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Stock exchange in Frankfurt am Main
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DANIEL ROLAND / AFP
One thing first: the armaments lobby can take a deep breath.
Your member companies are not discriminated against by the new German stock exchange rules as feared.
At times, there was talk of excluding companies from the most important Deutsche Börse indices, more than ten percent of whose sales stem from the sale of "controversial weapons".
It's good that it didn't turn out that way.
Because such a »Lex Airbus« might have meant the expulsion of the aviation and armaments company from the MDax and sent a strange message: Investors could not have benefited from the success of a company that is one of the few examples of successful European cooperation and armaments for creates the continent that is growing together.
And it should be clear that conventional armaments - not controversial weapons such as cluster bombs or ABC weapons - are needed in an increasingly multipolar world with aggressive players.
All other reform ideas that Deutsche Börse submitted to investors and associations for consultation were accepted by them.
Some of it is so banal that one is surprised that it had to be put in writing at all.
For example, companies publish audited annual and quarterly reports and have to leave the index in the event of violations.
Or that they have to form an audit committee on the supervisory board that is supposed to monitor whether the balance sheet is clean and the risk management is correct.
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Both are a direct reaction to the Wirecard scandal, which embarrassed Germany as a business location, including its stock exchange.
However, regularly submitted balance sheets and council committees certified by auditors are no guarantee that there will be no lies or deception.
Most of the time, Wirecard reported its business figures in good time during the year or all year round, but they were obviously largely fictitious.
It would be more promising to let auditors bleed painfully in the event of misconduct.
This is of course the task of the legislature, which is not particularly professional in this regard.
Most obvious is the expansion of the German share index Dax from 30 to 40 companies in order to reflect the full range of the German economy.
This has been successful in that the Dax will in future represent a whopping 94 percent of the value of listed German companies, far more than in Japan, the USA or France.
The shrinking MDax, which includes medium-sized companies, the heart of the German economy, is suffering from this.
Shortcoming for Europe's largest economy
It is uncertain what effects the Dax expansion will have on 40 members;
the rules will only come into force in September 2021.
But the fact that 40 companies already cover almost the entire market capitalization of the country is alarming.
It becomes obvious how few German companies are on the stock exchange and how weak the capital market culture is.
This is a huge shortcoming for Europe's largest economy: there is hardly anywhere else where the financing of companies depends so little on the capital market and so much on banks as in Germany.
The result: low equity or high debt capital ratios;
a ruinous competition between the banks, who are throwing out cheap loans in the battle for market share;
the persistent distrust of German savers towards stocks, even in times of ultra-low interest rates.
The most consequential rule is that all future DAX candidates must show profits before taxes and depreciation in the last two financial reports before they are included in the index.
Not only that this rule would not have been of any use with regard to Wirecard: The collapsed financial services provider has reported huge profits every year, so it would have easily fulfilled this rule - had the auditors not fallen for his dazzling work.
Above all, this criterion represents an obstacle for companies that are new to the market, grow rapidly and are seen by investors as a hot bet on the future, for example because they have a promising business model that will dominate an industry in a few years.
The nature of such companies is to produce start-up losses.
Just like Amazon in its early years.
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Why shouldn't it be up to investors to trust their instincts and take the risk if they are convinced the bet will pay off?
This risk is an integral part of a market economy.
If the bet fails and a company cannot make a profit in the long run, it will be eliminated from the market.
Yes, it can mean painful losses for investors.
Incidentally, this also applies in the opposite case: for companies that have been in the DAX for ages, but have been making losses for years.
At Deutsche Bank, you will be happy that the two-year profit rule does not also apply to Dax oldtimers.
But a market economy does not mean automatically being insured against losses.
Even if one currently has the impression that market economy principles are not very popular in politics.
Deutsche Börse has apparently heard nothing of diversity
On the other hand, the stock exchange apparently forgot to write something else in its new set of rules: the obligation to have members of the supervisory board and management board as diverse as possible.
This is rightly what the legislature wants to prescribe with the women's quota.
However, only for companies that have more than 2000 employees.
The women's quota does not apply to those who stay below the 2000 mark.
Deutsche Börse could nonetheless have made it mandatory because there are enough companies that remain under the brand.
Fun fact: Wirecard, the trigger for the current index reform, would have been a model boy in this respect too.
The proportion of women on the executive board was 25 percent, and at times it was even 50 percent on the supervisory board.
That did not prevent the collapse either.
But there is no doubt that diversity is good for any company, right up to the top.
This is proven by extensive studies as well as our own perception.
Not only in this respect there is still room for improvement in the new index rules of Deutsche Börse.
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