Potential of corporate governance not fully exploitedAalen Management Institute (AAUF) publishes study
Aalen Management Institute (AAUF) of Aalen University aims at establishing regulatory frameworks for corporate governance through research and transfer projects. The primary focus lies on value orientation. Founded in 2017, the institute has now published the first study, which is the first volume of the study series of this topic. The study shows the increasing importance of corporate governance in German enterprises, but also stresses potentials for improvement in the structure and utilization of corporate governance instruments.
The financial crisis, cases of insolvencies, balance sheet frauds and new legal provisions concerning corporate governance have lead to a change in mindset in the German economy. The development and implementation of a framework for responsible corporate governance, which is geared towards long-term value creation, is thus relevant for enterprises. With its first study the institute examines the implementation of corporate governance in German enterprises, which instruments they apply and how satisfied they are with current measures.
Results of the research study
According to more than half of the study participants, the most important element of corporate governance is goal orientation. Functioning controlling, employee and value orientation and social responsibility are important as well. While topics like long-term orientation, IT compliance, sustainability and intensified risk management are the most important trends of corporate governance, only 20 percent of the enterprises are affected by the trends of diversity in the supervisory board and the board of directors. With 71 percent, increasingly intense competition affects enterprises most strongly, followed by changes in legal conditions (43 percent) and increasing internationalization (42 percent). However, only 55 percent of the respondents discuss corporate governance in the management board or the board of directors. The study results further indicate that utilization of corporate governance instruments and authorities is moderate. Around 60 percent of the enterprises use risk management, followed by internal control systems (ICS) and monitoring bodies, such as the supervisory or advisory board. Nonetheless, according to 57 percent of the participants, corporate governance provides additional value added and according to 65 percent, the relevance of the topic is growing strongly in the future.
Action recommendations for practice
Explicit action recommendations can be given for German enterprises. They should formalize their corporate governance structures and processes and improve incentive mechanisms. Moreover, current legal frameworks and their decision-makers should be examined, as many enterprises have insufficient knowledge in this area. The authors of the study recommend to understand corporate governance not only as a mere structural topic, but to consider strategy, structure and culture as one unit. Under these conditions corporate governance may work. Under the direction of Prof. Dr. habil. Patrick Ulrich and Prof. Dr. Ingo Scheuermann, the Aalen Management Institute will address this topic area in the future. The institute is currently conducting a study on risk management in German enterprises.