Board composition and remuneration of directors
· Is there a unitary or two-tiered board structure?
· Who manages a company and what name is given to these
managers?
· Who sits on the board(s)?
· Do employees have a right to board representation?
· Is there a minimum or maximum number of directors or
members of the managerial and supervisory bodies?
France
Law stated as at 01-Apr-2011
The
governance of an SA can be organised as a unitary or a dual structure.
Unitary
structure. This most widely-used structure
consists of a board of directors (conseil d'administration), headed by a
chairman and a chief executive officer (CEO) (directeur général) who
runs the company. Both positions can be held by the same individual.
Dual
structure. This structure consists of a
management board (directoire) composed of up to five members running the
company, and a supervisory board (conseil de surveillance) that oversees
the management board. The management board's members and its chairman are
appointed and dismissed by the supervisory board, whose members are appointed
by the shareholders.
Unitary
structure. The CEO, appointed by the board of
directors, manages the company. He may be assisted by one or several deputy
CEOs (directeurs généraux délégués), also appointed by the board.
Dual
structure. The management board carries out the
day-to-day management.
Unitary
structure. The board of directors consists of
three to 18 directors appointed by a shareholders' meeting and of employees'
elected representatives. Directors can be individuals or legal entities (which
must designate a permanent representative, subject to the same obligations and
liabilities as an individual). The statutory auditor attends board meetings
when the board approves the accounts, otherwise his attendance is optional.
Dual
structure. The supervisory board consists of
individuals or legal entities (except for its chairman) appointed by a
shareholders' meeting and employees' representatives. The management board
consists exclusively of natural persons elected by the supervisory board.
In
companies having over 50 employees, workers' council representatives sit on the
board without voting rights.
In
listed SAs where employees hold more than 3% of the share capital, one or more
representatives must be elected to the board by the shareholders. These
directors have the same status, obligations and liabilities as other directors.
Unlisted
SAs' bye-laws may also authorise employee-elected directors to sit on the board
without voting rights. The maximum number of such directors is four (or five
for listed companies) and cannot exceed one-third of the total number of other
directors. Employee directors have the same status, obligations and liabilities
as directors appointed in shareholders' meetings.
Unitary
structure. The number of directors is set in
the bye-laws and must be between three and 18 (24 following a merger of SAs).
Dual
structure. The management board consists of up
to five members for an unlisted company or seven for a listed company. The
number of supervisory board members is set in the bye-laws and must be between
three and 18 (24 following a merger of SAs).
Employee-elected
representatives are not taken into account for the calculation of the total
number of directors.
Germany
Law stated as at 01-Apr-2011
· Structure. Contrary
to most corporate entities existing in Europe, German AGs have a two-tier board
structure where the management board (Vorstand) conducts daily business
of the company and the supervisory board (Aufsichtsrat) controls the
management board. The influence of the shareholders' meeting is limited.
· Management. The
management board of an AG manages the company and conducts the daily business.
The management board has extensive competences and is generally not subject to
instructions by any third party, in particular the shareholders' meeting.
In a GmbH, the managing directors conduct the daily
business of the company while the shareholders' meeting supervises the
directors and is competent for any decisions outside the ordinary course of
business.
· Supervisory board members. The supervisory board consists of board members that
are strictly separate from the management board. They advise and supervise the
management board.
· Employee representation. The AktG generally provides that the supervisory
board members are elected representatives of the shareholders. However, several
co-determination regulations exist so that employees have numerous rights for
representation on the supervisory board, depending on the size of the company
and the industry it operates in. In companies with 500 or more employees,
one-third of the supervisory board is staffed with employees' representatives.
In companies with more than 2,000 employees, the supervisory board is staffed
with the equal number of the employees' and the shareholders' representatives.
· Number of directors or members. The management board can consist of just one
person, with no maximum number defined. If the registered capital of the
company exceeds EUR3 million, the management board must comprise at least two
members. The DCGK recommends that the management board should have several
members and one chairman (Vorstandsvorsitzender). The minimum number of
supervisory board members goes from three up to 21, depending on the registered
capital of the company and, for co-determined companies, on the number of
employees.
India
Law stated as at 01-Apr-2011
· Management. A
company is managed by its board. Every public company or a private company
which is a subsidiary of a public company with a paid-up share capital of more
than INR50 million (as at 1 April 2011, US$1 was about INR45) must have a
managing director or whole-time (full-time) director or manager for managing
the affairs of the company. A private company may or may not have a managing
director. (For the appointment of independent directors, see Question 5, Independence.)
