A spotlight on Germany

Overview

As a background to the proxy season 2024 and beyond, the German economy remained stubbornly recession resistant through 2024. Conflict and post pandemic driven inflation have been checked, dropping to 2.4% in 2024 from 6% in 2023. These improving economic indicators have provided a stable backdrop for what has been a year of relative stability and consolidation in the German AGM landscape, despite the stalking horse of rising and impactful activism.

Quorum levels, though pausing their year-on-year increase, remain strong and significantly above pre - pandemic levels, signifying the impact of electronic voting and webcasting in bringing AGMs to a wider audience. The virtual meeting, though an unpopular format with some investors and retail associations because the practical application of their shareholder rights may become unusable in a virtual setting, has unquestionably increased capital participation levels, as has the inexorable increase of the phenomenon that is passive investment.

German issuers have demonstrated continued convergence towards the higher pass rates of their French and Anglo-Saxon counterparts on both remuneration items and Director elections, both of which have seen marked improvements in results in 2024. On remuneration, though the MDAX scores still lag those of its larger index, the DAX40, due to relatively lower alignment with international investor expectations, the smaller indices took a big step forward in 2024.

As explored later in this section, an area where the market’s improvement is marked is on the point of gender diversity, where Boards continue their inexorable march towards greater female representation ahead of the introduction of EU mandated gender quotas in 2026.

Activism remains a key focus in a market where lower valuation multiples, and relatively soft price to earnings ratios provide perceived opportunities for activists. While there has not been the same glut of high-profile cases like Brenntag and Bayer that were evident in 2023, the successful campaigns by both PPF and MFE at ProSiebenSat.1 Media, where both investors secured Supervisory Board seats through the medium of countermotions, is significant, especially when one considers the artificial obstacles for voting countermotions that virtual meetings create. The remarkable success of these minority investors, who applied a swarming technique, represents possibly the first occasion that multiple dissidents have been able to secure Supervisory Board seats through the countermotion mechanism, a structure which inadvertently provides a moat for issuers due to the difficulty of voting electronically on items which are not proposed directly through the Bundesanzeiger as in other jurisdictions.

Participation Trends AGM:

AGM participation rates in India remained robust, with averageattendance levels among large-cap companies increasing year-on-year. FY 2024 saw participation rates reaching approximately78.5%, compared to 77% in FY 2023. This rise is attributed togrowing retail investor interest and improved digital accessibilityfor hybrid or virtual meetings. Mid-cap and small-cap companiesalso reported improved quorum levels, supported by regulatorymandates for e-voting and webcasting.

Board Composition and Elections

Support for director elections remained high, averaging over 93% in FY2024, a slight increase from 92% in FY 2023. Key drivers include greater emphasis on board diversity and alignment with global governance standards. The percentage of women directors on boards of NIFTY 500 companies rose to 19.8% in FY 2024 from 18.6% in FY2023, reflecting efforts to comply with regulatory requirements and investor expectations. However, concerns over boarding and tenure of independent directors persisted, with notable dissent observed in specific high-profile elections.

Quorum

Average quorums across the DAX indices dipped slightly to 71.47% down from the 2023 high of 73.50%, ending four years of year-on-year increases but still remaining solidly above the 70% participation level. Average attendance remains +5.76% above pre-pandemic levels. The level demonstrates both the participatory impact of electronic voting and webcasting of meetings and the result of virtual meeting proliferation through both indices with twenty-eight of the DAX40 and twenty-one MDAX companies holding their meetings virtually in 2024.

DAX40 & MDAX Combined Quorum

Another significant contributing factor in rising quorums since the Pandemic is the ever-rising tide of passive investment which increasingly differentiates itself to its underlying customers through its engagement on governance. Though we are yet to see a significant divergence from the en bloc voting of the largest US indexers, the introduction of innovative voting measures under the ‘voting choice’ platforms of BlackRock, SSGA and Vanguard are likely to result over time in a degree of fragmentation in their vote. It remains to be seen to what level underlying beneficial owners, whether retail or institutional, will choose to exercise this option as voting choice is rolled out to an ever-greater proportion of the passive funds’ holdings.

Remuneration

Pass rates for remuneration items in Germany are trending in the right direction, signalling greater movement towards international best practice. Indeed 2024 saw the introduction by one of the DAX’s household names, Deutsche Bank, of a new remuneration policy devoid of any potential for below median relative TSR vesting, a significant move in a market where this element is a regular and much criticised feature of issuers’ remuneration system (a.k.a., remuneration policy) design.

