In German

corporate governance Corporate governance is defined, described or delineated in diverse ways, depending on the writer's purpose. Writers focused on a disciplinary interest or context (such as accounting, finance, law, or management) often adopt narrow definitions ...

, a ''Vorstand'' is the executive board of a

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...

(

public limited company A public limited company (legally abbreviated to PLC or plc) is a type of public company under United Kingdom company law, some Commonwealth jurisdictions, and the Republic of Ireland. It is a limited liability company whose shares may be fr ...

). It is hierarchically subordinate to the supervisory board (''Aufsichtsrat''), as German company law imposes a two-tier

board of directors A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit orga ...

. German law confers executive powers on the executive board as a body. It is expected to act collectively and collegially. Unlike the

executive committee A committee or commission is a body of one or more persons subordinate to a deliberative assembly. A committee is not itself considered to be a form of assembly. Usually, the assembly sends matters into a committee as a way to explore them more ...

(a.k.a. operating committee or executive council) of a U.S. or UK company, the executive board is not an adjunct of the

CEO A chief executive officer (CEO), also known as a central executive officer (CEO), chief administrator officer (CAO) or just chief executive (CE), is one of a number of corporate executives charged with the management of an organization especially ...

(managing director). In contrast to Japanese corporate governance, the German executive board has real decision-making power.Charkham, page 85 It is, by law, the managing body of a company and cannot be instructed by any

legal person In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, sue and be sued, own property, and so on. The reason f ...

, be they natural or artificial, to act in such a way as to harm the business. Executive board members are personally liable for accepting any such instructions. The specific scope of an executive board's duties varies from business to business. (A group of companies may each have their own individual executive boards, for example). The president of the executive board (i.e., the CEO) and the position's role are determined by the supervisory board. German law permits, but does not require, executive board members to elect a president/CEO from among their number. There are no specific legal requirements regarding the CEO's role, or even for the title given to the holder of the CEO position, although in practice the most common title is simply ''Vorstandsvorsitzender'', literally, "''Vorstand'' chairman". A noticeable minority refer to their CEOs as '' Sprecher'' (lit., "

speaker Speaker may refer to: Society and politics * Speaker (politics), the presiding officer in a legislative assembly * Public speaker, one who gives a speech or lecture * A person producing speech: the producer of a given utterance, especially: ** In ...

"), implying that the CEO is no more than ''

primus inter pares ''Primus inter pares'' is a Latin phrase meaning first among equals. It is typically used as an honorary title for someone who is formally equal to other members of their group but is accorded unofficial respect, traditionally owing to their se ...

''; probably the best-known example for a company which uses this terminology is

Deutsche Bank Deutsche Bank AG (), sometimes referred to simply as Deutsche, is a German multinational investment bank and financial services company headquartered in Frankfurt, Germany, and dual-listed on the Frankfurt Stock Exchange and the New York St ...

. The exact relationship between the CEO and the other executive officers depends on the company's type, how it was founded, and indeed the individual personalities of the people involved. A family business could, for example, have a strong CEO who is a member of the founding family and exercises a great deal of power over the rest of the board. In other companies, executive officers may hold themselves accountable to the executive board as a whole and not at all accountable to the CEO as an individual. The relationships among executive officers can vary too. It is common practice for board members to be senior executives with specific areas of functional responsibility. However, the law requires that they oversee the activities of their fellow officers, since they are still personally liable for any failings outside their specific departments/subdivisions. Each board member has one vote. Decisions are ''never'' escalated, when there is a lack of consensus, to the supervisory board. Executive board meetings are commonly held on a weekly basis and can last up to a whole day. Formally, the power to appoint executive officers to the board lies with the supervisory board, which can appoint officers 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. Since up to 50% of the supervisory board members are delegates of the employees (or even external trade union representatives, for details see

Mitbestimmung In corporate governance, codetermination (also "copartnership" or "worker participation") is a practice where workers of an enterprise have the right to vote for representatives on the board of directors in a company. It also refers to staff having ...

), this prevents employees from blocking the appointment of executive officers to the executive board. Executive officers have a certain degree of job security, which is partly a preventative measure aimed at ensuring that executive boards are not dominated and that they are not "packed" with hand-picked appointees. Officers are usually appointed for the maximum statutory term—5 years. Removal must be for good cause, such as serious breach of duty, and is subject to the supervisory board's veto. When an executive officer's ability to perform their duties is diminished due to old age, it is customary for them to serve out the remainder of their term but with a deputy to help perform their duties. Neither the shareholders nor the executive board can compel an officer to retire, whereas the supervisory board can. Commonly, the CEO receives between 30% and 50% greater salary than that of the other executive officers. An officer's remuneration usually comprises 65% basic salary, and 35% that is equally split between annual bonuses and benefits.

References

{{Authority control Corporate governance German business law

See also

References