· Board members. The
board of a public company comprises management directors, representatives of
shareholders and independent directors. A private company's board comprises
shareholders' representatives. A private company may or may not have independent
directors or a management director.
· Employees' representation. There is no mandatory requirement for employees'
representation on the board.
· Number of directors or members. A private company must have a minimum of two
directors and two members, whereas a public company must have a minimum of
three directors and seven members.
The Netherlands
Law
stated as at 01-Dec-2012
The current CGC entered into force in 2009 (amended
2008). The CGC contains a non-binding list of principles and best practices for
listed companies.
The
areas covered in the CGC are divided into four main sets of principles relating
to:
· The management board (that is, its role and
procedures, remuneration and conflicts of interest).
· The supervisory board (that is, its role and
procedures, independence, composition and expertise, the role of the chairman
and company secretary, key committees, conflicts of interest, remuneration and
one-tier board structure).
· The shareholders and general meeting of shareholders
(that is, their powers, depositary receipts for shares, information for and
logistics of the general meeting, and responsibilities).
· Auditing and financial reporting (that is,
responsibility for financial reporting, the roles of internal and external
auditor).
The
CGC contains a set of principles and best practice provisions that regulate
relations between the management board, the supervisory board and the
shareholders. The CGC applies to all:
· Companies whose registered offices are in The
Netherlands and whose shares or depositary receipts for shares have been
admitted on a stock exchange (foreign or in The Netherlands), or more
specifically to trading on a regulated market or a comparable system.
· Large companies (that is, balance sheet value more
than EUR500 million) whose registered offices are in The Netherlands and whose
shares or depositary receipts for shares have been admitted to trading on a
multilateral trading facility or a comparable system.
For
the purposes of the CGC, holders of depositary receipts issued with the
co-operation of the company (met medewerking van de vennootschap, bewilligde
certificaten) are treated similar to shareholders.
The
general principles concerning good corporate governance contained in the CGC
can also apply to non-listed companies. These companies can voluntarily apply
the CGC.
Listed
companies must publish a statement on their corporate governance (DCC and Corporate
Governance Decree of 23 December 2004 (amended 1 April 2009) implementing EU
directives). This corporate governance statement may be incorporated in the
annual report, added as an appendix or electronically published separately with
reference to the annual report. The following elements must be addressed in the
report:
· Compliance with the principles and best practices of
the CGC.
· Main characteristics of the internal risk management
and control systems connected with the company's financial reporting process.
· Functioning of the general meeting and its primary
powers and the rights of shareholders.
· Composition and performance of the management board
and the supervisory board and its committees.
· Participations in listed companies.
· Special control rights attached to shares and the
parties entitled to those rights.
· Limitations of voting rights.
· Appointment and replacement members of the management
board and supervisory board.
· Powers of the management board and supervisory board,
specifically regarding the issuance and redemption of company shares.
· List of names of persons with special control rights
under the articles and the characteristics of those rights.
The
CGC is based on the comply or explain principle. Deviation from the principles
and best practice provisions of the CGC is allowed, but must be duly explained
in the company's annual report.
The
corporate governance statement must be reviewed by the registered accountant as
part of its review of the annual account. The accountant verifies:
· Whether the statement is present.
· Whether the statement addresses the principles and
best practices.
· The presence of an explanation in cases of deviation
from these principles.
· The presence of other subjects that need to be
reported in the annual report regarding corporate governance but which are not
part of the corporate governance statement.
However,
the accountant does not materially review the statement or explanations, except
for a marginal check on consistency with the financial reporting.
The
Committee on Corporate Governance (Committee) annually reviews the compliance
of listed companies with the CGC and reports its findings to the government.
Its reports are made public on www.commissiecorporategovernance.nl. The Committee recommends that a listed company sets
out its general corporate governance structure and the extent of its compliance
with the CGC. Participation in the annual review of the Committee is mandatory
for listed companies.
Although
the CGC is not mandatory, non-compliance with its principles or best practice
provisions that are in line with statutory provisions under the DCC forms a
direct breach of the CGC. In addition, a breach of the CGC may:
· Lead to a breach of the principle of reasonableness
and fairness.
· Form the basis for specific corporate legal
proceedings, such as inquiry proceedings.
The
Committee indicated in its Annual Report 2011 that the CGC is increasingly supported
by directors of listed companies with a relatively high level of compliance.
