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The quest for a new management structure in European company law Weibel, Rolando 1973

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THE QUEST FOR A NEW MANAGEMENT STRUCTURE IN EUROPEAN COMP1ANY LAW by ROLANDO WEIBEL L i e . i u r . , U n i v e r s i t y of Berne Member of the Swiss Bar THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS i n the Department of Law We accept t h i s t h e s i s as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA August, 1973 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make i t freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the Head of my Department or by his representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of Law The University of British Columbia Vancouver 8, Canada Date August 15th, 1973 ( t ) ABSTRACT This t h e s i s i s concerned with one of the most s i g n i -f i c a n t features of the evolution of company law i n con-t i n e n t a l Europe - the emergence of a new management s t r u -cture. The f i r s t part of the t h e s i s contains a h i s t o r i c a l background to the evolution of company law i n the coun-t r i e s where t h i s new structure o r i g i n a t e d , namely, Ger-many and France. This background provides the basic f r a -mework f o r the second part of the paper, i n which the new management structure i s examined. In p a r t i c u l a r , the main features of the two bodies c o n s t i t u t i n g t h i s structure -the managing board, which manageg the company, and the supervisory board, which i n turn supervises management -are discussed i n some d e t a i l . Following t h i s examination, the r o l e of t h i s new managerial structure i n the context of European Community law i s traced. The t h e s i s concludes with a short analysis of workers' and employees' r i g h t s and t h e i r possible p a r t i c i p a t i o n i n the management of the company. The Supervisor CONTENTS Page CHAPTER I INTRODUCTION 1 1. Background to a c i v i l law study 1 2. The slow evolution of company law 2 3. The scope of t h i s study 4 4. Background to company law i n Ger-many, France and The Netherlands 6 A. Germany 6 B. France 10 G. The Netherlands 12 CHAPTER I I THE TWO-TIERED BOARD STRUCTURE: A HISTORICAL PERSPECTIVE 15 1. The appearance of a supervisory board: France 15 2. The appearance of a supervisory board: Germany 18 3. The two-board structure as a ru l e i n German management 20 4. The two-board structure of manage-ment i n the present c o d i f i c a t i o n s 24 A. Germany 25 B. France 26 C. The Netherlands 27 D. A u s t r i a 28 CHAPTER I I I THE SUPERVISORY BOARD 29 A. Appointment 29 ( i i i ) Page B. Q u a l i f i c a t i o n 32 C. Nature and duration of the appointment 38 D. Remuneration 40 E. Removal 42 F. C o n f l i c t s of i n t e r e s t s and pr o h i -b i t e d f i n a n c i a l transactions 44 G. Composition of the supervisory board 46 H. Proceedings 50 I. Powers and duties of the super-v i s o r y board 53 L. L i a b i l i t y 61 CHAPTER IV THE MANAGING BOARD 68 A. Appointment 68 B. Q u a l i f i c a t i o n 71 C. Nature and duration of the appointment 73 D. Remuneration 75 E. Removal 77 F. C o n f l i c t s of i n t e r e s t s and proh i -b i t e d f i n a n c i a l transaction 79 G. Composition of the managing board 81 H. Proceedings 84 I. Representation 85 L. Powers and duties of the managing board 88 (iv) Page M. L i a b i l i t y 93 CHAPTER V MANAGEMENT IN EUROPEAN COMMUNITY LAW 96 A. Evolution within the E.E.C. 97 B. The d i r e c t i v e s under a r t . 54(3)(g) of the E.E.C, Treaty 99 C. The Societas Europaea: a h i s t o -r i c a l background 102 D. The Societas Europaea 109 E. The management structure i n the Societas Europaea 110 CHAPTER VI EMPLOYEE REPRESENTATION ON MANAGEMENT 114 A. Germany 114 B. Prance 119 C. The Netherlands 122 D. E.E.C. law 125 CHAPTER VII CONCLUSION 129 BIBLIOGRAPHY BOOKS 130 ARTICLES 133 1 CHAPTER I INTRODUCTION 1. Background to a c i v i l law study Although the law may appear s i m i l a r i n structure i n most of the nations of the continent of Europe (the l a r g e s t part of the c i v i l law world), there are s i g n i f i c a n t differences i n substance between the laws of the i n d i v i d u a l countries. There are various reasons f o r t h i s . F i r s t , the ultimate source of a l l law i s generally the c o n s t i t u t i o n , which determines the state a u t h o r i t i e s e n t i t l e d to enact and promulgate laws, and i n e v i t a b l y gives a national character to the law. Second, cer-t a i n aspects of the c i v i l law system tend to r e s t r i c t the evolution of the law within national boundaries, p a r t i c u l a r l y the f a c t that the c i v i l law makes no d i s t i n c t i o n between com-mon law and equity, nor between case law and statute law. Furthermore, there i s no doctrine of precedent ( i . e . , stare d e c i s i s ) i n c i v i l law. 1 Company law, l i k e most of the law, i s also always c o d i f i e d i n the c i v i l law countries and these statutes, together with 1 At c i v i l law, decisions of the courts bind only the par-t i e s . However, decisions of the superior courts have a very strong persuasive force and are followed l i k e pre-cedent. But, of course, t h e i r force i s l i m i t e d within national boundaries. 2 custom (customary l a w ) , c o n s t i t u t e the primary source o f t h i s branch of law. The f a c t t h a t the law i s c o d i f i e d , how-ever, does not n e c e s s a r i l y mean t h a t every a s p e c t of com-pany law i s to be found w i t h i n one unique code: the c o n t r a -r y i s u s u a l l y the c a s e . Some c o u n t r i e s , f o r example, have enacted an e x t e n s i v e Companies A c t as a s e p a r a t e p i e c e o f l e g i s l a t i o n (e.g., Germany); but o t h e r s have i n c l u d e d t h e i r company law i n a Commercial Code d e a l i n g w i t h a l l a s p e c t s o f commercial law (e.g., The N e t h e r l a n d s ) , or have encom-passed i t i n the g e n e r a l C i v i l Code (e.g., I t a l y ) or i n the Code o f O b l i g a t i o n s (e.g., S w i t z e r l a n d ) , or have ena-c t e d a Law c o v e r i n g a l l commercial companies extended by o t h e r s t a t u t e s (e.g., F r a n c e ) . 