CORPORATE Management board and supervisory board in a stock corporation: Separate and yet together?
Unlike Anglo-American corporate law, the continental European corporate tradition distinguishes two boards involved in corporate governance in stock corporation law. The Management Board and the Supervisory Board are two relevant bodies. And yet, both bodies fulfill very different tasks within the company. Especially in fast-moving times like these, the Supervisory Board and the Management Board must work together efficiently to achieve the best for the company, even in difficult times.
But what exactly are the tasks of the AG’s Management Board and Supervisory Board? Who has which competencies, and how can efficient cooperation succeed in the current global economic challenges?
Two-tier management structure – no dual membership
The Management Board is responsible for the active management of a company and represents the AG externally and internally. The function of the supervisory board is different: The supervisory board is a supervisory body prescribed by law for the stock corporation, which primarily monitors and controls the work of the management board – and thus the management as such.
Unlike in other legal systems – e.g., in comparison to the Board of Directors in Switzerland – German law provides for a strictly two-tier management structure. It is, therefore, logical that a person cannot be a member of the management board and the supervisory board of the same corporation simultaneously. The German Stock Corporation Act (AktG) expressly stipulates this and thus strengthens the strict separation of executive bodies’ management and supervisory functions (Section 105 AktG).
The law goes even further for group structures: legal representatives of a dependent company by Section 17 AktG (e.g. a subsidiary GmbH) cannot be a member of the supervisory board of the parent company. The structure shall avoid so-called cross-involvements when filling positions – especially within groups!
The Executive Board
The Executive Board is responsible for a company’s active management and legal representation. This task qualifies the Executive Board as the “heart, brain, and hands” of the company. Particularly in larger companies or groups, the Executive Board usually consists of several people responsible for different areas, such as finance and human resources.
And yet, these areas of responsibility are not separate from one another: Executive Board members bear joint responsibility for the company’s entire management, and Executive Board members must keep each other informed of all significant events.
The Supervisory Board
Unlike the Executive Board, the Supervisory Board is not directly involved in the company’s day-to-day management. Nevertheless, the Supervisory Board plays a crucial role in determining the company’s fortunes, partly because it has considerable influence over the Management Board. The Supervisory Board monitors and controls the Management Board (Section 111 AktG) and generally exerts considerable influence: it issues the rules of procedure for the Management Board, appoints and dismisses members of the Management Board, appoints chairs and can, among other things, stipulate that the approval of the Supervisory Board is required for certain Management Board decisions.
Together instead of alone
The Executive Board and Supervisory Board of a public limited company are two bodies of a company that are clearly separated and work separately. The law specifies this structure.
However, it seems essential that in times of massive upheaval, the basic idea of cooperation between the boards changes in quick succession. The rapid pace of digitalization, the pandemic, the Russian war of aggression, and the associated energy crisis have shown that even large companies, including their management and supervisory bodies, must be able to react quickly and flexibly.
Of course, the clear separation of areas and tasks must be maintained. And yet more and more voices are saying that in these times, it makes sense for the Executive Board and Supervisory Board to see themselves more as sparring partners to be able to meet the challenges of fast-moving times. For this to succeed, it is essential to organize the work and cooperation of the boards in the stock corporation as efficiently and flexibly as possible within the framework of the legal requirements for both boards. This method applies, for example, to the number of meetings, which can and should be increased for both the Management Board and the Supervisory Board in fast-moving times and industries. On the other hand, it is also essential to maximize the flexibility with which committee meetings are held.