However, explanation of why certain principles are not complied with is
sometimes insufficient and a number of material changes must still be made (for
example, term in office, severance bonus, composition of the supervisory board
to reflect a more balanced male/female ratio). The Committee also observes an
increasing awareness of (institutional) shareholders of their own
responsibility in using their voting rights. In addition, the Committee finds
that non-listed medium and small sized companies are progressively implementing
the CGC. However, these companies are not formally obliged to do this.
UK (England and Wales)
Law stated as at 01-Apr-2011
· Structure. UK
companies operate a unitary board structure. Directors may, however, be
executive or non-executive. The former are employees of the company with
specific duties as full-time managers; the latter are not employees of the
company and often commit to devoting a few days a month to attend board and
committee meetings. The role of the non-executive director is commonly seen as
to provide a constructive challenge to the executive directors and to help
develop the company's strategy. Non-executive directors can also sit on
committees of the board to deal with areas such as remuneration of directors,
nominations to the board and audit and risk.
The Companies Act 2006 makes no distinction between
executive and non-executive directors and treats both types of director as having
the same obligations and liabilities.
· Management. The
articles of most companies contain a provision along the following lines:
"the directors are responsible for the management of the company's
business, for which purpose they may exercise all the powers of the
company".
While the full board may meet once a month or even
less often, an executive committee, comprising the executive directors and
other senior managers, may meet more frequently and have responsibility for the
day-to-day management of the company's business. The exact terms of that
responsibility and the powers the committee may exercise without reference back
to the full board will be set out in the committee's terms of reference.
· Board members. The
directors of a company comprise its board. One of the board members, often a
non-executive director, will be elected chairman.
· Employees' representation. Employees do not have any right to board
representation in a UK company. The articles of a company may require that a
certain number of directors be drawn from the workforce and provide how they
are to be selected, but that is not a common provision.
· Number of directors or members. A private company must have at least one
director and a public company must have at least two. A company's articles may
increase those minimum numbers and may also set a maximum board size. A
director does not have to be an individual. A company may serve as a director
of another company, although every company must have at least one individual or
natural person on its board.
United States
Law stated as at 01-Dec-2012
The US has not adopted a corporate governance code. In
the US, corporate governance requirements are imposed primarily by various
federal laws, including the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act),
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
and the federal securities laws, as well as regulations, rules and other
guidance promulgated by the SEC.
In
addition, the listing standards of registered stock exchanges require listed
companies to maintain specified corporate governance practices.
France
Law stated as at 01-Apr-2011
Unitary
structure. Except when otherwise provided for
in the bye-laws, the number of directors aged over 70 cannot exceed one-third
of the total and the age limit for the chairman and CEO is 65.
Dual
structure. Except when otherwise stated in the
bye-laws, the number of directors aged over 70 cannot exceed one-third of the
total and the age limit for members of the management board is 65.
European
citizens. Citizens of the EU and of Iceland,
Liechtenstein, Norway and Switzerland are exempt from any formalities (except
if resident in France, in which case they must complete local registration
formalities).
Other
non-French nationals. A national of any other country who
wishes to become chairman, CEO, deputy CEO or chairman of the management board
of a French company must:
· If a resident of France, be in possession of a
temporary residency permit (carte de séjour temporaire) authorising
commercial and professional activities.
· If a non-resident of France, file a declaration with
the préfet of the administrative area in which the company's
registered office is located.
Unless
otherwise provided for in the bye-laws, these formalities are not required for:
· A director who is not also the CEO.
· Members of the management board not authorised to represent
the company with third parties.
Listed
companies. From 28 January 2011, if one gender is not
represented on the board, one person of this unrepresented gender must be
appointed at the next general meeting which has a director appointment on its
agenda. By 1 January 2014, each gender must be represented by at least 20% of
the board. By 1 January 2017, each gender must be represented by at least 40%
of the board.
Unlisted
companies. From 1 January 2017, for companies
with revenues or a balance sheet over EUR50 million and employing at least 500
persons for three consecutive years (that is, in 2020), each gender must be
represented by at least 40% of the board.
From
1 January 2017, if the board of directors consists of no more than eight
members, the difference between the number of directors of each gender should
be no higher than two.
Germany
Law stated as at 01-Apr-2011
Members
of the management or supervisory board cannot be less than 18 years old. There
is no maximum age limit. However, the DCGK recommends an age restriction for
both boards. Although the DCGK does not contain any specific age limit, age
restrictions between 60 and 65 years for the management board and between 70
and 75 years for the supervisory board are common in practice.
There
are no legal nationality restrictions. On the contrary, the DCGK recommends
that diversity should be considered when appointing the members of the
management and supervisory boards.
