1. Prof. Dr. Carl-Friedrich Leuschner, Chief Executive Officer German Cooperative and Raiffeisen Confederation Second European Corporate Governance Conference Luxembourg 28 June 2005 Cooperatives – between Corporate and Cooperative Governance

2. – 2 – Content 1.The need for a corporate governance code for cooperatives 2.Elements of the corporate governance code for cooperatives 3.Further development and prospects

3. – 3 – Content 1.The need for a corporate governance code for cooperatives 2.Elements of the corporate governance code for cooperatives 3.Further development and prospects

4. – 4 – The need for a corporate governance code for cooperatives (1/2) Despite similarities in the character of eG (reg. co-op) and AG (stock company), there are significant differences which justify a (separate) code. facilitates the description of specific features of the legal and corporate form of a reg. co-op 3 major differences: 1.identity principle 2.mandate to provide benefits to members (Förder- auftrag) pursuant to §1 para 1 of the Co-op Act 3.compulsory audit

5. – 5 – The need for a corporate governance code for cooperatives (2/2) The cooperative code is a voluntary offer. It sets out guidelines which focus on the specific corporate culture of cooperatives: focus on member values no application of the code in the form of „comply or explain“ cooperative members are directly involved in corporate governance

6. – 6 – Content 1.The need for a corporate governance code for cooperatives 2.Elements of the corporate governance code for cooperatives 3.Further development and prospects

7. – 7 – I. Preamble scope - cooperatives with a focus on capital markets (credit cooperatives) - other forms of cooperatives, e.g. those with a full- time board of directors and/or annual audit member orientation of a reg. co-op

8. – 8 – II. Members and General Meeting members are shareholders and customers at the same time voting rules according to the principle: 1 member, 1 vote problem: multiple voting rights „power of the purse“ of members

9. – 9 – III. Board of Directors and Supervisory Board (1/3) position on the boards is linked to membership attention paid to member interests participatory rights of the supervisory board no „hostile“ takeover of reg. co-op extensive lending requirements

10. – 10 – III. Board of Directors and Supervisory Board (2/3) remuneration of board members - fixed and variable amounts - individualised records current debate stock option incentives are balanced by member status of the board of directors

11. – 11 – III. Board of Directors and Supervisory Board (3/3) remuneration of members of the supervisory board - § 338 para 3 German Commercial Code - no remuneration by results: § 36 para 2 Co-op Act - setting-up of qualified committees age limit for members of the board of directors: 65 years supervisory board: no former members of the board of directors

12. – 12 – IV. Accounting and Auditing annual financial statements and consolidated statement, if required; no obligation to submit semi-annual reports cooperative auditing association no transparency requirements as regards the choice of auditor - reason: statutory auditing mandate for the cooperative auditing federation responsible - rules for conflicts of interest contained in the Co-op Act if impartiality is challenged

13. – 13 – Content 1.The need for a corporate governance code for cooperatives 2.Elements for the corporate governance code for cooperatives 3.Further development and prospects

14. – 14 – Development democratic legal form older corporate governance structure than stock companies ideal for solving our society problems: -privatisation of public tasks -public health -small trade  code for reg. co-op owing to specific differences in legal form

15. – 15 – no European code in the pipeline, but: draft EU-directive of 27-10-2004 to amend the 4 th and 7 th company law directives EU recommendations - of 14-12-2004 as regards adequacy of remuneration of board of directors - of 15-02-2005 as regards the functions of supervisory board members Development at EU-Level

16. thank you! leuschner@dgrv.de