!Корпоративное право 2023-2024 / 2013-study-analysis_en

Discussion

Map 1.4.c: Board-level employee participation in Europe

Legend31	Country
No mandatory board-level	BE, BG, CY, EE, EL, ES, FR, IE, IT, LT, MT,
employee participation	PL, PT, RO, UK, LV
Mandatory board-level employee
participation	AT, CZ, DE, DK, FI, LU, HR, HU, SE, SI, SK
Nomination/opposition rights only	NL

31 Henceforth, we use the official two-letter country code to identify the Member States (and Croatia). These codes are as

follows:
Belgium	(BE)	Lithuania	(LT)
Bulgaria	(BG)	Hungary	(HU)
Czech Republic	(CZ)	Malta	(MT)
Denmark	(DK)	Netherlands	(NL)
Germany	(DE)	Austria	(AT)
Estonia	(EE)	Poland	(PL)
Ireland	(IE)	Portugal	(PT)
Greece	(EL)	Romania	(RO)
Spain	(ES)	Slovenia	(SI)
France	(FR)	Slovakia	(SK)
Italy	(IT)	Finland	(FI)
Cyprus	(CY)	Sweden	(SE)
Latvia	(LV)	United Kingdom	(UK)
Luxembourg	(LU)	Croatia	(HR)
			11	Directors’ Duties and Liability in the EU

Our classification above is based on mandatory rules applicable to public companies with large domestic business operations. We do not report here special rules applicable only to companies operating in special industry sectors and/or to companies that are, or formerly were, (part-)owned by the state or another public body.

Employee participation can play an important role in the practical effect rules on directors’ duties and liability have in practice. Twelve of the 28 countries examined by us grant employees some form of influence over the composition of the board. These countries are Austria, Croatia, the Czech Republic, Germany, Denmark, Finland, Hungary, Luxembourg, the Netherland, Slovenia, Sweden, and Slovakia. Of these countries, only Sweden has been classified as providing for a one-tier board,32 while all other countries either mandate, or at least allow the adoption of a two-tiered board structure. There exists a fair amount of variance among the systems of employee participation; the spectrum ranges from the German system, where employee representatives33 populate 50% of the supervisory board in large34 companies, to the Dutch system of nomination and opposition rights, where employees are in effect restricted to make recommendations for the appointment of particular candidates, but shareholders can in turn oppose such nominations.35 In addition, the employee representatives must not themselves be employees of the company.36

We find that, throughout the examined countries, employee representatives on the board of directors are subject to essentially the same duties as other board members, although the practical application of such duties may somewhat differ across Member States.

The decision to mandate board-level employee participation also relates to the focus and scope of directors’ duties more generally. We find that the participation of employee representatives in the managerial decision-making process strongly correlates with a less shareholder-centric understanding of the “interest of the company”. This is of significance for the main subject of this Report, since the interests of the company, and the question whether or not board members acted in the company’s interest plays a pivotal role in determining the accountability of board members across all jurisdictions examined by us.

1.5 Appointment and dismissal of directors

Summary of the country reports in tabulated form

Table 2.3.a: Shareholder appointment and removal rights

		Rights of	Rights of shareholders
	Country	shareholders to		Comments
			to remove directors37
		appoint directors

	Shareholders may
	appoint members
	of supervisory
Austria	board
	Management
	board members
	are appointed by

Shareholders may remove members of supervisory board, but need supermajority to do so without cause (subject to articles, which can provide for

Two-tier board structure mandatory

32But see the qualification as regards this classification above (text to n 27).

33In Germany, some of the employee representatives are nominated by the relevant trade union, rather than the employees of the company; see s.7 of the German Co-Determination Law (“Mitbestimmungsgesetz”); see in more detail the German Report in Annex I.

34i.e. companies with more than 2,000 employees. See s.7 of the German Co-Determination Law and, in more detail, the German Report in Annex I.

