Corporate Governance and Corporate Social Responsibility in Germany

Kazuyuki Shimizu


This study analysed the meaning and function of “fiduciary duty” and “deontic logic (Treuepflicht)” in the corporate governance (CG) and corporate social responsibility (CSR) systems in Germany, using Kantian’s epistemology[1]. A difference was found between logical empiricism = duty and apriori = deontology (Pflicht), especially with regard to the theory of property rights[2] and principal-agency theory[3], and also the moral hazard in financial markets. In this study four main aspects were analyzed, with particular reference to CG and CSR in Germany.

These were:

  1. the development of “corporate control and balance theory” in relation to CG theory,
  2. the development of CG in relation to CSR theory,
  3. the difference between CG and German CG (Unternehmensverfassung) also CSR and German manager social responsibilities (gesellschaftliche Verantwortung der Unternehmensführung),
  4. Moral hazard under German “universal banking” and enlightened shareholder value.

The results were as follows;

1. The “corporate control and balance theory” focuses on, ownership and share holding structure. In fact, the structure of share holdings has changed from block-holding to widespread holding, which “separated ownership from management“[4]. CG theory is focused on how to govern the powerful corporate managements in a social system. In particular reason is that Exit to Voice strategy especially of institutional investor.

2. There is different type of view point on stakeholders. In this study explore the physical relationship of each stakeholder’s entity, which is horizontal or vertical. In terms of the theory of property rights of stakeholders, the relationships between owners and labor are paratactic (horizontal) rather than subsidiary (vertical) in point of view at stakeholders.

3. German CG is a wider concept than just CG theory regarding the co-determination act “Mitbestimungsgesetz” in 1976, which gives owner and labor equal representation on the supervisory boards of all companies with more than 2,000 employees[5]. The previously mentioned two horizontally fixed stakeholders, owners and labor, could apply to the CSR system under deontic logic. Also there is a criticism of CSR under a powerful manager because they could get more authority despite of CG would govern.

4. Under the German “universal banking” system, banks can make equity investments as well as loans and vote their equity shares. In addition, the control rights of owner-banks are even further enhanced by the fact that they can vote the shares of other agents which they hold in “deontic logic” (auftragsstimmrecht), which is different from “fiduciary duty”. Moreover, their superior ability to control moral hazard suggests that, at the margin, German firms should find bank financing more attractive than capital market financing. This new type of moral hazard has produced the enlightened shareholder[6], which has developed with the emphasis on shareholders, also had more paratactic (horizontal) rather than subsidiary (vertical) in point of view at stakeholders.


[1] W.M. Evan & R.E.Freeman, “A Stakeholder Theory of Modern Corporation : Kantian Capitalism”, in Beauchamp, T.L. & Bowie, N.E., Ethical Theory and Business, 3rd ed., Englewood Chiffs, Prentice-hall, 1988, 72-103p.

[2] Demsetz, H., “Toward a Theory of Property Rights, “American Economic Review, 57(2), 1967, 347-359p

[3] Jensen, M.C. and W.H. Meckling, “Theory of the Firm : Managerial Behavior, Agency Cost and Ownership Structure”, Journal of financial economics-3,1976,:305-306p

[4] Adolph Berle, Gardiner Means, “The Modern Corporation and Private Property”, Macmillan, 1932.

[5] Carl Christan von Weizsäker, “Mitbestimmung und Shareholder Value”, der Bibliothek der Friedrich-Ebert-Stiftung, GMH 3/99, 177-184p

[6]“White Paper of the Company Law Review (CLR)”,

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