Initially somewhat overlooked, the amendments to the German Banking Act (Kreditwesengesetz or KWG) considerably upped the requirements for evaluating governance bodies at credit institutions as of January 2014. One option for complying with the regulations is a regular, systematic self-evaluation of the work of the supervisory board, carried out by the nomination committee.
In the past, such controls were voluntary under the German Corporate Governance Index for all companies listed on the stock exchange. However, the amendments to the Banking Act made them mandatory for all credit institutions from January 2014. For self-evaluation, supervisory boards are now required to regularly carry out the following tasks at least once a year:
- An evaluation of the structure, size, composition, and performance of the supervisory boards (§ 25 d (11) 3 KWG),
- An evaluation of the knowledge, skills, and experience of the individual supervisory board members and the supervisory board as a whole (§ 25 d (11) 4 KWG).
This evaluation critically assesses the function and performance of the tasks of the supervisory board as well as compliance with the institution's own rules, including its rules of procedure and statutes. In addition, it should reveal any potential for improvement.
The evaluation should consider the following areas in particular:
- The organization of the supervisory board and its committees, its meetings, and the long-term analysis of decisions by the supervisory boardThe flow of information between the management board and the supervisory board, and between the chairman/committees of the supervisory board and other supervisory board members.
- Personnel requirements and the selection processes for members of the supervisory and management boards, and how the supervisory board members see their role.
- Assessment of the control and monitoring function of the governance bodies and how strategic developments are reflected.
The self-evaluation should also reflect other rules and recommendations under the Banking Act, the minimum requirements for risk management (MaRisk), the EBA guidelines on internal governance (GL 44) and the leaflets published by the German Financial Supervisory Authority (BaFin) on checking the members of management and supervisory bodies and managers under the Banking and Insurance Supervision Acts.
In cooperation with the European Center for Board Efficiency, hkp/// group has developed a standard questionnaire-based evaluation form for checking that the regulatory requirements for the supervisory board's work and structure are being met, and at the same time monitoring the best-practice requirements for its work and activity.
hkp/// can support banks through the entire supervisory board evaluation process, from the initial coordination with selected individuals, distributing the questionnaire, analyzing the results, drawing up the final report, facilitating discussion rounds, and sending out relevant documentation, to presenting the main results to the supervisory body.
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