35See e.g. G Jackson, “Employee Representation in the Board Compared: A Fuzzy Sets Analysis of Corporate Governance,

Unionism and Political Institutions” (2005) 12 (3) Industrielle Beziehungen 1, as well as the Dutch Report in Annex I.

36See the Dutch Report in Annex I for more detail.

37The data presented here only refers to without cause removal rights, i.e. the right to remove a director without proving a breach of duties on the part of the director.

12 Directors’ Duties and Liability in the EU

		Rights of	Rights of shareholders
	Country	shareholders to			Comments
			to remove directors37
		appoint directors
		supervisory board	simple majority).
			Management board
			members can only be
			removed by supervisory
			board and only for good
			cause. A vote of no
			confidence by the
			shareholders may
			constitute a good cause
			unless passed for
			unjustified reasons.
		All directors are	All directors may be
			removed by the general		One-tier structure; simple
		appointed by the
	Belgium		meeting of shareholders		majority suffices for removal
		general meeting of
			without cause at any		of directors
		shareholders
			time
		One-tier system:	One-tier system:
			Shareholders may
		Shareholders
			remove members of the
		appoint all
			board of directors at any
		members of the
			time without cause
		board of directors
			Two-tier system:
		Two-tier system:
			Shareholders may		- Choice of board structures
		Shareholders
	Bulgaria		remove members of the		- simple majority suffices for
		appoint members
			supervisory board		removal of directors
		of the supervisory
			without cause
		board; supervisory
			management board
		board appoints
			members may be
		members of the
			removed by the
		management
			supervisory board
		board
			without cause
		One-tier system:	One-tier system:
			Shareholders may
		Shareholders
			remove members of the
		appoint all
			board of directors at any
		members of the			- Choice of board structures
			time without cause
		board of directors
			Two-tier system:		- in the more common two-
		Two-tier system:			tier system, the management
			Shareholders may
		Shareholders			board enjoys a higher degree
	Croatia		remove members of the
		appoint members			of “insulation” as its members
			supervisory board
		of the supervisory			cannot be removed without
			without cause
		board; supervisory			cause (even by the
			management board
		board appoints			supervisory board)
			members may be
		members of the
			removed by the
		management
			supervisory board only
		board
			for good cause
					Mandatory removal right of
		All directors are	Mandatory removal right		shareholders (simple
		appointed by			majority)
	Cyprus		in relation to all board
		general meeting of			Shareholders may vest
			members
		shareholders			power to appoint directors in
					board, but removal rights still
			13	Directors’ Duties and Liability in the EU

		Rights of	Rights of shareholders
	Country	shareholders to		Comments
			to remove directors37
		appoint directors
				apply mandatorily
		One-tier system:	One-tier system:
			Shareholders may
		Shareholders
			remove members of the
		appoint all
			board of directors at any
		members of the
			time without cause
		board of directors		Removal rights can be
			Two-tier system:
		Two-tier system:		exercised by simple majority
			Shareholders may
	Czech	Shareholders		of the votes (where
			remove members of the
	Republic	appoint members		available), but articles may
			supervisory board
		of the supervisory		provide for higher threshold
			without cause
		board; supervisory		or additional requirements
			Shareholders’ removal
		board appoints
			rights in relation to
		members of the
			management board
		management
			members is subject to
		board
			provision in articles
		“Nordic Model”:	“Nordic Model”:
			Shareholders may
		Shareholders
			remove members of the
		appoint all
			board of directors at any
		members of the
			time without cause
		board of directors
			Executives can be	- Nordic Model still by far the
		Executives are
			removed by board of	prevalent choice
		appointed by
			directors without cause	- Although the two-tier
		board of directors
			Two-tier system:	structure was modelled on
	Denmark	Two-tier system:
			Shareholders may	German law, the supervisory
		Shareholders
			remove members of the	board members can remove
		appoint members
			supervisory board	the management board
		of the supervisory
			without cause	members at their discretion
		board; supervisory
			Only supervisory board
		board appoints
			members can remove
		members of the
			management (executive)
		management
			board members;
		(executive) board
			removal without cause
		Shareholders	Shareholders may
			remove members of
		appoint members
			supervisory board
		of supervisory
			without cause
		board		Two-tier board structure
	Estonia		Management board
		Management		mandatory
			members can only be
		board members
			removed by supervisory
		are appointed by
			board and only for good
		supervisory board
			cause.
		“Nordic Model”:	“Nordic Model”:
		Shareholders	Shareholders may
		appoint all	remove members of the	- Nordic Model is the
	Finland	members of the	board of directors at any	prevalent choice; few
		board of directors	time without cause	companies with supervisory
		Executives are	Executives can be	boards
		appointed by	removed by board of
		board of directors	directors without cause

