This two-part article, authored by Yvonne E. Schlaeppi and Michael T. Marquardt, is a primer for US public company directors on the German two-tier corporate governance model of German publicly traded companies which are incorporated as Aktiengesellschaften (or “AG’s”). Having an understanding of the German Supervisory Board is important for US public company directors whose companies are doing business with a German corporation controlled by a Supervisory Board, or who are considering becoming a Supervisory Board member of a German corporation.
The first part of this article sets out the most significant aspects of the German AG’s Supervisory Board (Aufsichtsrat) and Management Board (also sometimes translated into English as the Executive Board or Board of Management) (Vorstand). The origins and current characteristics of the German dual-tier board are described with comparisons to the unitary corporate board common in the US.2
In the second part of this article, light is cast on the characteristics of the German AG's Supervisory Board—e.g., during a M&A transaction, a crisis and regular order— again by way of contrast to the familiar workings of the US public company board at the same junctures. These illustrate how significant characteristics of the Supervisory Board, including its composition and scope of authority, impact its work and function.
There are advantages and disadvantages to both systems of corporate governance. An adequate understanding of the basic distinctions is a necessity for a US public company director engaged with a German publicly traded, multinational AG.