Vorstand

In German corporate governance, a Vorstand is the management board of a corporation. It is hierarchically subordinate to the Aufsichtsrat (supervisory board),^[1] as German corporate law imposes a two-tier board system.

German law confers power on the Vorstand as an organ. It is expected to act collectively and collegiately. In contrast to a board of directors in a United States or United Kingdom company, the Vorstand is not an adjunct to a Chief Executive Officer. In contrast to Japanese corporate governance, the Vorstand has a real decision-making power. It is, by law, the driving management of a company, and may not be instructed by any person or entity to act in a way that is injurious to the business. The members of the Vorstand are personally liable for accepting any such instructions.^[1]

The specific scope of duties of a Vorstand varies from business to business. (A group of companies may each have their own individual Vorstands, for example.) The head of the Vorstand, and the role of that office, is determined by the Aufsichtsrat. German law permits, but does not require, members of the Vorstand to elect a chairman from amongst their number. There are no specific legal requirements for the role of chairman, or even for the name of the office of chairman, although in practice the most common title is Sprecher (cf. Speaker) with the implication that the chairman is no more than primus inter pares.^[1]

The exact relationship between the chairman and the other members of the Vorstand can depend from the type of company, how it was founded, and indeed the individual personalities of the people involved. A family-founded family-run company could, for example, have a strong chairman who is a member of the founding family who exercises a great deal of power over the other members of the Vorstand. In another company members of the Vorstand could consider themselves accountable to the Vorstand as a whole and not at all accountable to the chairman as an individual.^[1]

The relationships of members of the Vorstand to one another can vary, too. It is common practice for individual members to have individual areas of executive responsibility. However, the law requires that they oversee the activities of their colleagues, since they are still personally liable for any failings outside of their specific departments.^[1]

Each member of a Vorstand has one vote. Decisions are never referred, when there is a lack of consensus, to the Aufsichtsrat. Vorstand meetings are commonly held on a weekly basis, and can last up to a whole day.^[1]

Formally, the power to appoint members of the Vorstand lies with the Aufsichtsrat, which can appoint members with a two-thirds majority vote of approval, or a simple majority if multiple rounds of voting are required in order to reach a decision. Because 50% of the members of the Aufsichtsrat are employees, this prevents employees from blocking the appointment of members of the Vorstand.^[1]

Members of a Vorstand enjoy a degree of job security, which is in part a preventitive measure aimed at ensuring that Vorstands are not dominated and that they are not "packed" with hand-picked appointees. They are usually appointed for the maximum term permitted by law: 5 years. Removal can only be for good cause such as gross breach of duty, and is subject to veto by the Aufsichtsrat. When a member of a Vorstand is less able to perform their duties because of old age, it is customary for them to serve out their term but with their duties being performed with the aid of a deputy. Neither the shareholders nor the Vorstand may compel a member to retire. However, the Aufsichtsrat may.^[1]

Commonly the chairman receives between 30% and 50% greater salary than that of the other members. A member's remuneration usually comprises 65% basic salary, and 35% that is equally split between annual bonuses and benefits.^[1]

References

1. ^ ^{a b c d e f g h i} Jonathan P. Charkham (1994). Keeping Good Company: A Study of Corporate Governance in Five Countries. Oxford University Press. pp. 14–21. ISBN 0198289871.