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DAX 30 — RRA Supervisory Board Study 2020

 



In this unprecedented year marked by a global pandemic, Russell Reynolds Associates is celebrating the 10th anniversary of the German Supervisory Board Study. Each year we look at the supervisory boards of DAX 30 companies, analyzing trends around diversity, remuneration, experience, and for the first time this year corporate social responsibility (CSR) and sustainability.

The crises this year have shaken the German stock market and the constituents of both the DAX 30 and MDAX have been significantly impacted. Two well established DAX 30 companies, Lufthansa and Thyssenkrupp, were relegated to the MDAX. Wirecard “imploded” and was de-listed due to insolvency. This gave space for three newcomers: MTU and Deutsche Wohnen as well as Delivery Hero, a company specialising in online food delivery.

DAX 30 WAS A TUMULTUOUS YEAR AND THERE WERE SEVERAL CHANGES TO THE CONSTITUENTS OF THE DAX AND MDAX INDICES
DAX 30 WAS A TUMULTUOUS YEAR AND THERE WERE SEVERAL CHANGES TO THE CONSTITUENTS OF THE DAX AND MDAX INDICES
Source: Russell Reynolds Associates analysis, 2020

The demotion of Lufthansa and ThyssenKrupp contributed to a further decrease in the cross-linkage of DAX 30 supervisory board members. Especially newcomers such as Delivery Hero and Deutsche Wohnen were without prior connections to their DAX peers.

In 2020, the decade-long rising trend of women on supervisory boards slowed for the first time, now sitting at 32.9 percent. Moreover, we observe that there is only one female chair among the 30 supervisory boards.

For the first time this year, three quarters of DAX 30 companies can boast digital expertise on their supervisory boards (36 digital experts, of which 13 are women in 2020, compared to 8 in 2012). Despite this positive indicator, it is also evident that the trend of appointing digital non-executives to supervisory boards has somewhat slowed in 2020 in comparison to previous years.

“Purpose-oriented” management has become an increasingly critical topic and has taken particular precedent this year. However, Germany still lags behind its European peers with only four percent of DAX 30 supervisory board members having expertise in CSR or sustainability and only two percent in governance.

Every year, this survey rates the DAX 30 supervisory board landscape by various categories. In 2020, the mark has slightly deteriorated by 0.1 points in comparison to 2019 (mostly due to an adjustment in the evaluation criteria). The boards of Munich Re and Infineon scored highest on our rating system.

SHARE OF WOMEN IS STAGNATING AT 32.9 PERCENT

Two years after having reached the statutory women’s quota of 30 percent for shareholder representatives in DAX 30 supervisory boards, the percentage of women on supervisory boards has stagnated at 32.9 percent (vs. 32.2 percent in the previous year). The inclusion of female employee representatives however lifts this figure to 36.3 percent.

TWO YEARS ON FROM HAVING ACHIEVED THE 30 PERCENT QUOTA, FEWER WOMEN ARE JOINING THE DAX 30 SUPERVISORY BOARDS
Share of Women Among New DAX Joiners
Year Share of Women Among New DAX Joiners Total Share of Women Amongst Shareholder Representatives Following Annual Meetings
2010   7%
2011 50% +3.0PP
2012 37% +3.8PP
2013 34% +3.8PP
2014 34% +3.6PP
2015 39% +2.5PP
2016 46% +5.0PP
2017 41% +0.4PP
2018 33% +2.5PP
2019 23% +0.7PP
2020 35% 32.9%
Source: Russell Reynolds Associates analysis, 2020

Barring recent stagnation, the long-term trend of female representation on DAX 30 supervisory boards remains encouraging. In 2010, women represented only seven percent of DAX 30 supervisory board members. In 2020, this figure is almost four and a half times larger. The largest single-year increase - more than five percent – was seen in 2016, the first year after the “Equal Opportunities for Managers Act” came into force.

While the legally enforced quota of women has been reached, little has changed in the balance of power. Henkel’s Simone Bagel-Trah is the only woman left among 30 DAX supervisory board chairs (in the year prior there were two). Only twelve percent (13 percent in the year prior) of committee chairs are women (17 of 142). In total, nine women have joined supervisory boards this year. And for the first time in the past five years, less than half of the recently appointed female supervisory board members have gained top-executive experience at comparable companies. For the majority, experience stems from roles as consultants, specialists, managers, or politicians.

The accomplishment of female representation quota guidelines on DAX 30 supervisory boards is reason to be encouraged. However, building truly diverse and inclusive supervisory boards is more than a simple “tick-box” exercise. Female representation has increased but granting more power to women in these roles remains an area of improvement. In the USA and the UK, a broader definition of diversity – one that includes gender, ethnicity, and sexual orientation – has become an increasingly crucial element of optimal non-executive board composition. Germany has made tremendous strides in the past ten years, but significant opportunities remain to enhance the scale and scope of diversity beyond regulatory mandates and quotas.

In contrast to supervisory boards, DAX companies’ management boards still have much catching up to do regarding female representation. The number of women on management boards this year fell to 13.3 percent compared to 14.2 percent in the previous year (Merck’s designated CEO, Belén Garijo, who will assume her CEO position in 2021, has been included)

THE NUMBER OF NEW DIGITAL DIRECTORS HAS STALLED FOR THE FIRST TIME THIS YEAR

The results of our surveys suggest that the trend towards more digital expertise on DAX supervisory boards has somewhat dampened this year, following a significant increase during the previous two years. This effect might be attributable to a “critical mass” of digital expertise being attained; three-quarters of DAX companies have digital expertise on their supervisory boards; a total of 36 digital experts, of which 13 are female.

