Till recently, the influence and contribution of various factors, including an effective corporate governance system through two-tier boards, have enabled the German industry to prosper. Despite being one of the strongest economic nations in the world, the stock market in Germany has not developed when compared to other developed nations. On the contrary, the banks hold the key to economic progress and dominate the German corporate institutions. Today, the corporate governance system in Germany is under severe strain due to recession, coupled with increased social overheads and huge labor costs on the one hand and global competition on the other. In this article, the author explains the present governance system, prescribes certain changes in regulatory measures and outlines the emerging changes towards a revised system of corporate governance in Germany. The author strongly believes that the governance system in Germany is capable of overcoming `pressures' by its inbuilt resilience, fundamentally strong dynamism and well-practiced accountability.

Germany is no exception to the philosophy of maintaining good industrial relations for the long-term wellbeing of a company and all its employees. It has a simple union structure built after the second world war, based on industry. The consultative arrangements operate harmoniously through works councils, which are represented by members of unions. Councils negotiate agreements with their employers. If the conciliation procedure fails, a committee headed by a neutral chairman makes the settlement binding. Generally, big companies provide one or two members of the works council to sit on the board.

Before we discuss about the structure of the German board, it will be prudent to discuss the types of companies and their numbers. Apart from various types of business ranging from partnerships to PLCs, most of the German industry is represented by two types of incorporated companies, viz.:

Besides, there are some hybrid companies, ones with unlimited partnerships and nationalized industries. As per the 1991 statistics, only 665 AGs out of 2806 are quoted in the secondary market, accounting for only DM 12 bn out of the DM 600 bn market capitalization. A large number of companies are under the control of unquoted AGs and GmbHs. On the other hand, small businesses (having less than 500 employees or a turnover less than DM 100 mn) are family owned, accounting for 2/3rd of the workforce and producing 1/2 of the GNP. There are about 4,50,000 private limited liability companies. Some of the renowned big quoted AGs in Germany are: Siemens, Daimler Benz, Volkswagon, etc.