Combined DAX40 & MDAX Remuneration

Sub-Categories 2021-2024

All categories across both indices have improved their pass rates in 2024, with remuneration reports particularly rising over 3%, attaining increased support levels each year since their introduction. The marked progress in this area demonstrates the success issuers are having in getting to grips with market expectations, and particularly those of international investors on transparency and best practice features expected since the introduction of non-binding say on pay votes in 2022.

The picture is less rosy on policy votes, which are binding and whose annual percentage growth has slowed but is now on average above 90% support. While across the combined indices these have been rising in each of the last two years, the increase in 2024 is driven entirely by the notable progress in the MDAX while the DAX40, the country’s blue-chip index, has seen a slide in pass rates for policy items of 3.62% down to 91.21%, albeit with an average still a full 2% higher than its smaller comparator.

Remuneration Policy Pass Rates by Indices

The dip is nonetheless deceptive and reflects a few poorer scoring outliers’ performance rather than an index-wide drift from best practice. Of the twenty-two DAX40 issuers who proposed a remuneration policy vote this year, eighteen attained over 92% shareholder support for their policies with an average support level of 95.49% across the top 20 issuer policies with the inclusion of Siemens (86.44%) and BASF (77.27%). The real laggards of the index were MTU Aero (56.51%) and Vonovia (40.41%), whose exercise of discretion in determining executive award outcomes, and the potential for below median peer TSR performance award vesting amongst other issues drew the average downwards.

The MDAX similarly had a significantly more impressive 93.83% policy support average once the two outliers, CTS Eventim (46.62%) and Bechtle (65.68%), are excluded from the analysis. It is clear that the vast majority of DAX issuers has risen to the expectation level set by their international investors and by the proxy advisors and are hitting the same highs as their Anglo-Saxon peers. Non-executive remuneration remains an uncontroversial and well supported topic across the market.

Board of Directors

DAX40 + MDAX BoD

Director discharge remains a well-supported item due in part to its treatment as a routine item. Director elections saw a marked jump in 2024 due to a significant increase in support secured across the MDAX with average election results 6.16% higher than 2023. This trend has been driven in part by the significantly higher number of women being elected to Boards. Since the introduction of the FüPoG II Act in 2022 demanding 30% female representation on Supervisory Boards, 5 full years after France had fully inacted the Copé-Zimmerman law requiring 40% gender diversity, Germany’s figure has been rising. Indeed, in the six months following that legislation coming into force in August 2022, 64% of new Director elections across the DAX40 were women, up from 33% in the six months prior. Catalysed by the regulatory imperative, issuers have been quick to seek to go further, reaping the benefits of increased gender diversity at Board level. They have also been looking ahead with a view to meeting the expectations of the EU law on gender balance. Set to be introduced in 2026, this legislation stipulates that companies will need to have 40% of the underrepresented sex among non-executive directors or 33% among all directors. Given that in 2023 the average percentage of women on management boards across the DAX and MDAX was 23.4% and 17.8% respectively, it appears for most that the Supervisory Board presents the most direct opportunity to meet this goal.

2024 saw more female Directors elected to DAX40 Supervisory Board than their male counterparts for the third time in four years and the average for female representation has now reached 40% with 25 companies at or above that threshold and three companies in which women members are the majority, Beiersdorf, Vonovia, and Zalando. In the MDAX though the ratio is lower, 37 of 91 Supervisory Board elections or re-elections held in 2024 across the 50 MDAX companies were of female non-executives representing 40.6% of the total. Interestingly, though female representation on boards has increased materially, only two Chairs in the DAX (5%) and a further two in the MDAX (4%) are female.

Indeed, the spread of support for director elections across the MDAX was very narrow and the outlier election, that of Christoph Lindz of Rational AG attained 75.93% support. Given the focus on gender in recent years it is no surprise that critics of his election focussed on the company’s low diversity level with only 14% female board representation, as well as the Board’s overall lack of independence.

Election results in the DAX40 actually dropped in pass rate to just under 94% in 2024, a four-year low, but close enough to results in recent years to indicate that the slight dip is powered more by shareholding fluctuations across companies’ constituent shareholder bases than by any specific downwards trend. The worst performers in elections both came from Continental AG, scoring 64.99% and 67.45% respectively principally due to their excessive tenure on the Board and the knock-on effect on overall Board and committee independence. Their poor performance was also again underpinned by diversity issues with Continental boasting only 30% female representation on the Supervisory Board, resulting in both candidates attracting further critical votes due to their proposed re-election to this predominantly male board.

Financial and organisational items

Both areas of minimal controversy, and little read across, financial and organisational items include routine topics like acceptance of dividend, auditor approval and related party transactions, and items for which there is little potential read across due to their inherent diversity, such as amendments of articles.