DEVELOPMENT OF THE NUMBER OF DIGITAL DIRECTORS IN DAX 30 OVER TIME
Digital Directors in DAX 30
Digital Directors
in DAX 30
2012 2013 2014 2015 2016 2017 2018 2019 2020
Men 5 9 12 12 12 13 14 21 23
Women 3 3 3 5 8 8 12 13 13
Total 8 12 15 17 20 21 26 34 36
Source: Russell Reynolds Associates analysis, 2020

BOARD REMUNERATION HAS DECREASED BY 3.25 PERCENT SINCE LAST YEAR

Supervisory board remuneration has recently fallen to its current average of EUR 185,000 per annum, a decrease of 3.25 percent compared to the previous year. The highest remuneration for supervisory board chairs is paid by Volkswagen and Deutsche Bank.

CROSS-LINKAGE OF DAX 30 SUPERVISORY BOARDS ARE FURTHER DECREASING

The extent of cross-directorships in DAX 30 supervisory boards has also decreased (down 50 percent since 2016). Only nine members of DAX 30 management boards hold supervisory board seats on the DAX 30, the lowest rate we have recorded so far. Female management board members account for a third of these nine seats, although women make up barely 13 percent of management board members in total.

DEVELOPMENT OF THE INTERCONNECTEDNESS OF DAX 30 COMPANIES
FEWER WOMEN ARE JOINING THE DAX 30 SUPERVISORY BOARDS
Connections Through Year
2016 2017 2018 2019 2020
Index 1: multiple DAX 30 supervisory board seats 72 62 53 44 36
Index 2: management plus supervisory board seat 22 14 20 17 9
Source: Russell Reynolds Associates analysis, 2020

ONLY 4 PERCENT OF BOARD MEMBERS HAVE EXPERTISE IN CSR OR SUSTAINABILITY AND 2 PERCENT IN GOVERNANCE

This years’ survey underpins that the emphasis on major issues of recent years, i.e. women’s quota, diversity, and dual roles, have receded in 2020. However, emerging trends – digital reorientation, governance, social responsibility, and corresponding” purpose-oriented” management – have surfaced. According to the results of our analysis, only four percent of current supervisory board members have obvious abilities to focus strongly on sustainability and corporate social responsibility (CSR), while only two percent can demonstrate proven expertise in monitoring corporate governance.

SHARE OF BOARD MEMBERS WITH EXPERTISE IN CSR, SUSTAINABILITY OR GOVERNANCE
Expertise Share of Board Members
CSR/Sustainability 4%
Governance 2%
Source: Russell Reynolds Associates analysis, 2020

OVERALL AVERAGE GRADE ALMOST STABLE – MUNICH RE AND INFINEON RANK HIGHEST

For ten years, our survey has been evaluating the composition of 30 DAX supervisory boards according to various criteria spanning operational experience, positions held on other boards, gender ratio, nationalities, experience abroad, age distribution, as well as tenure. Different weighing is applied which placed the highest importance to the first two criteria. In 2020, the assessment method has been amended: in line with the recently revised German Corporate Governance Codex, independence of board and audit committee chairs as an evaluation criterion has been introduced. Additionally, CEO or CFO experience on the board influences the rating positively. Applying a German school scoring system (1=best and 6=worst), the average assessment of the composition of DAX 30 supervisory boards has made considerable progress in ten years with an overall score of 2.1 compared to 2.9 in 2011. Due to the toughening of requirements, the overall average was just slightly lower than last year. Heading the ranking in 2020 is Munich Re followed by Infineon with grades of 1.3 and 1.5, respectively.

RUSSELL REYNOLDS ASSOCIATES DAX SUPERVISORY BOARD ANALYSIS:
Average grade of all DAX 30 companies over time
Average grade of all DAX 30 companies over time (applying a scoring system comparable to that used in German schools 1=best .. 6=worst)
Year Grade
2011 2.9
2012 2.7
2013 2.6
2014 2.4
2015 2.3
20161 2.4
20172 2.3
2018 2.2
2019 2.0
20203 2.1
  1. Toughening of requirements in ‘breadth of experience’ starting 2016 (+0.2 in the overall grade)
  2. Additional doubling of the weight of ’breadth of experience’ (minimal implications on average, but several changes in grades of specific boards)
  3. Assessment of “independence” for board and audit commi„ee chairman and point deduction when no CEO/CFO on the board

Russell Reynolds Associates analysis, 2011 to 2020

Conclusion

Keeping with the rest of the world, Germany is amidst a sea of change: the COVID crisis and its economic impact, renewed and increased emphasis on sustainability, the threat of climate change, and an everincreasing level of corporate scrutiny (e.g. the Wirecard scandal) have shifted boards’ focus to a new range of critical emerging topics that may shape boards’ agendas for years to come. With these environmental and contextual changes come complementary shifts in optimal supervisory board composition. Courage to set a new course, integrity, and independence as a prerequisite for effective control are just a few examples of highly sought supervisory board member competencies that we have seen frequently over the course of the year.

AUTHORS

  • JENS-THOMAS PIETRALLA leads Russell Reynolds Associates’ Board & CEO Advisory Partners in Europe and leads the firm’s Industrial & Natural Resources sector. He is based in Munich.
  • DR. THOMAS TOMKOS leads Russell Reynolds Associates’ Board & CEO Advisory Partners in Germany and the European CFO Practice. He is based in Hamburg
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DAX 30 — RRA Supervisory Board Study 2020