2. The slow e v o l u t i o n o f company law I t has a l r e a d y been noted t h a t the c i v i l law system has not shown a p a r t i c u l a r p r o p e n s i t y f o r an e v o l u t i o n o u t s i d e the b o u n d a r i e s o f a s t a t e . T h i s f a c t was e s p e c i a l l y t r u e o f company law, f o r two main rea s o n s . F i r s t , u n l i k e o t h e r - as-p e c t s of commercial law, company law was not i n f l u e n c e d by i n t e r n a t i o n a l exchanges and customs, which p l a y e d a d e c i s i -ve r o l e i n the a p p r o x i m a t i o n of the commercial laws o f c o n t i -n e n t a l Europe. Second, a company has always been seen as a s t a t i c i n s t i t u t i o n i n t i m a t e l y bound to one c o u n t r y and one 3 2 law. In the l a s t t h r e e decades, however, t h e r e have been s i g n i f i c a n t changes, the main r e a s o n behind them b e i n g the new economic power o f Europe which sprung up a few yea r s a f t e r World War I I . T h i s f a c t o r has l e d t o s i g n i f i c a n t r e -forms i n company law i n Europe. These changes have deve-lo p e d on two f r o n t s , both w i t h i n the i n d i v i d u a l n a t i o n a l laws, and, on a s u p r a n a t i o n a l l e v e l w i t h the emergence o f 3 a new c o n t i n e n t a l e n t i t y , the Common Market. I n some c o u n t r i e s ( I t a l y , Belgium, Luxemburg) the reforms a r e s t i l l 4 worked out and may not be f i n a l i s e d f o r some time; i n o t h -er c o u n t r i e s (Germany, Fr a n c e , The N e t h e r l a n d s ) , new Compa-n i e s A c t s , or important p a r t s o f the o l d ones, have been enacted i n t r o d u c i n g r a d i c a l changes t o the company law of the r e s p e c t i v e c o u n t r i e s . ^ 2 F o r a comparative study o f the e v o l u t i o n o f c o r p o r a t e law, see Levy, A.B., P r i v a t e C o r p o r a t i o n s and *Eheir Con- t r o l , v. I , pp. 3-223 (London, Routledge & Kegan, 1950). 3 F o r the i n f l u e n c e of the Common Market on European com-pany law, see cha p t e r V. 4 P r o b l e m i e p r o s p e t t i v e d e l l a r i f o r m a d e l l e s o c i e t a com- m e r c i a l ! ( M i l a n o , ISLE, 1966); Renauld, J . , Les travaux  de reforme du d r o i t des sociefces en B e l g i q u e e t l e p r o -j e t i t a l i e n , R i v . S o c , 1967, p. 218. 5 Duden, K., A k t i e n r e c t h s r e f o r m i n Deutschland, F r a n k r e i c h n  und England, RabelsZ, 1967, p. 51; K o h l e r , R.M., The new  c o r p o r a t i o n s l a w s i n Germany (1966) and Fr a n c e (1967) and the t r e n d towards a unif o r m c o r p o r a t i o n law f o r the Com- mon Market, 43 Tulane L.R., 1968, p. 58. 4 3. The scope of t h i s study Among the many a s p e c t s of the i n t e r n a l n a t i o n a l reforms and o f the wider European reform, one of the most important f e a t u r e s ( i f not the most s i g n i f i c a n t one) i s the l e g a l r e -c o g n i t i o n o f a w e l l e s t a b l i s h e d f a c t , namely t h a t the power and c o n t r o l i n the company have s l i p p e d away from the gene-r a l meeting o f the s h a r e h o l d e r s t o the management. The phe-nomenon o r i g i n a t e d i n Germany, which became the l e a d e r o f t h i s movement and i n v o l v e d o t h e r s t a t e s . F o r example, France and The N e t h e r l a n d s have i n r e c e n t y e a r s adopted a new sy-stem o f management s i m i l a r i n the s t r u c t u r e t o the German one. Moreover, o t h e r c o u n t r i e s are now f o l l o w i n g t h i s t r e n d i n t h e i r r e f o r m s . T h i s managerial s t r u c t u r e , which attempts t o s e p a r a t e power and c o n t r o l w i t h i n management i t s e l f by s p l i t t i n g i t i n t o two s e p a r a t e boards, can be o u t l i n e d as f o l l o w s : a) One board, c a l l e d the managing board or the d i r e c t o r a t e . i s charged w i t h the r e s p o n s a b i l i t y o f d i r e c t i n g the com-pany; i t i s the o n l y organ of a c t u a l management of the company; b) The o t h e r board, c a l l e d the s u p e r v i s o r y board or board  o f o v e r s e e r s , c a r r i e s out the f u n c t i o n o f s u p e r v i s i n g 5 the managing board. I t cannot be d i r e c t l y i n v o l v e d i n the management and r e p r e s e n t s the i n t e r e s t s o f the sha-r e h o l d e r s and o t h e r groups, such as employees and the government; c) Consequently, the s h a r e h o l d e r s i n g e n e r a l meeting have no d i r e c t power of management or c o n t r o l , t h e i r r o l e b e i n g l i m i t e d t o the economic and j u r i d i c a l o r g a n i z a t i o n of the company ( f o r example, d e c i d i n g changes i n the by-laws, i n the c a p i t a l s t r u c t u r e , a p p r o v i n g mergers). I t i s the purpose o f t h i s t h e s i s t o examine the p r e s e n t s t a -ge of the company law r e f o r m i n Europe i n r e s p e c t to the mana-gement s t r u c t u r e . I n the f i r s t s e c t i o n o f the paper (ch a p t e r I I ) the e v o l u t i o n o f management towards a two-board system w i l l be t r a c e d . Then ( c h a p t e r s I I I - I V ) , a comparison between the management system of Germany, France and The Ne t h e r l a n d s w i l l be attempted i n an e f f o r t to h i g h l i g h t the s i g n i f i c a n t f e a t u r e s o f the two-board s t r u c t u r e . L a t e r ( c h a p t e r V ) , a c o n s i d e r a t i o n w i l l be g i v e n t o the r o l e o f t h i s new form of management i n the c o n t e x t o f the app r o x i m a t i o n of the n a t i o -n a l laws of the member s t a t e s o f the Common Market and i n the c o n t e x t o f the c r e a t i o n o f a new s u p r a n a t i o n a l company, the S o c i e t a s Europaea, l i k e l y to be a r e a l i t y i n the near f u t u r e . F i n a l l y ( c h a p t e r V I ) , a s h o r t a n a l y s i s w i l l be made of an im-p o r t a n t consequence of the two-board system, namely the 6 p o s s i b i l i t y of employee representation on the management. Before going f u r t h e r , however, a short introductory background to the company laws of the three countries con-sidered i n t h i s survey i s necessary. 4. Background to company law i n Germany, France and  The Netherlands * A. Germany For over a century Germany has always had the strongest influence on the development of company law i n the European continental states. This i s probably due to the s p i r i t of adaptation of the German people to the contingencies of the commercial world, a fac t o r which may be c l o s e l y associated with 20th century p o l i t i c a l h i s t o r y i n Germany: following the d i s i n t e g r a t i o n of the country towards the end of World War I I , Germany has been revived to become the greatest economic power on the continent. In the l a s t f i f t y years t h i s process of adaptation has been e s p e c i a l l y l i v e l y i n the company law sphere. 'Germany* s h a l l mean, unless otherwise stated, either the pre-separation German State or the post-separation Fede-r a l Republic of Germany (West Germany). 