A Comprehensive Data Set on German Supervisory Boards

Bermig, Andreas Article A Comprehensive Data Set on German Supervisory Boards Schmollers Jahrbuch – Journal of Applied Social Science Studies. Zeitschrift für Wirtschaftsund Sozialwissenschaften Provided in Cooperation with: Duncker & Humblot, Berlin Suggested Citation: Bermig, Andreas (2011) : A Comprehensive Data Set on German Supervisory Boards, Schmollers Jahrbuch – Journal of Applied Social Science Studies. Zeitschrift für Wirtschaftsund Sozialwissenschaften, ISSN 1865-5742, Duncker & Humblot, Berlin, Vol. 131, Iss. 1, pp. 195-205, https://doi.org/10.3790/schm.131.1.195 This Version is available at: https://hdl.handle.net/10419/292326 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ European Data Watch This section offers descriptions as well as discussions of data sources that are of interest to social scientists engaged in empirical research or teaching courses that include empirical investigations performed by students. The purpose is to describe the information in the data source, to give examples of questions tackled with the data and to tell how to access the data for research and teaching. We focus on data from German speaking countries that allow international comparative research. While most of the data are at the micro level (individuals, households, or firms), more aggregate data and meta data (for regions, industries, or nations) are included as well. Suggestions for data sources to be described in future columns (or comments on past columns) should be send to: Joachim Wagner, Leuphana University of Lueneburg, Institute of Economics, Campus 4.210, 21332 Lueneburg, Germany, or e-mailed to h[email protected]i. Past “European Data Watch”articles can be downloaded free of charge from the homepage of the German Council for Social and Economic Data (RatSWD) at: http://www. ratswd.de. A Comprehensive Data Set on German Supervisory Boards By Andreas Bermig* 1. Introduction Corporate governance is prevalent in public policy discussion in Germany. Major German newspapers currently publish numerous articles per week on corporate governance. With regards to the supervisory board, topics of discussion mainly consider transition of supervisory boards to a more professional Schmollers Jahrbuch 131 (2011), 195 –205 Duncker & Humblot, Berlin Schmollers Jahrbuch 131 (2011) 1 *The following article reports results from a research project entitled “Corporate Governance, Codetermination and Firm Performance: Share Price Reactions to Changes in the Composition of Supervisory Boards in German Companies“generously financed by the Hans Boeckler Foundation, Duesseldorf. The views expressed in this paper are those of the author and should not be attributed to the financing institution or its representatives. The usual disclaimer applies. OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.131.1.195 | Generated on 2023-01-16 13:36:14 body that is more capable to diligently cater supervisory and consulting needs, especially in the wake of the current economic crisis. Thus, topics as the size of the board and its composition are a focus of the public policy debate. Board composition is one of the major concerns of the German corporate governance code commission; the most recent version of the German corporate governance code (German Governance Code, 2009) has several additions that demand diversity, sufficient knowledge and an age cap, which is to be set by the respective firm. Furthermore, it limits the number of additional board memberships to three and sets limitations to impede the change of managing board members to the supervisory board. The discussion of board size has been a heated one in the political arena: since the introduction of the European stock corporation in Germany in 2004, which allows companies to adopt the above mentioned legal form to set the size of their board according to their statutes. This enabled, for example, the largest German insurer Allianz to reduce their board from 20 to 10 members. During the election campaign for the German parliament in 2009 the German Liberal Party (FPD) even postulated a reduced board size of all corporations to 12 members (FDP Parteiprogramm, 2009) along with the Federation of German Industries (as the BDI president Michael Rogowski expressed: “Supervisory boards which are equally composed of employee and shareholder representatives with up to 20 members are fairly ineffective“, Stern, 21. December 2004). Given the high attention of corporate governance regarding to supervisory boards in the public policy discussion for the past couple of years, it is surprising that the academic research concentrating on board size and board composition has just recently picked up in the German market. To enhance current research in this area I compiled a comprehensive dataset, which provides detailed information on supervisory boards of the largest German listed companies. 