India
Law stated as at 01-Apr-2011
Generally,
a director must be at least 18 years old. However, an independent director must
be at least 21 years old and a managing director of a public company must be at
least 25 years old.
There
is no restriction on the maximum age of a director, except that a managing
director of a public company cannot be older than 70 years.
There
are no nationality restrictions on the appointment of directors, except in
certain sectors. For example, companies engaged in the telecommunications
sector and the defence sector must have a majority of Indian directors, and
companies providing security services (in the private sector) cannot have
foreign directors.
The Netherlands
Law stated as at 01-Dec-2012
The
draft Amendment on the Rules on Management and Supervision (Amendment
Management and Supervision) has been adopted and will enter into force as of 1
January 2013. This amendment legislation introduces the one-tier board for
public and private companies, consisting of executive and non-executive
directors (see Question 37). The answers below describe the current situation
(2012) whereby only a two-tiered board is possible. Legislation making private
companies more flexible (Flexible Private Company) has been adopted and is in
force as of 1 October 2012, which amends a number of DCC articles (see
Questions 14 and 37).
The answers below take these amendments into account.
Dutch
public and private companies must have a management board. The articles can
provide for a two-tiered board structure with a management board and a
supervisory board. A two-tiered board structure is mandatory for large
companies (see Question 2). Although currently not expressly provided for in
the DCC, it is possible to set up a management board to operate similarly to a
one-tiered board under Dutch law. As of 1 January 2013 legislation will come
into effect under which the one-tier board will be permitted under the DCC (see
above, Amendments).
The
day-to-day management of a company is carried out by the management board. The
name that is given to members of the management board is managing director (bestuurder).
The
managing directors sit on the management board and the supervisory directors
sit on the supervisory board. Managing directors cannot sit on the supervisory
board. Supervisory directors cannot sit on the management board.
Employees
may have, but are not entitled to, board representation. In large companies,
the works council can recommend candidates for the supervisory board. Unless
the articles provide for a different procedure, the works council also has an
"enforced nomination right" (versterkt aanbevelingsrecht) with
regard to one-third of the members of the supervisory board (see Question 8, Appointment of directors).
If
installed, the supervisory board must have at least one supervisory director,
except for large companies, which must have at least three supervisory
directors. Only natural persons can be appointed as supervisory directors. A
management board must have at least one managing director. References to
directors in this overview include management and supervisory directors, unless
otherwise stated. There is no maximum number of directors.
UK (England and Wales)
Law stated as at 01-Apr-2011
A
director must be aged at least 16. There is no maximum age limit.
There
are no nationality restrictions for directors of UK companies.
United States
Law stated as at 01-Dec-2012
Corporations
incorporated in the US almost always have a unitary board structure. Under most
US state corporation statutes, the board members are elected for a term of one
year. State laws commonly provide the option to institute a staggered or
classified board, which ordinarily divides the members into three separate
classes, with one class being elected annually to serve a three-year term.
However, due to shareholder activism, classified boards have been declining in
popularity over the past few years, with only 15 of the Top 100 US Companies
having classified boards in 2012 compared to 37 of the Top 100 US Companies in
2006 (2012 S&S Corporate Governance Survey).
The
corporation’s board is responsible for appointing the corporation’s management.
The board typically delegates the day-to-day operation of the business to a
chief executive officer (CEO) and other management employees. The senior
managers of the corporation generally include the CEO, the chief financial
officer (CFO) and the chief accounting officer (CAO), among others.
Members
of the board are generally independent directors or members of senior
management of the corporation, although some boards have members who are
non-executive directors who are not independent (such as former senior
executives of the company). While state and federal laws do not, subject to
certain limitations, govern director independence requirements, the NYSE
Listing Manual and the Nasdaq Marketplace Rules require a majority of the board
members to be independent. In 2012, independent directors constituted 75% or
more of the boards at 93 of the Top 100 US Companies. The CEO was the only
non-independent director at 56 of those Top 100 US Companies (2012 S&S
Corporate Governance Survey).
Employees
are not entitled to board representation except in rare circumstances, and
employee board members are nearly always executive officers.
Most
states do not require a minimum number of directors and leave the size of the
board to be set by the corporation’s certificate of incorporation or bye-laws.
The corporation’s certificate of incorporation or bye-laws usually set the
minimum and maximum number of directors that can comprise the board and
provides that the exact number be set out in the bye-laws or established by a
board resolution. In 2012, the size of the board of the Top 100 US Companies
ranged from eight to 17 members, with an average of 12 members (2012 S&S
Corporate Governance Survey).
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