The Supervisory Board of the AG in Germany
Rights, Duties, Liability of the Supervisory Board in Germany
The supervisory board is the third central body in a german stock corporation (AG), alongside the management board and the annual general meeting. As a law firm specializing in german stock corporation law, we advise and represent supervisory boards, their members as well as management boards and shareholders in all legal issues that may arise.
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Legal Expertise and Consulting Services
Our lawyers and specialist attorneys offer the following services in particular in connection with the supervisory board:
- Determination and examination of tasks and competences of the supervisory board
- Legal and strategic advice to the supervisory board on all issues concerning the management board (appointment, dismissal, management board contract, remuneration, liability)
- Legal support for the appointment and resignation of supervisory board members
- Design and review of the internal organization and rules of procedure of the supervisory board
- Advice on duties of loyalty and due diligence or conflicts of interest
- Development of general and case-specific strategies for avoiding liability and defending against or enforcing corresponding claims
- Drafting, enforcing and defending against claims for compensation by members of the supervisory board
The following is an overview of the supervisory board in Germany and important legal issues:
The Supervisory Board as an Organ of the german Company
German stock corporation law grants the management board a very large entrepreneurial scope of action in which the management board can decide and act on its own, largely free of instructions. In order to protect the financial interests of the shareholders affected by the actions of the management board, the German Stock Corporation Act (AktG) provides for the mandatory installation of a supervisory board. As the term indicates, the supervisory board serves primarily to supervise the management board. Supervision is to be understood as preventive and controlling advice to the management board, as ongoing monitoring and as enforcement of liability against the management board.
The supervisory board in Germany is generally appointed by the shareholders as part of a resolution passed by the shareholders' meeting. If the stock corporation is subject to the regulations of co-determination law, the employees also determine the composition of the supervisory board. For example, the One-Third Participation Act stipulates that in companies with more than 500 employees, one third of the supervisory board must be made up of employee representatives. If more than 2000 employees are employed, the more far-reaching provisions of the Codetermination Act apply.
Appointment of the Management Board, Management Board Contract in Germany
The supervisory board - and not the shareholders - is responsible for appointing the management board, i.e. for appointing the individual members of the management board in Germany. The supervisory board is responsible for ensuring that only professionally and personally qualified persons are appointed as members of the management board as part of a proper selection process. In accordance with its appointment competence, the supervisory board is also (solely) competent for the dismissal of members of the management board.
However, a member of the management board in Germany may only be dismissed for good cause. In addition to appointment and dismissal, the supervisory board is also responsible for concluding, amending and terminating the employment contracts of members of the management board. The supervisory board decides by resolution on the appointment and dismissal of members of the management board and on all matters relating to management board contracts.
Ongoing monitoring of the Management Board
The supervisory board in Germany is obliged to monitor the management board on an ongoing basis. This ongoing monitoring is generally carried out at the regular meetings of the supervisory board, which must be held at least once every six months, and at least twice every six months in the case of listed companies. If necessary, the supervisory board must meet more frequently.
The most important instruments of ongoing monitoring are the reports of the management board provided for by law - here mainly concerning the intended business policy, profitability, the course of business, transactions of major importance - and the right of the supervisory board to receive reports from the management board on all (other) matters of the company. The latter reports, the so-called request reports, may be requested by any individual member of the supervisory board for the attention of the supervisory board as a whole. It is significant in this context that the management board cannot refuse to provide a report with reference to any trade or business secrets. The aforementioned instruments are supplemented by the right of the supervisory board to inspect all business documents of the company and to examine them or have them examined by experts in Germany.
An important preventive monitoring instrument is the requirement of prior approval by the supervisory board for significant management measures by the management board in Germany. According to Art. 111 of the AktG, the articles of association or the supervisory board must determine which types of transactions may only be carried out with the approval of the supervisory board. If the supervisory board refuses to give its consent, the management board may demand that the shareholders' meeting resolve on such consent.
The supervisory board in Germany can also exercise a form of ongoing supervision through its authority to issue rules of procedure to the management board. In this way, the supervisory board can give the management board guidelines (a) on the manner of its activities and (b) on cooperation with the supervisory board.
Duties and liability of the Supervisory Board in Germany
Since it is not the individual members of the supervisory board but the supervisory board as a body that performs its duties, a core duty of the individual member of the supervisory board is to exercise his or her rights and duties in a collegial manner. Therefore, the individual member of the supervisory board in Germany has a particular duty to cooperate in actions. In doing so, a member of the supervisory board must act with due care, fulfill his duty of loyalty to the company and observe the duty of confidentiality incumbent upon him.
The remarks on the liability of the management board in Germany apply mutatis mutandis to the liabilityunder civil law of the members of the supervisory board. Tortious liability of the individual supervisory board member is also possible. The importance of supervisory board liability is likely to increase in the future. In particular, the focus will be on the standard of care of the "prudent and conscientious manager" and here in particular the necessary intensity of supervision.
Breaches of duty and subsequent claims for damages will be asserted primarily by the management board in Germany. If the management board fails to take action, the shareholders' meeting or (minority) shareholders can appoint a special audit, appoint a special representative or enforce the admission of a claim.
The Supervisory Board Member - Legal Status and Compensation
The individual member of the supervisory board is responsible for his or her own actions and is obliged only to safeguard the interests of the stock corporation. In particular, they are not bound by instructions or orders and cannot legally commit themselves to a specific vote. In principle, the individual members of the supervisory board have the same rights and obligations. Only the chairman of the supervisory board has a prominent position.