The Independence Of The Members Of The Supervisory Board In Listed Companies Under German Law

Discussion on the theme "the independence of the members of thesupervisory board in corporate governance", was hold originally only in theregion following the tradition of Anglo-Saxon law. To remedy the defect"one can′t control itself "in a uniform board, the Anglo-Saxon law hasdeveloped Outside Directors System. With the development, however, inGermany corporation law, that over a long time the two-tier board system–separation between a management board ("Vorstand") and a supervisoryboard ("Aufsichtsrat")-rules, the problem "independence of the membersof the supervisory board" is attracting more and more attention. Thismaster′s dissertation focus on the theme, the necessity of the independenceof the members of the supervisory board in corporate governance inGermany stock exchange-listed companies and relative regulations. Thisdissertation is divided into4chapters as follows:Chapter One studies the crucial factors of the two-tier system. Firstly,it analyzes and summarize the framework, on which the independence ofthe members of the supervisory board in corporate governance relies. Thefirst section discusses on the principle of both personnel and functionalseparation between a management board and a supervisory board. And thendescribe briefly the features of co-determination regime. As a regime, thatreflects the tolerance of conflicts of interests by law, it defined the limit ofmy dissertation. Since the concept of co-determination regime is to realizethe social satisfaction, furthermore, it refers to many other law domainsincluding construction law, labor law, etc., while meine dissertation composes just in a corporate governance′perspective. Therefore infollowing paragraphs the specific problems related to the representatives ofthe workforce are ignored and only the independence of the representativesof shareholders is discussed.Then in the next section is revealed the main flaws of the two-tierstructure-lack of communication between management board andsupervisory board,and the supervisory board is not enough informed. Inorder to remedy this defect, Germany lawmakers expand the function ofsupervisory board by means of the reform of the AktG. At the end of thisChapter is summarized the opinions of Germany scholars: although thefunction of supervisory board works inadequately in the practice, thedefects yet doesn’t result from the two-tier system itself. Every structure inthe corporate governance has its advantages and disadvantages. In additionto this, both the main structures are converging with each other. Therefore,currently prevailing view in jurisdiction and experts’ literature believe it notnecessary to abandon two-tier system.Chapter Two deals with the function of board of supervisors and theindependence of individual supervisors. The expansion of the function ofboard of supervisors in modern times challenges the independence ofindividual supervisors. The division of the functions of board of directorsand board of supervisors has gone through three stages—blurred, distinct,blended—from before1884to the two-tier structure and the functions ofboard of supervisors which are influenced by today’s european laws anddetermin by AktG supplemented by German Corporate Governance Code.The chapter then explores the basic function of board of supervisorsunder current laws—supervision and consultancy. My dissertationdiscusses that if the boarder of the double-tier structure has been brokenthrough under current German law, based on "agreement reservation for thesupervisory board" an example of the function expansion of board ofsupervisors. Then the chapter analyzes the challenges, faced by individualsupervisors, arising from the expansion of board of supervisors’ function,especially the function of consultancy, and draws the conclusion: it is theexpansion of function of the board that makes the independence ofindividual supervisors an important issue for the discussion of corporate governance.Chapter Three is concerned with conflicts of interest andindependence. Due to the conflicts of interest between individualsupervisors and the corporation, in particular the “double role” of thesupervisors in Germany, the individual supervisor cannot makeindependent and fair judgments solely in the interest of the company. Theconflicts of interest is directly related to the dependence of a member′saffirmation. To regulate the interest conflicts is an important way to securethe independence of individual supervisors.Chapter Four analyzes the regulations provided for a system thatsecures the independence of supervisors. Legislation and GermanCorporate Governance Code (as soft law) are the major regulations thathave effect on the practice of corporate governance. The dissertation makesanalysis on the mechanism and legal significance of German CorporateGovernance Code, and finds that German Corporate Governance Code caneffectively resolve the contradiction between corporate self-governance andmandatory law. Details of the effectiveness of German CorporateGovernance Code is analyzed together with the stipulations of AktG.This Chapter focuses on the ambiguity of the definition in Item5ofArticle100, and the difficulty in deciding the legal result, and draws theconclusion that the problem in deciding the legal result derives from thenature of things. To resolve this problem, the most effective methodcurrently is to abstract rules from a group of cases ruled by court. The“comply or explain”system set forth in Article161of AktG, combinedwith the stipulations of German Corporate Governance Code, improvescorporate governance through market mechanism, rather than mandatoryprovisions of law. At the end of this chapter, advice is provided for thecorporate governance reform of China, based on the study on thesupervisor independence in Germany.