2. Dataset 2.1 Description Previously used data sets on German supervisory boards mainly were crosssectional not allowing to control for any changes over time (e.g., Fauver / Fuerst, 2006; Gorton/Schmid, 2004). To enhance this shortcoming, the data set collected is a time series and includes all publicly listed German companies that were listed for at least one year in one of the three main German indices –DAX, MDAX, or SDAX which are constituted of the German public companies with the largest market capitalization –during the period 1998 –2007. Only those companies with at least two years of available data were included in the database. As I was not able to obtain annual reports for one or more years for seven companies, the initial sample consists of 2,476 observations from 306 companies. 196 Andreas Bermig Schmollers Jahrbuch 131 (2011) 1 OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.131.1.195 | Generated on 2023-01-16 13:36:14 The data set consists of all names, job title, PhD titles, an indication if the member is chairman, vice chairman, employee representative, union representative, works council representative, bank representative, former managing board member, female, auditor, lawyer. Furthermore, I collected information on the number of outside board memberships in the respective year1for each member and noted which union type and organization a union representative belonged to. All this data was consolidated on a firm and year level and then used as the basis for my research. In my various research efforts based on this data set I enhanced it by variables used as dependent and further explanatory variables such as firm performance (based on both stock market and accounting measures) and numerous accounting measures and further firm characteristics. Table 1 provides an overview and a description of the main variables used. 2.2 Sources All data on supervisory board composition was hand-collected from annual reports of the respective firms. Reports not available from the company's website were obtained from the investor relations department, the annual report database of the Schutzgemeinschaft der Kapitalanleger e. V. as well as various archives in Germany (Archive of the Bavarian Chambers of Commerce, Archive of the University of Bremen, Archive of the University of Cologne). Finally, if no reports were available, data for supervisory board composition was assembled using the Hoppenstedt Jahrbuch der Großunternehmen. Measures of accounting performance as well as business and geographic segment data were obtained from Thomson Reuters Worldscope. Accounting data that was missing in Worldscope was taken from the companies’annual reports. The data on market capitalization comes from Datastream. Finally, I added information on specific company events (restructurings, mergers & acquisitions) following an extensive press search. 2.3 Descriptive Statistics The supervisory boards of the largest German listed companies are subject to quite significant changes during the time period of my observation from 1998 to 2007. Especially with the introduction of the German corporate governance code in 2002 and with changes in taxation in 2002, which allowed banks to divest their equity holdings without paying taxes on capital gains, the structure and composition of German supervisory boards changed. Another big change was the introduction of the European stock corporation (Societas Europaea) in 2004. A Comprehensive Data Set on German Supervisory Boards 197 Schmollers Jahrbuch 131 (2011) 1 1Both measured within the database, i.e., for all DAX, MDAX, SDAX companies, as well as further memberships as provided in the annual reports OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.131.1.195 | Generated on 2023-01-16 13:36:14 198 Andreas Bermig Schmollers Jahrbuch 131 (2011) 1 Table 1 Description of main variables Variable Name Definition n Source Tobin's Q tobin_q (Market capitalization + total assets –shareholder's equity) / total assets 2382 Worldscope / own calculation Supervisory board size size Size of supervisory board 2382 Annual reports Share of union representatives union_rep Share of union representatives of total board members 2382 Annual reports Share of works council representatives woco_rep Share of works council representatives of total board members 2382 Annual reports Share of independent employee representatives ind_rep Share of independent employee representatives of total board members 2382 Annual reports Share of bank representatives bank_rep Share of bank representatives of total board members 2382 Annual reports Share of former board members former_bm Share of former managing board members of total board members 