14 Directors’ Duties and Liability in the EU

		Rights of	Rights of shareholders
	Country	shareholders to		Comments
			to remove directors37
		appoint directors
		Two-tier system:	Two-tier system:
		Shareholders	Shareholders may
		appoint members	remove members of the
		of the supervisory	supervisory board
		board; supervisory	without cause
		board appoints	Only supervisory board
		members of the	members can remove
		management	management (executive)
		(executive) board	board members;
			removal without cause
			One-tier system with
			PDG:38
			Shareholders may
		One-tier system:	remove all members of
		Shareholders	the board of directors
		appoint all	without cause
		members of the	One-tier system without
		board of directors	PDG:
		Two-tier system:	Shareholders may
	France	Shareholders	remove all members of	One-tier model by far the
		appoint members		most popular choice
			the board of directors
		of the supervisory	without cause, but need
		board; supervisory	good cause to remove
		board appoints	the general
		members of the	manager/CEO
		management	Two-tier system:
		board
			Only supervisory board
			may remove members
			of the management
			board
			Shareholders may
			remove members of
			supervisory board, but
			need supermajority to do
			so without cause
		Shareholders may	(subject to articles,
		appoint members	which can provide for
		of supervisory	simple majority).
	Germany	board	Management board	Two-tier board structure
		Management	members can only be	mandatory
		board members	removed by supervisory
		are appointed by	board and only for good
		supervisory board	cause. A vote of no
			confidence by the
			shareholders may
			constitute a good cause
			unless passed for
			unjustified reasons.
	Greece	Shareholders	Shareholders may	one-tier board structure is
		appoint all	remove any member of	mandatory in Greece

38 The PDG or “président-directeur general” model combines the offices of the CEO and the chairman of the board.

15 Directors’ Duties and Liability in the EU

		Rights of	Rights of shareholders
	Country	shareholders to		Comments
			to remove directors37
		appoint directors
		members of the	the board of directors at
		board of directors	any time without cause
		One-tier system:	One-tier system:
			Shareholders may
		Shareholders
			remove members of the
		appoint all
			board of directors at any
		members of the
			time without cause
		board of directors
			Two-tier system:
		Two-tier system:
			Shareholders may
		Shareholders
	Hungary		remove members of the
		appoint members
			supervisory board
		of the supervisory
			without cause
		board; supervisory
			Management board
		board appoints
			members may be
		members of the
			removed by supervisory
		management
			board only (subject to
		board
			articles)
				Mandatory removal right of
			Any director may be	shareholders (simple
		All directors	removed without cause	majority)
	Ireland	elected by	by shareholder meeting	Shareholders may vest
		shareholders	with simple majority of	power to appoint directors in
			votes cast	board, but removal rights still
				apply mandatorily
			Traditional system:
		Traditional system:	Shareholders may
			remove members of the
		Shareholders
			board of directors at any
		appoint all
			time without cause
		members of the
			Members of the board of
		board of directors
			statutory auditors can
		and the board of
			only be removed with
		statutory auditors
			cause and following
		One-tier system:
			court approval	Traditional system still by far
		Shareholders
			One-tier system:	the most popular choice
		appoint all
			Shareholders may	External auditors may only be
	Italy	members of the
			remove any member of	removed without cause
		board of directors
			the board of directors at	irrespective of the board
		Two-tier system:
			any time without cause	structure
		Shareholders
			Two-tier system:
		appoint members
			Shareholders may
		of the supervisory
			remove members of the
		board; supervisory
			supervisory board
		board appoints
			without cause
		members of the
			Only supervisory board
		management
			may remove members
		board
			of the management
			board without cause
		Shareholders	Shareholders may
	Latvia	appoint members	remove members of the	Mandatory two-tier structure
		of the supervisory	supervisory board

