles of association [69]. This is a convincing position as it must be ensured that the conditions prescribed by the law for virtual general [...]

5. Time limit for the new rules and experimentation clause.

The new German law, as described above, breaks new ground and has been well received – though not by all. The Deutsche Schutzvereinigung für Wertpapierbesitz (German Association for the Protection of Securities Ownership) has spoken out against the general authorisation for a virtual general meeting, fearing that it would restrict shareholders’ rights too broadly as compared to a face-to-face meeting [72]. Conversely, the new law does not go far enough for the many practitioners and academics who had pleaded for a fundamental reform [73]. In view of this, the five-year experimentation clause contained in the new law is important, as also suggested by the Gesellschaftsrechtliche Ve-reinigung [74]. Virtual general meetings may be provided for a limited period of no more than five years under the articles of association [75]. To sum up this first part of the keynote lecture: The new German law is a welcome step in the right direction, i.e. allowing virtual general meetings if the shareholders – and not the board alone – decide so or authorize the board to make an ad hoc determination. But this must be done by supplementation or amendment of the articles of association, as agreed by a 75% majority and subject to the eight conditions mentioned above. Yet this is by no means the more fundamental reform of the right of the general meeting that has been called for by many legal academics and practitioners [76].

II. The Effects of the Pandemic on the Boards.

1. The pandemic and challenges for the board: Two surveys from corporate practice. Since the beginning of the pandemic, the challenges for the boards have increased dramatically. A recent global survey of more than 800 directors and executives by McKinsey & Company revealed important structural and process changes [77]. Let me mention some of the results: The collaboration between the board and management has increased significantly. Boards have become “more flexible in their agenda setting, doubled down on strategy, focused on corporate resilience and, at the director level, committed more time to board-related work.” Boards have implemented new structures and processes. Among the structural changes, investing in technology and/or tools to enable a more digital collaboration and establishing an ad hoc crisis-management committee ranked first. Among the process changes, the list is headed by an increased frequency of interaction between the board and the management between meetings, and by increased flexibility in the board’s agenda as well as its strategy. Unsurprisingly, much less impact was reported on adjusting board composition, in particular diversity in skills, demographics and geographies. Compared with a survey in 2019, the respondents reported a clear shift in the topics on their board’s agendas. Corporate resilience moved up from 44 to 60% while the top concern, innovation and growth, fell from 77 to 70%. There was also a clear shift downwards for people – and organisation-focused topics such as the organisation’s cultural purpose, societal trends and changes, and workforce capabilities. The prediction that at least some board meetings will continue to be run remotely seems hardly surprising. A German survey confirmed many of these findings [78]. The frequency of board sessions increased. There was a greater focus on cost and risk control, cash orientation, working capital and discussion of the business model. Cooperation increased. A prevailing topic were the pros and cons of the virtual meeting. As mentioned before, the German Association for the Protection of Securities [79] was critical of a virtual meeting, yet general practitioners reported the benefits as including increased attendance and reduced travel, shorter agendas and crisper presentations, more inclusive and focused conversation, and broader exposure to key executives and experts [80]. According to another German [...]

2. Towards more responsibilities of the board.

It is clear that these new challenges result in more duties and liabilities of the board, [83] whether one tier or two tier. The need for more intense control of, and more advice for the management viz. the management board is obvious. The supervisory board, which tends to be less informed than a one-tier board, must actively enhance its base of information and, as in other crises [84], cannot rely on the information given by the management board. In Germany, the recent corporate law reform which attempted to respond to the Wirecard crisis [85] gave each member of the audit committee the right to directly contact the heads of the corporation’s control function and risk management without first asking the management board [86]. According to a growing but controversial opinion in law and practice, the supervisory board possesses a similar right to be exercised by its chairman [87]. The pandemic also brought new challenges for corporations’ risk management and compliance systems. It is obvious that the pandemic brought to light the need for dealing with and preventing health risks for the workforce and for the board. But at the same time, business risks for the corporation increased not only during the time of the crisis, but more permanently [88]. Certain business models did not work any longer or worked less effectively in the crisis; by contrast, others performed even better. The consequences of the pandemic for the location of subsidiaries and branches – and more generally for value and supply chains – were grave. Reputational risks increased dramatically. A considerable number of smaller enterprises faced serious crises and even insolvency [89]. The need for crisis management and the need to prevent insolvency (including the specific rights and duties of the board in these situations under not only corporate law, but also under insolvency law) gained new momentum [90]. Yet it must not be forgotten that in the exercise of these rights and duties, the board – not only the management but also the supervisory board – is protected by the business judgment rule [91]. This rule gives them the necessary flexibility in dealing with new challenges, and, under a number of important conditions, it exonerates them from liability. As far as the organisation of the supervisory board is concerned, the formation of a special Corona committee is possible, but this decision, of course, lies [...]

3. Stakeholder Capitalism in the Time of COVID-19?

Let me end with a short remark on stakeholder capitalism in the time of COVID-19. It may very well be assumed that the pandemic did not only hurt many shareholders, but even more so other stakeholders. This leads to the question whether the COVID-19 crisis also had an effect on stakeholder capitalism. “Stakeholder Capitalism in the Time of COVID” is indeed the title of a recent article by Lucian Bebchuk and others [97]. They found that American corporate leaders served the interest of stakeholders only as far as necessary to increase shareholder value [98]. Their article is of course meant as a contribution to the raging debate on the purpose of the corporation and greater orientation towards the stakeholders of the corporation. The controversial recent Draft Directive of the European Commission on sustainability, human rights, environment and value chains is one answer to this [99]. While I think that this Directive is a step in the right directions, it is open to criticism, I do not see that the pandemic has had or should have a direct effect on this specific instrument [100]. But I remind you of what I said right at the beginning when mentioning the OECD report. The pandemic has certainly helped to generate a much greater consciousness of the acute reforms needed for a sustainable recovery of the corporate sector. We should do our best to support these reform efforts in our own professional areas.