Organisational Items 2021-2024

Financial sub categories 2020-2024

These items typically garner significant support across the shareholder base and it is no great surprise then that their support levels remain broadly robust. It is worthy of note that following most issuers introducing virtual meeting votes in 2023 with an average score of 88.51%, there were only two such votes proposed in 2024, one from the MDAX and one from the DAX, with an average score of 87%. A deep dive analysis of the driving factors behind outcomes on these votes in 2023 indicated that the ultimate result of virtual meeting authority votes is driven more by which key investors are present in a company’s shareholder list than the structure of the item itself, with certain investors taking a staunch policy driven view on the non-equivalence of the virtual model to an in person or hybrid format.

There have been concerns around technical issues related to virtual meetings as well, with several well publicised stoppages during the 2024 AGM season. This is inevitably an issue, and investor criticism around these technical challenges and concerns regarding transparency in relation to how questions are moderated and grouped is understandable when issuers have had four years since the advent of virtual formats to get to grips with their successful execution. There remains though little appetite to adopt the hybrid format seen in other markets due to cost concerns and fears over the ability of issuers to provide equivalence of experience to those inside the room and those beaming in virtually.

Ultimately virtual meetings have become commonplace, 28 of the DAX40 held their meetings virtually in 2024. Despite the format’s critics, their introduction has coincided with a significant overall increase in quorum since Covid and they appear here to stay, albeit the precise format will continue to evolve. In the financial realm, while acceptance of financial statements and dividends remain relatively uncontroversial subjects, 2024 did see one material change in this area in the pre-emptive introduction of votes to appoint auditors to assess the incoming nonfinancial reporting requirement, coming in to force for German companies in 2025. It is difficult to forecast how issuers will deal with the significant additional reporting responsibility required in meeting the new CSRD reporting requirements, and how investors will assess the qualitative nature of their reporting. Interestingly though, in 2024 with the glut of additional auditor appointments to scrutinise these reports, the auditor pass rate average jumped from around 97% from 2020-2023 to 99.13% in 2024 signalling that the appointment of auditors for this function is being treated as an entirely uncontroversial point, at least from a voting perspective. The high pass rates potentially herald investors’ prospective generosity in assessment of the eventual reports as investors wrestle with the challenge of this new requirement.

Conclusion

Looking ahead to 2025, mandatory non-financial CSRD compliant reporting is inevitably the key focus for most issuers given the level of resources and time commitment it will require to comply with all of the necessary disclosures. This is true for IR departments, legal teams, and for supervisory boards whose audit committees will be faced with expanding their scrutiny and expertise out more widely to encompass a wider range of non-financial subjects than ever before.

It remains to be seen whether the introduction of regulation driven non-financial reporting leads to a harmonisation of standards in an area which compared to financial reporting remains heavily fractured. Investors in the short term are likely to be relatively kind in their assessment of issuer reports, and without a specific voteable item, any concerns around insufficient disclosure or failure to identify key subject areas in companies reporting is likely to attract critical votes to either the Supervisory Board chair or the chair of issuers’ audit committees.

It will be interesting to see whether over time, we see calls for a voting item on these reports like those the Swiss market proposed in 2024. If such votes are introduced, they could well become a de-facto say-on-climate vote given the relative pullback from climate specific votes across European markets in 2024 compared to 2023. It remains the case that only two Germany companies to date, Alzchem and GEA, held a voluntary say-on-climate vote, though at the time of writing it appears one DAX company, Bayer, are indicating they may hold an advisory vote on climate in 2025.

2025 is also set to mark the return of the virtual meeting vote to agendas across the market as those who proposed their items in 2023 find their authorities lapse. As detailed earlier, these meetings are here to stay and provided such authorities are not haunted by spectres of previous abuse or contingent upon egregious conditions, these items are likely to continue to receive similarly robust support levels in 2025 as they did in 2023. It is noteworthy though that virtual meetings are a topic of consideration in this year’s ISS global benchmarking survey, suggesting that there could be some change in the proxy advisors’ approach to these critical items.

On a macro level the picture looks more positive than it has for a number of years. Global uncertainty appears not to be impacting economic growth with German GDP forecast to rise 1% in 2025, recent inflationary pressure appears to be under control thanks in part to the successful diversification of energy sources. Inflation is anticipated at 2% for 2025, and national debt relative to GDP has been dropping steadily since its pandemic peak of 68.77%, though at 63.74% it remains some way off its pre pandemic low of 59.58%.

Consequently, we anticipate a renewed focus by companies on performance, and by extension shareholder return, and on aligning executive experience with that of the wider workforce. In that vein, we expect moderation of executive pensions to be a particular focus of remuneration plan designs in the year ahead.

 

¹ This content was published November 2024 in D.F. King’s General Meeting Season Review

² D.F. King is MUFG Pensions & Market Services’ specialist shareholder engagement team in the UK