16 Directors’ Duties and Liability in the EU

		Rights of	Rights of shareholders
	Country	shareholders to		Comments
			to remove directors37
		appoint directors
		board; supervisory	without cause
		board appoints	Only supervisory board
		members of the	may remove members
		management	of the management
		board	board, and only with
			cause
			Where supervisory
		Where supervisory	board is established:
			General meeting may
		board is
			remove supervisory
		established:
			board members without
		General meeting
			cause
		appoints
			supervisory board may
		supervisory board
			remove members of the
		supervisory board
			board of directors and	Both, board of directors and
		appoints board of
	Lithuania		the company manager	supervisory board are
		directors
			without cause	optional in Lithuania
		Where no
			Where no supervisory
		supervisory board
			board is established:
		is established:
			General meeting may
		General meeting
			remove supervisory
		appoints members
			board members and
		of the board of
			company manager
		directors
			without cause
			One-tier system:
			Shareholders may
			remove members of the
		One-tier system:	board of directors at any
		Shareholders	time without cause
		appoint all	Two-tier system:	- Removal rights are
		members of the	Shareholders may only	exercised with simple
		board of directors	remove members of the	majority, unless otherwise
		Two-tier system:	supervisory board	stated in the articles of
	Luxembourg	Shareholders	without cause	association
		appoint members	management board	- Articles of association can
		of the supervisory	members may be	be changed by shareholders
		board; supervisory	removed by the	to gain right to remove
		board appoints	supervisory board	management board members
		members of the	without cause	without cause
		management	Where the articles
		board	provide so, management
			board members may
			also be removed by the
			general meeting
		Shareholders	Shareholders may	One-tier structure
		appoint all	remove any member of
	Malta			Simple majority suffices for
		members of the	the board of directors
				removal of directors
		board of directors	without cause
	Netherlands	One-tier system:	One-tier system:	Employees have the right to
		Shareholders	Shareholders may	nominate, and under certain

17 Directors’ Duties and Liability in the EU

		Rights of	Rights of shareholders
	Country	shareholders to		Comments
			to remove directors37
		appoint directors
		appoint all	remove members of the	circumstances oppose, the
		members of the	board of directors at any	appointment of supervisory
		board of directors	time without cause	board members
		Two-tier system:	Two-tier system:
		Shareholders	Shareholders may
		appoint members	remove members of the
		of the supervisory	supervisory board
		board; supervisory	without cause
		board appoints	supervisory board may
		members of the	remove management
		management	board members without
		board	cause, but an obligation
			to consult the general
			meeting applies
		Shareholders may	Shareholders may
			remove members of
		appoint members
			supervisory board
		of supervisory
			without cause
		board		Two-tier board structure
	Poland		Management board
		Management		mandatory
			members can only be
		board members
			removed by supervisory
		are appointed by
			board and only for good
		supervisory board
			cause.
		“Latin board
		structure”:
		Shareholders
		appoint members
		of the board of
		directors and the
		audit board
		One-tier board
		structure:
		Shareholders	Shareholders may
		appoint members	remove board members	The removal rights are
	Portugal	of the board of	at any time without	subject to the limitations in
		directors	cause	the articles of association
		Two-tier board
		structure:
		Shareholders
		appoint members
		of the supervisory
		board
		Supervisory board
		appoints
		management
		board members
		One-tier system:	One-tier system:	- Removal rights are
	Romania	Shareholders	Shareholders may	exercised with simple
		appoint all	remove members of the	majority, unless otherwise
		members of the	board of directors at any	stated in the articles of

