Planned amendments to the German Stock Corporation Act (AktG)

In April 2014, the Federal Ministry of Justice presented a new proposal for the amendment of the German Stock Corporation Act (Aktiengesetz – AktG). In contrast to the previous proposal in 2013 (which did not pass the legislative procedure), the new proposal does not contain provisions relating to the remuneration of management boards. It contains, inter alia, a new provision concerning a record date for registered shares (section 123 para. 5 amended AktG), as well as detailed regulations in relation to additional dividends and supplementary dividends of preferred shares. In addition, the new proposal contains several provisions improving the transparency of ownership structures of non-listed stock corporations and provisions enabling greater flexibility when financing stock corporations.

This proposal has only been submitted to certain interest groups and has not yet been published officially. 

Proposal for the implementation of a gender quota regulation

In September 2014, the Federal Ministry for Justice and the Federal Ministry for Family Affairs presented a new proposal for the implementation of a gender quota regulation (‘Gesetz für die gleichberechtigte Teilhabe von Frauen und Männern an Führungspositionen in der Privatwirtschaft und im Öffentlichen Dienst’). According to the new proposal, supervisory boards shall be obliged to determine time-bound goals to raise the proportion of women on supervisory boards, management boards and at top management level. If they fail to meet their goals, the companies will have to explain why they did not comply with the demands. In addition, a binding quota of 30 per cent for the under-represented sex (generally women) shall apply to the supervisory board in publicly listed German companies being subject to co-determination rules. The quota must be achieved separately for the shareholder representatives and the employee representatives. Companies not meeting the quota will be required to fill vacancies with women, otherwise they will have to leave the positions unfilled. If nevertheless, a person of the over-represented sex is appointed, the election will be deemed null and void. The demands shall apply from 2016 and only in the case of vacant positions or upcoming new elections to the supervisory board.

This proposal has, however, only been submitted to certain interest groups and has not yet been published officially.

Reform debate on Managerial Liability

Currently there is a debate amongst legal scholars and practitioners on possible reforms of German managerial liability. Several options are being discussed, eg limiting liability by statutory act or by the company’s articles of association to the introduction of a statutory maximum liability amount applying to all areas of law and/or the determination of the right of a court to decide on the amount of compensation at its own discretion by taking into account certain mitigating factors. The reform of the German rules on managerial liability were also one of the topics at the 70th German Jurists’ Conference (Deutscher Juristentag) in September 2014.

It remains to be seen whether the reform debate will result in a legislative process in the future.

Managerial Liability - The Munich Regional Court defines requirements for an effective compliance organisation

In a much debated judgment dated 10 December 2013, the Munich Regional Court (Landgericht München I) ordered a member of the management board of a publicly listed German stock corporation to pay damages in the amount of €15m for an inadequate compliance organization. Although this judgment has not yet become final and legally binding, it contains some fundamental statements on the requirements for an effective compliance system and on the duties of the members of the management board of a stock corporation arising from such requirements.

In the globally operating, publicly listed stock corporation, a system of ‘slush funds’ and pseudo consultancy agreements existed and was used to pay bribes abroad. These bribes were paid over a longer period of time despite the fact that the company had established a compliance system. The court found that the relevant member of the management board had been informed about these payments. Fines in a total amount of €1.2bn were imposed on the company for the bribery. In addition, the company spent a substantial amount investigating the case. The company then claimed damages from members of its management board. Unlike other members of the management board, the defendant had not agreed to resolve the claim by way of an out-of-court settlement providing for the payment of a specific sum. In the following action for damages, the court decided in favour of the company and ordered the defendant to pay the claimed amount of €15m of total damages. The court held that the compliance system must be adequate with respect to the type, size and organisation of the company, with respect to the applicable law, with respect to the geographic presence and with respect to earlier incidents. The court took the view that the establishment of an inadequate compliance system and the inadequate monitoring of such system constituted a breach of duty for which the defendant, as a member of the management board, was personally responsible.

Federal Court of Justice ruling on the approval of the shareholders’ meeting as prerequisite for the assumption of fines imposed on board members by the company

In a ruling dated 8 July 2014, the German Federal Court of Justice decided on the approval requirement of a stock corporation’s general meeting in cases of the assumption of criminal fines to be imposed on a member of the management board by the company.

In this case, a member of a management board of a German Stock Corporation had been accused of committing certain unlawful acts which were subject to criminal proceedings and which also constituted a breach of his managerial duties towards the company. However, the company and the board member had agreed that, if the board member were fined for his activities, the company would assume the fine. For this reason, the company had granted the board member a loan which had been terminated at a later date. In the subsequent proceedings the company claimed the repayment of the loan. The defendant refused the repayment and argued that the supervisory board had agreed on the assumption of the financial liabilities.

According to the Federal Court of Justice, the general meeting has to approve such an assumption. The approval of the general meeting is always required if the acts of the board member (being subject to investigations by the prosecution) at the same time constitute a breach of his managerial duties towards the company. In such case, an assumption of criminal fines by the company may not be decided by the supervisory board on its own, but must be decided by the general meeting. Only if there is no violation of managerial duties may the supervisory board decide on its own on the assumption of criminal fines by the company.

Federal Court of Justice rulings on limitations to the shareholders’ right to request information at the shareholders’ meeting regarding matters discussed in supervisory board meetings

In two rulings dated 5 November 2013 and 14 January 2014, the Federal Court of Justice decided on limitations to the shareholders’ right to request information in the shareholders’ meeting regarding matters discussed in meetings of the supervisory board or its committees.

In the first case, a shareholder had, inter alia, requested information regarding contents of the discussion within the risk committee of the supervisory board. The Court held that the shareholders’ information right generally aims at providing the shareholder with the information necessary to decide on the items of the agenda in the shareholders’ meeting. However, the court decided that this generally does not include information about discussions within the supervisory board or its committees. Discussions and the voting are confidential irrespective of the confidentiality of the discussed matter itself. 

In the second case, a shareholder had, in alia, requested information on which member of the supervisory board had proposed a certain resolution and if there were any suggestions made by the management board with respect to this resolution. Referring to the above decision, the Court confirmed the management’s right to withhold information in the shareholder’s meeting if the requested information relates to discussions within the supervisory board or its committees. The Court further held that information regarding the confidential collaboration between the supervisory board and the management board is generally also excluded from the shareholders’ information right leaving open the question of whether, in a particular case, there could be overriding interest in disclosure.