2382 Annual reports Supervisory experience experience Cumulated number of further supervisory board memberships of all members in listed German companies (DAX, MDAX, SDAX) in respective year 2382 Annual reports Total assets log_asset Logarithm of total assets 2382 Worldscope Sales sales Net sales 2382 Worldscope Industrial diversification ind_diversified Dummy variable, equals 1 if max. 90% of total sales are from one SIC-segment 2382 Worldscope / own calculation Geographical diversification geo_diversified Dummy variable, equals 1 if max. 90% of total sales are from one geographic segment (as defined by Worldscope) 2382 Worldscope / own calculation Competitive intensity herfindahl Sales-based Herfindahl-index based on 2-digit SIC industry-codes 2382 Worldscope / own calculation Blockholders with >25 % holdings block_25 Dummy variable, equals 1 if the cumulated share of blockholders (shareholders with >5% holdings) is larger than 25% 2382 Worldscope Blockholders with >50% holdings block_50 Dummy variable, equals 1 if the cumulated share of blockholders (shareholders with >% holdings) is larger than 50% 2382 Worldscope Blockholders with >75% holdings block_75 Dummy variable, equals 1 if the cumulated share of blockholders (shareholders with 5% holdings) is larger than 75% 2382 Worldscope Financial leverage leverage (Short term debt + long term debt) / total assets 2382 Worldscope / own calculation Investments / capital expenditures capex_sales Capital expenditures divided by net sales 2382 Worldscope Operating margin operating_margin Operating net income divided by net sales 2382 Worldscope Restructuring restruct Dummy variable, equals 1 if the company is in a restructuring phase 2382 Press search Mergers and acquisitions m_and_a Dummy variable, equals 1 if the company is being taken over 2382 Press search OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.131.1.195 | Generated on 2023-01-16 13:36:14 These changes in the institutional landscape also had an effect on the size and composition of the supervisory boards: as figure 1 shows, the average board size has declined from 10.7 members in 1998 to 9.5 members in 2007. This does not hold for the 156 firms, which are represented for ten years in my data set; the average board size first increases from 10.5 in 1998 to 11.0 in 2002 and then decreases again to 10.6 in 2007 –much likely due to the institutional changes in Germany. Source: Annual reports Figure 1: Development of average board members A similar effect is visible when considering the share of employee representatives as the average share of total board members declines from 34% in 1998 to 28% in 2007. Once again, the same does not hold for the 10-year firms as the share of employee representatives is about stable at 34% (with a peak of 36% in 2002). The development of smaller boards with less employee representatives is also apparent, when considering the share of union representatives, which is also declining from an average of 7.8% in 1998 to 6.4% in 2007. One central postulation of the German corporate governance code (German Corporate Governance Code, 2009) was to limit the influence of former managing board members which usually moved up to the supervisory board after their term in the management board had ended. To provide a more independent view and to weaken “old boys“networks, the code suggests that “Management Board members may not become members of the Supervisory Board of the A Comprehensive Data Set on German Supervisory Boards 199 Schmollers Jahrbuch 131 (2011) 1 8.5 9.0 9.5 10.0 10.5 11.0 11.5 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Number of board members Average board size (all firms) Average board size (10-year firms) OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.131.1.195 | Generated on 2023-01-16 13:36:14 company within two years after the end of their appointment unless they are appointed upon a motion presented by shareholders holding more than 25% of the voting rights in the company“(German Corporate Governance Code, 2009, 10). The reality shows a different picture though: the share of former managing board members has risen for both all firms as well as the 10-year firms. While it increased from 3.5% to 3.9% for all firms, it rose even more for the 10-year firms from 3.6% to 4.6%. One area where the institutional changes are very obvious, is the share of bank representatives; the share declined for both all firms in the sample as well as for all 10-year firms. The share for all firms decreased from 7.8% in 1998 to 5.6% in 2007. While share of female board members in German supervisory boards has increased as well (from 7.2% to 8.0% for all firms), it still lags behind the international average, and is about average in Europe. It remains to be seen if the recent change to the German corporate