18 Directors’ Duties and Liability in the EU

		Rights of	Rights of shareholders
	Country	shareholders to		Comments
			to remove directors37
		appoint directors
		board of directors	time without cause	association
		Two-tier system:	Two-tier system:	- Articles of association can
		Shareholders	Shareholders may	be changed by shareholders
		appoint members	remove members of the	to gain right to remove
		of the supervisory	supervisory board	management board members
		board; supervisory	without cause	without cause
		board appoints	Management board
		members of the	members may be
		management	removed by the
		board	supervisory board
			without cause
			Where the articles
			provide so, management
			board members may
			also be removed by the
			general meeting
		One-tier system:	One-tier system:
		Shareholders	Shareholders may
		appoint all	remove members of the
		members of the	board of directors at any
		board of directors	time without cause	Co-optation right (i.e. board
		Two-tier system:	Two-tier system:
				appointing additional
		Shareholders	Shareholders may
				directors) can be provided for
		appoint members	remove members of the
	Slovakia			by articles, but appointment
		of the supervisory	supervisory board
				only valid until following
		board; supervisory	without cause
				general meeting and subject
		board appoints	Management board
				to limitations
		members of the	members may be
		management	removed by the
		board (subject to	supervisory board
		articles of	without cause (subject to
		association)	articles of association)
			Shareholders may
			remove members of
			supervisory board, but
			need supermajority to do
			so without cause
		Shareholders may	(subject to articles,
		appoint members	which can provide for
		of supervisory	simple majority).
	Slovenia	board	Management board	Two-tier board structure
		Management	members can only be	mandatory
		board members	removed by supervisory
		are appointed by	board and only for good
		supervisory board	cause. A vote of no
			confidence by the
			shareholders may
			constitute a good cause
			unless passed for
			unjustified reasons.
	Spain	All directors	Any director may be	In case a director breaches
		elected by	removed without cause	his or her duties, any

19 Directors’ Duties and Liability in the EU

		Rights of	Rights of shareholders
	Country	shareholders to		Comments
			to remove directors37
		appoint directors
		shareholders	by shareholder meeting	shareholder can demand
			with simple majority of	immediate removal of such
			votes cast	director
		All directors
		elected by		Nordic Model
		shareholders, but	Any directors can be
				The chief executive officer is
	Sweden	managing director	removed at any time
				typically not a member of the
		is not typically	without cause
				board of directors
		member of the
		board
				Mandatory removal right of
			Any director may be	shareholders (simple
	United	All directors	removed without cause	majority)
		elected by	by shareholder meeting	Shareholders may vest
	Kingdom
		shareholders	with simple majority of	power to appoint directors in
			votes cast	board, but removal rights still
				apply mandatorily

To enable us to assess the real-life effect of the legally defined duties of directors more fully, we have analysed the effective distribution of powers within the corporate entity. In this context, we first focus on the appointment and dismissal rights of shareholders in relation to board members. Significant differences exist across different Member States in relation to shareholders’ rights to remove directors without cause, i.e. without any proof of improper conduct on the part of the director.

One must tread carefully in interpreting this data, however. Where ownership is concentrated, the legal allocation of appointment and removal rights does not typically have a significant effect on the accountability of directors or the influence shareholders have over a company’s affairs. High ownership concentration is still the norm in most Member States, including, to a certain extent for listed companies.

The data summarised above is thus of particular importance for listed companies with a relevant level of share ownership dispersion.

Although the company laws of all European jurisdictions enable a well-coordinated shareholder body to ultimately decide on the composition of the board of directors, the degree to which law “insulates” managers from immediate shareholder influence can have an important impact on directors’ behaviour. Even where a jurisdiction mandates the management of the company in the interest of all stakeholders, a credible threat of being removed by one of the constituencies (i.e. the shareholders) should be expected to influence the relative weight a director will assign to the different stakeholders’ interests when making business decisions. The effects of such decision rights can, for instance, play an important role in a board’s reaction to a hostile takeover offer.

20 Directors’ Duties and Liability in the EU