Working Life > Enterprise > Board of Directors

Supervisory Board

Definition, Explanation

Stock Corporation Act, Co-determination Act, Mining-and-Steel-Co-determination Act and the Works Constitutions Act stipulate that stock corporations (Aktiengellschaften, AG), GmbHs of 500 employees or more, partnerships limited by shares (Kommanditgesellschaften auf Aktien, KGaA) and associations must have a supervisory board.

The supervisory board consists of:

• According to the Co-determination Act the supervisory board shall consist of equal numbers of employer and employee representatives. In companies with limited liability (Gesellschaft mit beschränkter Haftung - GmbH) with more than 500 and fewer than 2000 employees, the Drittelbeteiligungsgesetz (Third Part Act) applies, dictating a third of the supervisory board members to be elected by the employees
• The supervisory board has at least 3 members. Depending on the amount of the company’s share capital, it can have up to 21 members (with a capital stock of more than 10 millions of Euros).The company statues regulate how many supervisory board members are appointed

Due to the composition of the board, co-determination takes place through the works council (Betriebsrat) and also through the supervisory board (Aufsichtsrat) in Germany.

Tasks of the supervisory board:

• Monitoring of board of management
• Scrutiny of annual accounts
• Approval of annual financial statements
• Approves the appointment of management board members for 5 years maximum with the possibility of reappointment
• Dismissal of board members
• Convening of the general meeting of shareholders
• Approval of business operations (company statues regulate which operations)

Election of the supervisory board:

• The general meeting of stock corporations (AG) or partnerships limited by shares (KGaA) elects representatives of the shareholder side to sit in the supervisory board, respectively in a GmbH the shareholders’ meeting
• The employees, executives and the labour unions elect employee representatives into the supervisory board
• The supervisory board members elect a chairman for the supervisory board. Sufficient are 2/3 of the votes in the first election round. Normally, the chairman is one of the shareholders
• The chairman of the supervisory board has 2 votes in case of an election standoff
• The supervisory board with its members is elected for 4 years

Remuneration of the supervisory board members:

• There is no legal entitlement to remuneration, but members remuneration usually receive a remuneration
• Besides receiving remuneration, some board members also have consultancy contracts. This could lead to conflicts of interests
• Any remunerations are subject to tax
• Labour union representatives pay a part of their remuneration to the labour-unions-associated Hans-Böckler-Foundationof the German Confederation of Trade Unions (Deutscher Gewerkschaftsbund, DGB)

Liability of the supervisory board of an AG:

• Board members are personally liable, as well as jointly and severally, for damage that they cause the business by acting contrary to duties
• Board members themselves have to prove that they have not acted contrary to duties (shifting of the burden of proof)
• Every board member is obliged to report violations of laws or of the company statues, and to take measures to avert those
• Board members expenses for taking out a liability insurance and legal protection insurance are paid by the company

Last update: 08/06/2010