7 Germany had enacted i n 1896 i t s new C i v i l Code ('Bur-ger l i s c h e s Gesetzbuch = BGB'), a very modern piece of l e -g i s l a t i o n , and i n 1897 i t s new Commercial Code ('Handels-gesetzbuch = HGB'), which covered also company law and i n substance followed the precedent code of 1884. Both these Acts came i n t o force i n 1900. Some years l a t e r , a f t e r the country's defeat i n World War I, the p o l i t i c a l and economi-c a l s i t u a t i o n of the country underwent major changes: a high i n f l a t i o n grade, only apparently cancelled i n 1923, and a deep depression dominated the country. Company law was not a l t e r e d i n t h i s period; there were, however, substantial changes i n company p r a c t i c e , the most i n f l u e n c i a l being the creation of shares with p l u r a l votes and s i m i l a r devices, the so-called protecting shares, t r e a -sury shares, and s i m i l a r a r t i f i c i a l holding. These devices c l e a r l y reduced the power of the majority, formerly propor-t i o n a l to i t s shareholdings. Then, i n September 1931, two years before the Nazis took power, an emergency decree was enacted introducing impor-tant reforms i n company law, which were necessary to cope 7 with the tremendous problems of the depression. 6 Levy, op. c i t . , p. 182. 7 I b i d . , pp. 206-209. 8 The 1931 Decree c o n s t i t u t e d a v e r y p r o g r e s s i v e p i e c e o f l e g i s l a t i o n ; i t extended, i n p a r t i c u l a r , the powers of the s u p e r v i s o r y board and the r i g h t s o f the m i n o r i t y s h a r e h o l -d e r s . Many norms o f the Decree became then p a r t o f the Com-g pan i e s A c t enacted by the N a z i regime i n 1937. A l t h o u g h the 1937 A c t was the most modern o f the Euro-pean company law s t a t u t e s , soon a f t e r World "War I I s e v e r a l s t a t u t e s were passed which a l t e r e d i t , i n p a r t i c u l a r o v e r u -9 l i n g c e r t a i n a b u s i v e norms i n t r o d u c e d by the N a z i s . Moreover, the important C o - d e t e r m i n a t i o n laws o f 1951 and 1956 1 1 and the Works C o u n c i l A c t of 1952 1 2 added a 8 (1937) 1 R e i c h s a e s e t z b l a t t 107: 'Gesetz uber A k t i e n -g e s e l l s h a f t e n und Kommanditgesellschaften a u f A k t i e n vom 30. Januar 1937' . H e r e i n a f t e r c i t e d as "AktG. 1937" 9 Duden, op. c i t . , pp. 56-59. 10 (1951) 1 B u n d e s q e s e t z b l a t t 347: 'Gesetz uber d i e M i t -bestimmung der Arbeitnehmer i n den A u f s i c h t s r a t e n und Vorstanden der Unternehmen der E i s e n - und S t a h l e r z e u -genden I n d u s t r i e (Mitbestimmungsgesetz) vom 21. Mai 1951' . H e r e i n a f t e r c i t e d as "MitbG.". 11 (1956) 1 B u n d e s q e s e t z b l a t t 707: 'Gesetz zur Erganzung des Gesetzes uber d i e Mitbestimmung der Arbeitnehmer i n den A u f s i c h t s r a t e n und Vorstanden der Unternehmen der E i s e n - und S t a h l erzeugenden I n d u s t r i e (Mitbestimmungs-erganzungsgesetz) vom 7. August 1956'. H e r e i n a f t e r c i t e d as "MitbEG.". 12 (1952) 1 B u n d e s q e s e t z b l a t t 681: ' B e t r i e b s v e r f a s s u n g s -g e s e t z vom 11. Oktober 1952'. H e r e i n a f t e r c i t e d as "BetrVG. 1952". On the meaning o f "Co - d e t e r m i n a t i o n " , see c h a p t e r s VI and I I I . 9 considerable amount of l e g i s l a t i o n which rendered the whole body of law quite fragmentary. In addition, some Nazi terminology s t i l l i n the Act was not i n l i n e with the new times. The preparatory work fo r a new Companies Act started i n 1953 and f i v e years l a t e r an u n o f f i c i a l Draft Statute ('Referentenentwurf•) was released. The o f f i c i a l govern-mental Draft Statute ('Regierungsentwurf') followed i n 13 1960. F i n a l l y , a f t e r long parliamentary debates, i n September 1965 the new German Stock Corporation Act was 14 enacted. The Act became e f f e c t i v e on January 1st, 1966 15 together with an Introductory Law. Besides containing many new features r e l a t i n g to the stock corporation, the Act i s e s p e c i a l l y important because i t 13 Stein, E., Harmonization of European company laws, p. 98 (New York, The Bobbs-Merrill Company, Inc., 1971) 14 (1965) 1 Bundesqesetzblatt 1089; •Aktiengesetz vom 6. September 1965'. Hereinafter c i t e d as "AktG.".Trans-l a t e d i n English by F.K. Juenger and L. Schmidt for the CCH Comm. Mrkt. Rep. (Chicago, 1967) and by R. Mueller and E.G. Galbraith (Frankfurt am Main, F r i t z Knapp Verlag, 1966). 15 (1965) 1 Bundesqesetzblatt 1185: 'Einfuhrungsgesetz zum Aktiengesetz vom 6. September 1965'. Hereinafter c i t e d as "EGAktG.". Also published i n English together with the AktG. i n the CCH Comm. Mrkt, Rep. 10 constitutes the f i r s t c o d i f i c a t i o n of the l e g i s l a t i o n dealing expressely with r e l a t e d entreprises, very common 16 i n Germany today. B. France Norms regulating companies are to be found f i r s t i n the Napoleonic codes - the C i v i l Code of 1803, the Com-mercial Code of 1807 and the Criminal Code of 1810. Those norms were applied f o r a long time without major changes and i t was not u n t i l 1856 that a reform took place l e a -17 ding to the Companies Act of 1867. This statute, a l -18 though supplemented with a major amendment i n 1893 and l a t e r by numerous other laws and decrees, constituted the basis of French company law f o r exactly 99 years. In t h i s way the country of the f i r s t modern c o d i f i c a t i o n s became one where the laws were dispersed i n numerous texts, incompatible with the exigencies of the new economic s i -tuation a f t e r World War II and the entry of France i n the 16 AktG., D r i t t e s Buch, Verbundene Unternehmen, a r t s . 291-338. Konzern law has a special appeal i n European law, with no counterpart i n Anglo-American law. This i s pro-bably due to a greater necessity of concentration and a l e s s protection f o r minority shareholders (Duden, op. c i t . , p. 70). 17 Levy, op. c i t . , pp. 92-95. 18 I b i d . , pp. 155-56. 11 Common Market. F i n a l l y , a new reform was completed and i n J u l y 1966 the Law on Commercial Companies was enacted, and became 19 e f f e c t i v e i n 1967. The Act was accompanied by the De-cree on Commercial Companies enacted i n 1967, regulating 20 quite extensively i t s a p p l i c a t i o n . The present Act i s s t i l l a basic statute only; i t i s not exhaustive and i n p a r t i c u l a r i t does not abolish the part of the C i v i l Code of 1804 (a r t s . 1832-73) containing the general p r i n c i p l e s f o r a l l s o c i e t i e s , which are also the spe c i a l norms f o r c i v i l s o c i e t i e s . Moreover, the Act has already gone through many amendments (sixteen i n the f i r s t four years), as has the Decree (three i n the same period of time). 