BaFin analysed the minutes of supervisory body meetings, annual reports and assessments by the responsible technical supervisors, among other things. In the process, it took into account the relevant regulations, such as the Banking Act (Kreditwesengesetz – KWG), the BaFin Guidance Notice on Vetting Members of Administrative and Supervisory Bodies in accordance with the Banking Act and the Insurance Supervision Act (Merkblatt zur Kontrolle der Mitglieder von Verwaltungs- und Aufsichtsorganen gemäß KWG und VAG) and the Minimum Requirements for Risk Management (Mindestanforderungen an das Risikomanagement – MaRisk). The German Corporate Governance Code (GCGC) also played an important role. Although aimed at listed companies, it is recommended that privately held companies also apply the code.

Number and age of members

Supervisory law does not stipulate how many members a supervisory body has to have. However, it should have enough members to be able to properly perform its monitoring role. The supervisory bodies of the institutions included in the study have between 12 and 36 members, and an average of 20 members.

Similarly, there are no fixed statutory age requirements. However, some institutions have complied with the GCGC requirement and set individual upper age limits of between 63 and 72. The age of members of supervisory bodies in the institutions included in the study ranged from 52 to 60 years.

Professional background

One focus of the study was on members’ professional background. These can essentially be divided into five groups:

• Former or current management board members from the finance industry
• Former or current management board members from other industries
• Politicians and association representatives
• Employee representatives
• Other (e.g. lawyers, consultants)

One striking finding was that only 20% of the members of the supervisory bodies of the institutions included in the study were (former) management board members from the finance industry (see Figure 1). The percentage of employee representatives and politicians/association representatives was larger, at 34% and 30%, respectively. Employee representatives accounted for over 50% in some cases. The German Codetermination Act (Mitbestimmungsgesetz) stipulates that employees must make up half of the supervisory bodies of certain companies. (This applies to stock corporations (Aktiengesellschaften), German joint stock companies (Kommanditgesellschaften auf Aktien), German limited companies (Gesellschaften mit beschränkter Haftung) and cooperatives with over 2,000 employees.) The proportion of board members from other industries was also low, at 9%.

Figure 1: Professional background of supervisory body members

Professional background of supervisory body members

BaFin

* Multiple responses possible

Number of mandates

Alongside their professional background, the number of mandates held by the members of supervisory bodies also plays an important role. At most of the institutions, supervisory body members also perform other supervisory roles – up to seven mandates in some cases. Although section 36 (3) sentence 6 of the Banking Act (Kreditwesengesetz – KWG) stipulates a limit of five mandates, this only applies to companies that are supervised by BaFin. In addition, the limit does not apply to institutions that belong to the same guarantee scheme, meaning that despite the cluster of mandates, they do not violate legal requirements.

According to the GCGC, each supervisory board member must take care that he/she has sufficient time to perform his/her mandate. Members of the management board of a listed company shall not accept more than a total of three supervisory board mandates in non-group listed companies or in supervisory bodies of non-group companies which make similar requirements.

However, given the constantly growing requirements stemming from the complexity and risk associated with the banking business, it is debatable whether the members concerned can perform their duties adequately in view of the number of mandates they hold. As a result, BaFin intends to increase its dialogue with supervisory bodies. The study also revealed that some members of supervisory bodies perform this role at multiple institutions. However, no evidence of a conflict of interest was found.

Information available to supervisory bodies

Supervisory bodies require adequate information to be able to perform their monitoring role. The relevant requirements are set out in the MaRisk (AT 4.2, subsection 5) and in the guidance notice mentioned above. The MaRisk specifies that senior management has to submit comprehensible and meaningful reports on the institution’s risk situation to the supervisory body (AT 4.3.2, subsection 6). This must include an assessment of special risks to business performance and the planned countermeasures.

At most of the institutions included in the study, the supervisory body discusses both the overall (risk) strategy and multi-year planning in detail. The number of meetings held by the supervisory bodies varies widely from institution to institution, and ranged from 3 to 14 in 2011. In some cases, the meeting documents were distributed at very short notice; in others, there were only handouts on specific issues. Some members of supervisory bodies criticised this method of providing information.

In terms of content, the reports submitted by senior management at the institutions included in the study address both the risk situation and business performance. Special issues such as stress tests or restructuring measures are also included in some reports. Both qualitative and quantitative information is provided, i.e. including key figures and graphics.

However, the length of the reports varies widely. It is also noteworthy that supervisory body members receive the same reports and information as the management board at only 29% of the institutions included in the study. Members of supervisory bodies are often provided with more heavily aggregated information. AT 4.3.2, subsection 6 of the MaRisk also stipulates that “material information from a risk point of view” must be passed on to the supervisory body without delay. Nevertheless, some institutions do not have a suitable procedure for doing this, while others have an ad hoc reporting procedure in place but do not use it.

Remuneration

The GCGC recommends that remuneration reflects supervisory board members’ responsibilities and the scope of their duties, as well as the company’s financial position and performance. Remuneration should also take into account the positions of chair and deputy chair in the supervisory body, as well as the chair and membership of committees. In addition, according to the European Banking Authority, the remuneration of supervisory body members should be fixed, if possible. (Committee of European Banking Supervisors (CEBS): Guidelines on Remuneration Policies and Practices, December 2010. The CEBS is the predecessor to the European Banking Authority (EBA).)

The GCGC recommends that the remuneration of supervisory board members be reported individually in the notes to the financial statements or in the management report and that it be broken down into fixed and variable components. However, only the listed institutions follow this recommendation. A small percentage of the other institutions publish aggregated data for the entire supervisory board, with a distinction being made in terms of remuneration between supervisory board membership and committee membership. In most cases, the main salary component for these members is fixed, and is supplemented by a variable allowance for committee work. The average remuneration of supervisory body members varies from institution to institution and ranges from €11,000 to €290,000. In comparison, the total remuneration for management board members is significantly higher – six times more on average.

Summary

Institutions’ supervisory bodies play an important role, particularly in a stricter regulatory environment. Doing this properly requires supervisory and administrative bodies to be familiar with the finance industry and the challenges it faces, and have sufficient time to perform their duties. Another key factor is the information made available to the supervisory body.

Against this background, BaFin intends to intensify its contacts with supervisory bodies, as mentioned above. This will help BaFin assess how appointees are performing their supervisory role. It will also allow problems to be solved more efficiently – something that is in the interests of both the banks and BaFin.