1. Corporate Governance and Directors’ Remuneration: A German Perspektive
Prof. Dr. Christine Windbichler, LL.M. (Berkeley)
Humboldt-Universität zu Berlin

2. Two-Tier Board System Managing Board Supervisory Board
Shareholders’ Meeting
- shareholders‘ meeting selects members of supervisory board (term: 4 years, removal anytime but supermajority required)
- supervisory board appoints managing board (term: maximum 5 years, removal only for cause [wichtiger Grund])
result: change of majority ownership not immediately transformed into change of management
powers and tasks: managing board manages the corporation in its own responsibility and discretion to the best interest of the corporation; has original & supreme authority to bind corporation in contract
supervisory board is excluded from day-to day management and restricted to general policy matters; represents corp. only for contracting/litigation with members of managing board, contract with auditors
this basic structure is mandatory, i.e. cannot be changed by articles of incorporation
facts: co-optation of members of both boards, dominating influence of blockholders
Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin

3. 1 Member in Charge of Human Resources
Co-Determination Law 1976
Managing Board
1 Member in Charge of Human Resources
10 Shareholders‘ Representatives
10 Employees‘ Representatives
Shareholders‘ Meeting
Employees
Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin

4. 1 Member in Charge of Human Resources
Managing Board
1 Member in Charge of Human Resources
10 Shareholders‘ Representatives
10 Employees‘ Representatives
Is the supervisory board still the board of the (parent) corporation or is it a structural element of the group?
Equivalent on shareholders‘ side?
Shareholders‘ meeting of parent
Employees of domestic group
Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin

5. Supervisory Board: Committee Structure
Committee prescribed by law: § 27 III MitbestG: nominating and compensation committee
Audit committee (prescribed by Sarbanes Oxley Act, recommended by GCGK, recognized by §§ 170 III 2, 171 I 2 AktG)
Other committees, § 107 III 2 AktG
- Composition of committees ? -
Composition proportional to board composition? Including tie-breaking mechanism?
Decided cases: no fixed rule, but spirit of co-determination law has to be honored, i.e. for issues of no interest to employees, committee may consist only of shareholders‘ representatives; just one may be enough;
How did theses cases come into courts? Change of articles of incorporation to form mandatory committee structure – challenge of shareholders‘ resolution - rules
Board organisation by majotiy vote: challenge?
Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin

6. Building Blocks Board of Directors Shareholders’ Meeting
Officers Management
Audit Committee
“Statutory Auditors”
Nomination Committee
Compensation Committee
Shareholders’ Meeting
Outside Accounting Auditors
Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin

7. Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin
M.J. Roe, Political Determinants of Corporate Governance
Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin

8. Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin
M.J. Roe, Political Determinants of Corporate Governance
Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin

9. Supervisory Board: Committee Structure
Committee prescribed by law: § 27 III MitbestG: nominating and compensation committee
Audit committee (prescribed by Sarbanes Oxley Act, recommended by GCGK, recognized by §§ 170 III 2, 171 I 2 AktG)
Other committees, § 107 III 2 AktG
- Composition of committees ? -
Composition proportional to board composition? Including tie-breaking mechanism?
Decided cases: no fixed rule, but spirit of co-determination law has to be honored, i.e. for issues of no interest to employees, committee may consist only of shareholders‘ representatives; just one may be enough;
How did theses cases come into courts? Change of articles of incorporation to form mandatory committee structure – challenge of shareholders‘ resolution - rules
Board organisation by majotiy vote: challenge?
Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin

10. 1 Member in Charge of Human Resources
Co-Determination Law 1976
Managing Board
1 Member in Charge of Human Resources
10 Shareholders‘ Representatives
10 Employees‘ Representatives
Shareholders‘ Meeting
Employees
Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin

11. Employees‘ Representatives
7 Employees including 1 with managerial tasks
3 Union Representa-tives
Mandatory
§ 7 I # 3: large corporations with over employees
note: union representatives are nominated by unions that have members in the corp‘s workforce but elected by workforce, i.e. they represent the workforce not the union
they don‘t have to be employees of the corp., therfore called „external“ members
reason: workforce shall have the opportunity to tap into external expertise (cf.: financial literacy); „democracy“ may lead to trusted but not to qualified representatives
practical result: union nominees are union leaders and represent union views
managerial personnel, executive officers are employees, too (i.e. not members of the managing board); they do not fall within the competence of works councils, have their own (voluntary) council, at DaimlerChrysler: Management Representative Committee
however, electorate is the whole workforce
Unions: Nomination
Employees
Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin

12. Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin
Managing Board
3 Empl.Reps
6 Shareholders‘ Rep.s
Applicable in corp.s with workforce between 500 and 2000
size of board according to § 96 AktG (always divisible by 3)
3-person board: 1 employee
6-person boeard or larger: 2 employees, other workers‘ representatives may be employees or not
nomination right lies with works councils and employees
unions informally involved (counselling)
practically: external members are union officials like in ‚76 model
Original: Wirtschaftsrat der CDU e.V. 1973
Prof. Dr. Christine Windbichler Humboldt-Universität zu Berlin