2 1 19 Journal o f f i c i e l du 26 i u l l i e t 1966; 'Loi no 66-537 du 24 j u l l i e t 1966 sur l e s societes commerciales'. Hereinafter c i t e d as "L o i no 66-537". 20 Journal o f f i c i e l du 24 mars 1967; 'Decret no 67-236 du 23 mars 1967 sur l e s societes commerciales'. Hereinafter c i t e d as "Deer, no 67-236". Both, the L o i no 66-537 and the Deer, no 67-236, are published i n English by the CCH (Chicago, 1971). 21 Basfcian, D., Jura Europae, Droit des societes,v. I, 30.00 1; a part of the norms of the C i v i l Code r e l a -t i n g to companies has been modified by the Law no 66-538 of Ju l y 24th, 1966, which also modifies other commercial texts. 12 C. The Netherlands The country where the f i r s t modern charter company was formed i n 1602 ('Verenige oost-Indische Compagnie'), r e -mained without governing commercial l e g i s l a t i o n f o r two more centuries. Then, i n 1811, being incorporated i n the French empire, the country adopted the Napoleonic Commer-c i a l Code. A f t e r the separation from France i n 1813, the Code was maintained, at l e a s t on a p r o v i s i o n a l b a s i s , u n t i l 22 1838 when the Netherlands Commercial Code wa enacted. Structured on the French system but with i t s own character, the Code was then revised, e s p e c i a l l y i n view of a l i b e -r a l i z a t i o n from the preventive control of the a u t h o r i t i e s . A major reform, v a i n l y attempted i n 1871, was introduced for d i s c u s s i o n i n 1910, then s e r i o u s l y modified i n 1925 (r e s t o r i n g the a u t h o r i t i e s ' control) and f i n a l l y adopted i n 1928 i n the new law which modified and completed the former provisions on stock corporations and which became e f f e c t i v e i n 1929. 2 3 A general r e c o d i f i c a t i o n of the c i v i l and commercial law i s now being prepared i n The Netherlands. According to 22 'Wetboek van Koophandel'. Hereinafter c i t e d as "W.v.K. 23 Van der Grinten, W., Jura Europae, Droit des societes, 60.10 2. 13 present plans, the law would be consolidated i n a New C i v i l Code ('Nieuw B u r g e r l i j k Wetboek'), the second book of which, e n t i t l e d "Legal Persons", would deal also with stock corpora-tions. But i t i s not expected to come int o e f f e c t f o r at 24 l e a s t some years. At the same time another reform, more su b s t a n t i a l , was also i n progress. A commission, presided over by Prof. P.J. Verdam, was asked to study concrete modifications to the old quite l i b e r a l law concerning the protection of share-holders, the public and the workers. The Commission not only took i n consideration the proposals based on a r t . 54 25 (3)(g) of the E.E.C. Treaty , but also the German law, the l e g i s l a t i o n concerning the S e c u r i t i e s and Exchange Commission i n the U.S.A. and the norms concerning the An-glo-American i n j u n c t i o n . In the meantime, some proposals of the Verdam Commission having being stopped by the S o c i a l and Economic Council (a governmental organ), a new commis-sion, presided by Prof. Van der Grinten, was appointed to produce further studies. A f t e r the important part of the Verdam Commission concerning co-determination was f i n a l l y 24 S t e i n , op. c i t . , p. 147. 25 On the influence of the E.E.C. Treaty on the national company laws, see chapter V. See also, Sanders, P., Reform  des Aktienrechts i n den Niederlanden, Die AG, 1965, p. 284. 14 approved by the S o c i a l and Economic Council, the Van der Grinten Commission was asked to prepare an appropriate statutory text f o r the intr o d u c t i o n of the reforms i n the Commercial Code. In 1971 the new r u l e s were enacted and came i n t o e f f e c t , bringing to the Netherlands company law the f i r s t s i g n i f i c a n t transformation i n more than f o r t y 28 years. Also i n the same year, completing these reforms, 29 the new law on works councils was enacted and enforced. * * * 26 S t e i n , op. c i t . , pp. 149-54. 27 Staatsblad no 289. 28 An American t r a n s l a t i o n of the Netherlands Business Cor-poration Code by Morris, T.B., van de Ven, J.A. and West-broek, M. i s published i n the CCH Comm. Mrkt. Rep. (no 193, August 15th, 1972). 29 Staatsblad no 54. 15 CHAPTER I I THE TWO-TIERED BOARD STRUCTURE: A HISTORICAL PERSPECTIVE A f t e r h a v i n g s h o r t l y t r a c e d i n c h a p t e r I the company law background i n Germany, F r a n c e and The N e t h e r l a n d s , t h i s cha-p t e r w i l l be devoted to examine i n an h i s t o r i c a l p e r s p e c t i v e the emergency of the two-board management system. 1. The appearance o f a s u p e r v i s o r y board: F r a n c e The u s u a l form o f b u s i n e s s a s s o c i a t i o n s i n France i n the 17th c e n t u r y was the p a r t n e r s h i p ('commandite'). In the 18th c e n t u r y , however, two o t h e r forms o f b u s i n e s s a s s o c i a t i o n s were i n e x i s t e n c e - the j o i n t - s t o c k company ( l a t e r c a l l e d by the Commercial Code of 1807 ' Soci^te' Anonyme') and the p a r t n e r s h i p by shares ('commandite par a c t i o n s ' ) 1 . I t i s not c l e a r i f the g r a n t o f a r o y a l c h a r t e r was s t r i c t l y ne-c e s s a r y but t h i s does seem p r o b a b l e , and i t may be assumed t h a t the companies w i t h o u t l e t t e r s p a t e n t were loo k e d upon 1 The 'commandite par a c t i o n s ' i s a combination of a p a r -t n e r s h i p and a j o i n t - s t o c k company i n the sense t h a t one or s e v e r a l p a r t n e r s manage and assume p e r s o n a l and u n l i m i t e d l i a b i l i t y f o r the company's debts and o b l i g a -t i o n s (managing p a r t n e r s o r ' g e r a n t s ' ) , the o t h e r s l i m i -t i n g t h e i r l i a b i l i t y t o the amount of t h e i r shares ( s o -metimes c a l l e d ' s l e e p i n g ' p a r t n e r s ) . 