governance code (in the latest version of June 2009 the code now includes that “attention shall also be paid to […] diversity“) will cause more significant changes to the share of female directors. Another area where the German corporate governance code has been effective is the number of outside supervisory board mandates. The code suggests that “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“(German Corporate Governance Code, 2009, 10). The actual number of outside supervisory board memberships has decreased from 5.6 to 3.0 for all firms in the dataset (the average has decreased from 5.5 to 3.6 for all 10year firms). All of the above mentioned characteristics of German supervisory boards are again summarized in Table 2. One further advantage of this dataset is that I observe firms over an extended period of time (up to ten years). During this time period many of the firms have experienced changes in the characteristics relevant to employee representation and board size, i.e., either increased or decreased the number of employees around the different legal threshold levels (see Tables 3 and 4). This considerable number of companies changing their “codetermination status”allows to use fixed-effects regressions to control for unobserved heterogeneity when using this data set. 200 Andreas Bermig Schmollers Jahrbuch 131 (2011) 1 OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.131.1.195 | Generated on 2023-01-16 13:36:14 A Comprehensive Data Set on German Supervisory Boards 201 Schmollers Jahrbuch 131 (2011) 1 Table 2 Composition of German supervisory boards 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Average board size All firms 10.7 10.2 9.7 9.9 10.1 9.8 9.9 9.7 9.6 9.5 10-year firms 10.5 10.8 10.8 10.8 11.0 10.8 10.9 10.9 10.8 10.6 Share of employee representatives All firms 34% 32% 30% 30% 30% 29% 30% 29% 28% 28% 10-year firms 34% 35% 35% 35% 36% 35% 35% 35% 34% 34% Share of union representatives All firms 8% 7% 7% 7% 7% 7% 7% 7% 7% 6% 10-year firms 8% 8% 8% 8% 9% 8% 8% 8% 8% 8% Share of former managing board members All firms 3.5% 3.6% 3.6% 3.7% 4.2% 4.4% 3.9% 3.8% 3.5% 3.9% 10-year firms 3.6% 4.0% 3.8% 3.6% 4.3% 4.6% 4.5% 4.6% 4.3% 4.6% Share of bank representatives All firms 7.2% 7.0% 6.7% 7.1% 7.3% 7.9% 8.2% 8.4% 8.0% 8.0% 10-year firms 8% 8% 8% 8% 9% 9% 9% 10% 9% 9% Share of female board directors All firms 33.6% 31.0% 31.3% 31.3% 31.1% 31.3% 31.8% 32.2% 32.8% 31.9% 10-year firms 35% 34% 35% 35% 33% 33% 32% 32% 32% 31% Number of outside board memberships All firms 5.6 5.5 4.2 4.1 4.0 3.8 4.1 3.8 3.4 3.0 10-year firms 5.5 6.3 5.6 5.4 5.2 4.9 5.1 4.8 4.2 3.6 Share of board members with PhDs All firms 7.8% 8.4% 7.8% 7.4% 7.1% 6.6% 5.5% 5.4% 5.7% 5.6% 10-year firms 8% 8% 7% 7% 6% 6% 5% 5% 5% 5% Observations 208 249 273 272 260 249 239 241 246 239 OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.131.1.195 | Generated on 2023-01-16 13:36:14 Table 3 Descriptive statistics on changes in the number of employees, size of supervisory board, and employee representation Type of change # companies Change in number of employees from … less than 500 to more than 500 24 less than 500 to more than 2,000 1 less than 2,000 to more than 2,000 34 more than 2,000 to less than 2,000 23 more than 2,000 to less than 500 2 more than 500 to less than 500 11 Total 95 Change in size of supervisory board Increase in size 56 Decrease in size 47 Total 103 Change in employee representation from … no representation to one-third representation 3 one-third representation to no representation 3 no representation to one-half representation 7 one-half representation to no representation 3 one-third representation to one-half representation 9 one-half representation to one-third representation 12 Total 37 Note: Table 3 provides descriptive statistics on changes in the number of employees, size of supervisory board, and employee representation for a sample consisting of all German firms listed in the DAX, MDAX, or SDAX for the years 1998 to 2007. Foreign companies, companies from financial industries and KGaAs were excluded from this analysis. The board size and composition data is obtained from annual reports, data on the number of employees is obtained from Datastream. Number of employees is total number of employees, thus including both domestic and international employees. Domestic employees though is the only relevant number for laws requiring a certain size and composition of the board; therefore, we expect more companies with changes to employee representation. Thresholds for size and employee representation are below 500, between 500 and 2,000, and above 2,000 employees. 202 Andreas Bermig Schmollers Jahrbuch 131 (2011) 1 OPEN ACCESS | Licensed under | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.131.1.195 | Generated on 2023-01-16 13:36:14