16 as unincorporated companies. In t h i s context, the s i t u a t i o n became even more complicated towards the end of the 18th century. There was a change from the charter system to the free a s s o c i a t i o n system i n 1791-followed by a reckless speculation that ledfed. the revolutionary law of 1793 pro-h i b i t i n g the formation of new companies and ordering e x i -s t i n g corporate entreprises to be dissolved. Two years l a t e r the r i g h t of fre e association was again i n e f f e c t . The confusion was f i n a l l y s e t t l e d i n a compromise con-tained i n the Commercial Code of 1807, which required the grant of a charter f o r the j o i n t - s t o c k companies, while the partnerships by shares could be formed f r e e l y . The Code contained only one provi s i o n concerning management, p r o v i -ding that a company should be managed by agents appointed 2 and removable at any time by the shareholders. The l o g i c a l consequence of t h i s development was that a great number of partnerships by shares were formed and soon, lack i n g any c o n t r o l , a large number of them, dubious-l y promoted, collapsed. This c a l l e d f o r new l e g i s l a t i o n c o n t r o l l i n g the formation and management of these companies. The needed reform was incorporated i n the Amendment to the 2 Levy, op. c i t . , pp. 55-r56 17 law dealing with the partnerships. While the p r i n c i p l e of the r i g h t of fre e a s s o c i a t i o n was maintained, a number of new provisions were introduced regarding the structure and regu l a t i o n of the management. Among these norms was the cr e -ation of a new organ i n the management structure, the super-v i s o r y board ('conseil de s u r v e i l l a n c e ' ) . This board - co n s i s t i n g of at l e a s t f i v e members - was to be appointed by the shareholders i n general meeting be-fore business began, and was expressly deemed to represent the 'sleeping' partners, who previously had p r a c t i c l y no power. The supervisory board had to control the conduct of company's a f f a i r s by examining the books, cash and secu-r i t i e s and reporting to the shareholders. I t could also make f i n a l decisions on dividends and was empowered to c a l l a general meeting and to propose a d i s s o l u t i o n of the company. F a i l u r e to perform t h e i r duties imposed a l i a b i -l i t y on the members of the board. Various penalties f o r d i f -ferent types of defaults were l a i d down f o r contravention of the law. The law also foresaw the p o s s i b i l i t y of class ac-tions against the managing partners. A l l t h i s r e s u l t e d i n a slowing down of the formation of partnersips by shares 3 so that the law had to be relaxed somewhat i n 1857. 3 I b i d . , pp. 90-91. The r e l a x a t i o n touched p a r t i c u l a r l y the number of the supervisors (not more than three), the duration of t h e i r term and the cases of l i a b i l i t y . 18 2. The appearance of a supervisory board: Germany While i n England, The Netherlands and France there was a l i v e l y movement of corporate ventures i n the 18th century, the German States had l i t t l e i n t e r e s t i n that kind of asso-c i a t i o n . The few e x i s t i n g companies were created by s p e c i a l charter from the sovereign, which contained the regulations for the chartered company. Even the Prussian Code of 1794, i n s p i t e of i t s great volume and i t s attempt at complete-ness, d i d not contain provisions f o r j o i n t - s t o c k companies. A few years l a t e r , the States of the Rhine Confederation adpted Napoleon's Commercial Code and so f o r the f i r s t time the j o i n t - s t o c k company (•Aktiengesellschaft') and the par-tnership by shares ('Kommanditaktiengesellschaft') were r e -4 gulated i n Germany by c o d i f i e d norms. With the onset of the 19th century, great changes took place i n German economic l i f e . These changes were e s s e n t i -a l l y due to the construction of railways, which greatly ac-celerated the growth of i n d u s t r i e s l i k e c o a l , i r o n ans s t e e l , and engineering. As a consequence, the creation of new com-panies increased as w e l l . The Prussian Government, a f t e r enacting i n 1838 a f i r s t law 4 I b i d . , p. 96 19 r e g u l a t i n g the r a i l w a y companies, enacted i n 1843 a g e n e r a l Company Law c o n t a i n i n g r e g u l a t i o n s r e l a t i n g to j o i n t - s t o c k companies a l o n e . The c h a r t e r system was m a i n t a i n e d . In the P r u s s i a n Law the management p l a y e d a minor r o l e a t the s h a r e h o l d e r s ' g e n e r a l meeting, which was c o n s i d e r e d the supreme organ o f a t h e company. The company i t s e l f was u s u a l -l y s t r u c t u r e d w i t h an a d m i n i s t r a t i v e board ('Verwaltungs-r a t ' ) , e l e c t e d by the s h a r e h o l d e r s f o r the s u p e r v i s i o n of the company's managers. The Law d i d not c o n t a i n express p r o v i s i o n s f o r a s u p e r v i s o r y board, but no o b s t a c l e to such 5 a p r o v i s i o n i n the a r t i c l e s of a s s o c i a t i o n was i n c l u d e d . As a matter of f a c t , t h i s p e r i o d saw many companies a l r e a d y a d o p t i n g a two-board management system, adding to the u s u a l board o f managers a s u p e r v i s o r y board ( ' A u f s i c h t s r a t ' ) . I n the 1850's one German S t a t e a f t e r another passed i t s Company A c t and then i n 185 7 a commission r e p r e s e n t i n g the v a r i o u s S t a t e s was formed to d r a f t a General Commercial Code ( 'Nurnberg 'Allgemeinss H a n d e l s g e s e t z b u c h ' ) . Adopted i n 1861, the Code was s e p a r a t e l y enacted i n the f o l l o w i n g two y e a r s by the s t a t e l e g i s l a t u r e s , which m a i n t a i n e d independence i n 5 I n German law the company's s t a t u t e ('Satzung') i s a combined memorandum of a s s o c i a t i o n and a r t i c l e s o f a s -s o c i a t i o n . 20 the choice of a charter or a free formation system. The Code of 1861 represents the point of departure f o r the modern German management structure: the Act i n e f f e c t provided f o r a compulsory board of supervision f o r the par-tnerships by shares ( l i k e the French Amendment of 1856), whi-l e f o r the j o i n t - s t o c k companies only the managing board was made compulsory. The supervisory board was admitted i f pro-vided f o r i n the a r t i c l e s of a s s o c i a t i o n , and when appoin-ted i t had usually wide powers of supervision over the ma-nagement (e.g., inspecting the company's books, records, cash and s e c u r i t i e s , examining the balance sheet and the proposals f o r dividends). In the j o i n t - s t o c k companies the supervisory board was now quite d i s t i n c t from the older one i n the partnerships by shares, representing not only the 'sleeping' partners but a l l the shareholders. I t was also d i s t i n c t from the administrative board, which used to par-t i e i p a t e , at l e a s t i n part, i n the business decisions. 3. The two-board structure as a r u l e i n German management The next important development was i n the amendment to the part of the Code dealing with company law enacted by the 6 I b i d . , pp. 98-102. 21 North German Federation i n 1870, which no longer required the concession of a grant by the Government neither f o r partnerships by shares nor f o r j o i n t - s t o c k companies. As a counterbalance to t h i s l i b e r a l i z a t i o n , f o r the f i r s t t i -7 me the supervisory board was made compulsory. Whatever, the l i b e r a l i z a t i o n proved to be a mistake: i n the boom and the successive collapse of the seventies, companies went through a great number of scandals. Subsequently a new Code was enacted i n 1884, which expressly provided f o r a super-vi s o r y board. Later, together with new norms on the control of company promotion, on the increase and reduction of c a p i t a l and on minority r i g h t s , t h i s l e g i s l a t i o n was i n c o r -porated i n t o a new comprehensive Commercial Code passed i n 1897 and i n force since 1900. 8 The dichotomy of managing and supervisory board was now well established i n the theory of German law, but i n pra-c t i c e the s i t u a t i o n was not so c l e a r . I t was accepted at the time that the supervisory board did not have to. be' l i -mited s t r i c t l y to supervision, but could be assigned a share 7 Some h i s t o r i a n s , however, take the view that i t was s t i l l at the d i s c r e t i o n of the shareholders to appoint a super-v i s o r y board or not. 8 See chapter I, 4. A, p. 7. 22 i n administration. Sometimes t h i s amounted to complete admi-n i s t r a t i o n , when the supervisory board not only f i x e d the general p o l i c y of the company, but also d i r e c t e d the mana-gers and there was even common memberships i n the two bo-dies. Thus, though the administrative boards were abrogated by law, they often subsisted disguised as supervisory boards. On the other hand, the supervisory board often could not act i n a proper way because i t s members lacked the necessa-9 ry knowledge, s k i l l and accounting experience. In the years following the Code of 1897 the number of •] j o i n t - s t o c k companies grew tremendously and Germany became the leading economic u n i t on the European continent. But then came the German defeat and i n those d i f f i c u l t years a discussion of corporate objectives began, influenced by the writings of Walter Rathenau, a businessman, statesman and p u b l i c i s t . Already i n 1918 he was claiming that large com-panies had developed beyond the sphere of p r o f i t ^ seeking i n t o a stage where they served the general purposes of a l l the community, includ i n g d i r e c t l y public purposes. In t h i s sense he thaught that companies should be run as i n s t i -tutions f o r t h e i r own sake and that the community would be 9 Ibid.» P- 129. 10 Fogarty, M.P., Company and Corporation - One law?, p. 49 (London-Dublin, Geoffrey Chapman, 1965). 23 in jured by the f a i l u r e to provide for s e l f - f i n a n c i n g and growth and e s p e c i a l l y by the u t i l i z a t i o n of the l e g a l r i g h t s of shareholders to d i s s o l v e companies of great pub l i c i n t e -r e s t . 1 1 The d i scuss ions went on throughout the 1920's and f i n a l l y i n the Law of 1937 the s h i f t away from p r o f i t - m a x i -. . 12 mizmg found i t s f i r s t l e g a l r e c o g n i t i o n . The e v o l u t i o n o f German economics and p o l i t i c s i n f l u -enced the management s t r u c t u r e as w e l l . The p r e v a l e n c e o f s h a r e h o l d e r s ' g e n e r a l meetings, u n i v e r s a l l y r e c o g n i z e d i n the e a r l i e r A c t s , was found a n a c h r o n i s t i c i n a time where the number o f s h a r e h o l d e r s had i n c r e a s e d i n such a way to render i m p o s s i b l e a n y meaningful s u p e r v i s i o n o f the conduct of the b u s i n e s s . Consequently, the management was s t r e n g -thend: the managing board became a group o f l e a d e r s or a 13 l e a d e r w i t h a b s o l u t e a u t h o r i t y i n de c i s i o n - m a k i n g . 11 V a g t s , D.F., Reforming the "modern" c o r p o r a t i o n : p e r - s p e c t i v e s from the German"^ 80 Harv. L . Rev. , (1966), p. 39. See a l s o Rathenaus* Vom Aktienwesen, 1917. 12 AktG. 1937, a r t . 70 p r e s c r i b e d t h a t the company was to manage "...as the good o f the e n t r e p r i s e and i t s r e t i -nue and the common weal o f f o l k and realm demand.": no r e f e r e n c e t o s h a r e h o l d e r s ' i n t e r e s t s i s e x p r e s s l y made. 13 T h i s s h i f t i s c l e a r l y connected w i t h the N a z i i d e o l o g y . The f i r s t sentence of AktG. 1937. a r t . 70, i n i t s o r i -g i n a l t e x t r e a d : "The managing board i s the l e a d e r ('Der Fuh r e r ' ) o f the company". 24 The s u p e r v i s o r y board too became s t r o n g e r and had v e s t e d i n i t the e x c l u s i v e power o f appointment and removal o f the ma-14 naging.iboard' s members. But the managers had a f r e e hand i n t h e i r e x e c u t i v e f u n c t i o n and f o r the f i r s t time i n almost a c e n t u r y , the law made i t c l e a r t h a t the managing board d i d not have t o share the duty and power t o manage the company 15 w i t h the s u p e r v i s o r y board which r e t a i n e d p r i m a r i l y a d i s t i n c t , c l e a r - c u t s u p e r v i s o r y f u n c t i o n . 4. The two-board s t r u c t u r e o f management i n the p r e s e n t  c o d i f i c a t i o n s The t r e n d s towards t h i s new s t r u c t u r e o f management f o r the j o i n t - s t o c k company ar e q u i t e r e c e n t . A l t h o u g h the German system has, f o r a l o n g time, provoked a g r e a t d e a l o f acade-mic i n t e r e s t , i n p r a c t i c e i t was always c o n s i d e r e d an i n t e -r e s t i n g b u t unique esperiment, i n t i m a t e l y t i e d up with the German S t a t e and i t s s p e c i a l f e a t u r e s . I t was o n l y i n the 17 s p i r i t o f the European community law t h a t t h e r e was ac -cepted the p o s s i b i l i t y o f a p r a c t i c a l a d o p t i o n o f a system 14 AktG. 1937, a r t . 75. 15 I b i d . , a r t . 96. 16 I b i d . , a r t s . 86,87,90,95. 17 See chapter V . 25 of management that not only or i g i n a t e d i n the continent's most advanced economic power, and therefore was most l i k e l y to be the best, but had the merit of amalgamating i n a very modern c o d i f i c a t i o n freedom of management with protection of the shareholders and c a p i t a l i s t i c i n t e r e s t s with worker p a r t i c i p a t i o n . 1 8 The adoption of a German type of management system has been considered by a l l states of the European Economic Com-munity i n view of the u n i f i c a t i o n of the European company 19 law. Today, however, besides Germany, three countries have already included i n t h e i r c o d i f i c a t i o n s a two-board management system: France, A u s t r i a and The Netherlands. A. Germany The new German law maintains i n broad l i n e s the same management structure of the Companies Act of 1937, with a managing board (•Vorstand'), as executive arm of the com-20 pany and a supervisory board (•Aufsichtsrat'), as over-21 semg arm. No other form of management i s contemplated. 18 Poupart, A., La socie'te Europeenne, R.J.T., 1969, p. 124. 19 See chapter V. 20 AjctG. , a r t s . 76-94. 21 I b i d . , a r t s . 95-116. 26 B. F r a n c e Two systems of management a r e a v a i l a b l e t o French compa-n i e s . The f i r s t i s the c l a s s i c a d m i n i s t r a t i v e board ('con-s e i l d 1 a d m i n i s t r a t i o n ' ) headed by a p r e s i d e n t who, as the head o f the e x e c u t i v e as w e l l (• p r e s i d e n t - d i r e c t e u r - g e n e r a l ' ), 22 enjoys a v e r y powerful p o s i t i o n . The second i s the new two-board system w i t h a d i r e c t o r a t e ( ' d i r e c t o i r e * ) and a 23 s u p e r v i s o r y board ( ' c o n s e i l de s u r v e i l l a n c e ' ) . The c h o i -ce between the two systems i s a b s o l u t e l y f r e e even a f t e r 24 the f o r m a t i o n of the company. 22 L o i no 66-537. a r t s . 89-117 23 .ribid. , a r t s . 118-150. 24 I b i d . , a r t . 118. The background to t h i s s t a t e of a f f a i r s i s worth n o t i n g . The i n i t i a l F r e n c h r e f o r m p r o j e t d i d not contemplate a two-board system a t a l l , and the Com-m i s s i o n on c o n s t i t u t i o n a l laws recommended i t o n l y a f t e r the matter was i n s e r t e d a t the l a s t minute by two s t r o n g s u p p o r t e r of the system, M.P.'s C a p i t a n t and Le Douarec. Though the French L e g i s l a t u r e presumably r e c o g n i z e d the s u p e r i o r i t y o f a compulsory two-board system the matter was v i v a c i o u s l y d i s c u s s e d and the i n n o v a t i o n opposed. T h i s not o n l y because of the dramatic changes i t would r e p r e s e n t f o r a l l companies, but a l s o f o r o t h e r reasons as w e l l , l i k e p o l i t i c a l ones. Only when a compromise p o s i t i o n was proposed, making the two-board system a matter of c h o i c e and l e a v i n g f o r the moment the workers' c o - d e t e r m i n a t i o n , d i d the L e g i s l a t u r e f i n a l l y adopt t h i s i n n o v a t i o n (J.O.Deb.A.N., 9 j u i n 1965, p. 1867). However, the Commission warned t h a t the new s y -stem would l i k e l y be made compulsory i n a few y e a r s , once the d i r e c t i v e s of the E.E.C. M i n i s t e r s ! . C o u n c i l are e n f o r c e d (Rapport Le Douarec, no 1368, t . I I , p. 34). 27 C. The N e t h e r l a n d s The N e t h e r l a n d s Code r e c o g n i z e s the a u t h o r i t y of a com-pany t o p r o v i d e i n i t s a r t i c l e s of a s s o c i a t i o n f o r a board o f o v e r s e e r s ('raad van commissarissen') i n charge o f the s u p e r v i s i o n of the management by the managing board ('raad van beheer') and o f the g e n e r a l conduct of the company's b u s i n e s s and t h a t of a f f i l i a t e d e n t r e p r i s e s : t h i s p r o v i s i o n must be i n c l u d e d i n the a r t i c l e s o f a s s o c i a t i o n and cannot 25 be l e f t t o the s h a r e h o l d e r s i n g e n e r a l meeting. With the new law of 1971 (subchapter 6 o f the Code) the board o f o v e r s e e r s was made compulsory f o r the " l a r g e " b u s i n e s s 2 6 c o r p o r a t i o n s . "Large" c o r p o r a t i o n s are deemed to be those w i t h a proper c a p i t a l ( s u b s c r i b e d c a p i t a l + r e s e r v e s ) o f 10 2 7 m i l l i o n g u i l d e r s and emptying a t l e a s t 100 workers; the p r o v i s i o n , however, does not a p p l y t o h o l d i n g companies p a r -t i c i p a t i n g or managing o t h e r companies i n which the m a j o r i t y 2 8 of workers a r e employed o u t s i d e The N e t h e r l a n d s . 25 W.v.K., a r t s . 5 0(1), 5 0 b ( l ) . 26 I b i d . , a r t s . 52c, 5 2 h ( l ) . Sanders, P., De nieuwe s t r u -e t u u r en de E.E.G.. 48 N.V. (1970), pp. 151-53. 27 I b i d . , a r t . 52c(2). 28 I b i d . , a r t . 52c(3). 28 D. A u s t r i a A f t e r A u s t r i a was o v e r r u n by the German i n 1938, the c o u n t r y adopted the 1937 German Companies A c t , which was e f f e c t i v e from 1939 u n t i l 1965. 2 9 I n 1965 a new A u s t r i a n 30 Companies A c t was enacted and became e f f e c t i v e i n 1966. A l t h o u g h the r e f o r m of the o l d law wanted t o g i v e a more A u s t r i a n c h a r a c t e r t o the A c t , l e a v i n g out i n p a r t i c u l a r the o l d - f a s h i o n e d N a z i language, i n e f f e c t the o l d law was o n l y r e c a s t e d so t h a t the new A u s t r i a n Code i s s t i l l almost 31 i d e n t i c a l t o the German law: f o r t h i s r e a s on i t i s not i n c l u d e d i n t h i s survey. • * * A f t e r h a v i n g examined the emergency o f a supervisory; board from the p a r t n e r s h i p by shares t o the j o i n t - s t o c k company, i t i s now a p p r o p r i a t e t o examine the r e s u l t i n g two-board management s t r u c t u r e i n the modern c o d i f i c a t i o n s which adopted i t : Germany, France and The N e t h e r l a n d s , 29 Auracher, O., A k t i e n q e s e t z 1965, p. 1 (Wien, V e r l a g des O s t e r r e i c h i s c h e n Gewerkschaftbundes , 1967). 30 B u n d e s q e s e t z b l a t t Nr. 98: •Bundesgesetz vom 31. Marz 1965 uber d i e Aktiengesell-sch'af t e n ' . 31 I n p a r t i c u l a r the management s t r u c t u r e i s i d e n t i c a l . 29 CHAPTER I I I THE SUPERVISORY BOARD In the survey of the two-board management structure, the supervisory board w i l l be examined f i r s t , being the most important and peculiar of the two boards. In the f i r s t part of the chapter (A - F) the l e g a l p o s i t i o n of the members w i l l be considered; i n the second part (G - L), the p o s i t i o n of the board as an organ of the company. A. Appointment In German law the members of the supervisory board are appointed by the shareholders* general meeting,"1' unless they are to be designated or elected pursuant to the Works 2 3 Councml Act or to the Co-determination Amendment Law. The shareholders 1 general meeting i s only bound to e l e c t i o n 4 proposals pursuant to the Co-determination Law. The a r t i c l e s 1 AktG., a r t . 101(1). 2 BetrVG. 1952, a r t . 76(1). 3 MitbEG., a r t s . 5-16; 4 MitbG., a r t s . 3-11. 30 of a s s o c i a t i o n may grant to s p e c i f i c shareholders or to the holders of s p e c i f i c shares (which i n any event must be i n the reg i s t e r e d form and transferable only upon approval of the company) the power to designate up to one-third of the su-5 pervisory board's members representing the shareholders. Substitutes f o r members are prohibited unless they are ap-pointed at the same time as the p r i n c i p a l members and are under the condition to serve as members i n the case the p r i n -c i p a l members cease to function p r i o r to the expiration of t h e i r terms of o f f i c e . The German Act also forsees a p o s s i -b i l i t y of a court-ordered appointment upon a p p l i c a t i o n by the managing board, by a. member of the supervisory board, or 7 by a shareholder. In French law the i n i t i a l members of the supervisory o board are appointed by the f i r s t general meeting or may be designated by the by-laws i n the case of companies formed 9 without pubblic o f f e r i n g . A f t e r the incorporation of the company the members of the supervisory board are appointed by the shareholders' general meeting. 1^ In cases of vacancies 5 AktG., a r t . 101(2). 6 I b i d . , a r t . 101(3). 7 I b i d . , a r t . 104. 8 L o i no 66-537, a r t . 134 para. 1. 9 I b i d . , a r t . 88. 10 I b i d . , a r t . 134 para. 1. 31 the supervisory board may make p r o v i s i o n a l appointments (co-o p t a t i o n ) 1 1 subject to r a t i f i c a t i o n by the next ordinary shareholders' general meeting. When the supervisory board f a i l s to do that, such appointments are made by a shareholders* general meeting c a l l e d by an agent appointed by the court 12 upon p e t i t i o n of any intere s t e d party. In Netherlands law the members of the supervisory board, c a l l e d "overseers", not o r i g i n a l l y named i n the a r t i c l e s of ass o c i a t i o n , are appointed by the shareholders i n general 13 14 meeting. But i n the "large" companies, where the over-seers' board i s compulsory, i t i s the board i t s e l f that makes? the successive appointments (co-optation) and t h i s 15 power may not be r e s t r i c t e d by any mean. In these com-11 Co-optation means appointment of a body's members by the body i t s e l f . Before 1966 French courts admitted that the administrative board exerced the co-optation, but i t seems that under the new law t h i s p o s s i b i l i t y ought to be exclu-ded both f o r the managing and the supervisory board. See Roblot, R., Les? so c i e t ^ s commerciales. E x t r a i t du Tome I du Traite" E'lementaire de Dro i t Commercial de G. Ripert et R. Roblot, no 1312, p. 670 (Pa r i s , L i b r a i r i e generale de d r o i t et de jurisprudence, 1968). 12 L o i no 66-537, a r t . 137; Deer, no 67-236, a r t . 105. 13 W.v.K., a r t . 50b(l). 14 For the d e f i n i t i o n of "large" companies, see chapter I I , 4 - C, p. 27. 15 W.v.K., a r t . 52h(2) 32 panies, nevertheless, an appointment by the shareholders i s possible, i n the event of permanent absence of a l l overseers. In the companies not subject to the norms regulating the " l a r ge" companies, the a r t i c l e s of as s o c i a t i o n may provide that one or more overseers, up to one-third of t h e i r number, may be appointed i n a manner other than by the shareholders' ge-neral meeting ( i . e . , by external bodies l i k e the government, 17 a municipality, the c r e d i t o r s , e t c . ) . In the "large" com-panies only the government, as an outsider, may appoint one or more overseers, while the shareholders' general meeting, the emplyees' council and the managing board may recommend 18 nominees. B. Q u a l i f i c a t i o n In German law the members of the supervisory board must 19 be natural persons with f u l l l e g a l capacity. A d d i t i o n a l personal requirements f o r members representing the employe-es or other a d d i t i o n a l members, are included i n the l e g i s -l a t i o n s determining these representations, the Works Council 16 I b i d . , a r t . 5 2 i ( l ) . 17 I b i d . , a r t s . 50c, 48a. 18 I b i d . , a r t . 52h(12,4). 19 AktG., a r t . 100(1). 33 A c t and the C o - d e t e r m i n a t i o n laws. Moreover, the a r t i c l e s of a s s o c i a t i o n may add p e r s o n a l requirements o n l y f o r the mem-mbers named t h e r e i n o r f o r the members chosen by the share-h o l d e r s . 2 ^ I n German law members o f the s u p e r v i s o r y board a r e s t r i c l y p r o h i b i t e d t o s i t on the managing board, w i t h one p a r t i a l e x c e p t i o n , na«ely, when a member o f the s u p e r v i s o r y board a c t as a s u b s t i t u t e f o r an absent or i n c a p a c i a t a t e d member of the managing board; b ut d u r i n g t h i s term he may not a c t 21 i n h i s c a p a c i t y o f member.;of the s u p e r v i s o r y board. Moreover, a member o f the s u p e r v i s o r y board may not a c t as such i n more than t e n companies r e q u i r e d by law to have a 22 s u p e r v i s o r y board. The f u n c t i o n i s a l s o i n c o m p a t i b l e w i t h t h a t o f a l e g a l r e p r e s e n t a t i v e o f an e n t r e p r i s e c o n t r o l l e d by the company, or of another company or mining company who-se s u p e r v i s o r y board has a member who i s a l r e a d y a member of the managing board of the company. An e x c e p t i o n i s made f o r the l e g a l r e p r e s e n t a t i v e s o f the c o n t r o l l i n g company o f a grou o f companies ('Konzern') 4 F o r these r e p r e s e n t a t i v e s 20 I b i d . , a r t . 100 (3-4). 21 I b i d . , a r t . 105. 22 I b i d . , a r t . 100(2)1. I t i s worth n o t i n g t h a t t h e r e are companies which choose the two-board management s t r u c t u -r e even i f not r e q u i r e d to do so by law: t h i s i s , f o r example, the case o f l a r g e f a m i l y owned companies w i t h l e s s than 500 workers. 34 the f i r s t f i v e memberships on c o n t r o l l e d companies are not 23 computed. Other i n c o m p a t i b i l i t i e s ( i . e . , members of Par-liament, c i v i l servants, etc.) are determined eith e r by the a r t i c l e s of as s o c i a t i o n or by sp e c i a l statutes. In French law every member of the supervisory board must be a shareholder holding a number of shares as deter-mined by the by-laws, but not l e s s than the number required to confer upon shareholders the r i g h t to attend the general meeting. These shares must i n a l i e n a b l e and i n regi s t e r e d form, or, i n the case of the bearer form, must be deposited with a bank. In every case of de f i c i e n c y a member s h a l l r e -c t i f y h i s p o s i t i o n within three months or he s h a l l be dee-24 med to have resigned. The requirement of a share q u a l i -f i c a t i o n merely affords some proof of an i n t e r e s t i n the conduct of the business, since these shares are not to be 25 f u l l y pledged to guarantee-the acts of the member. 23 I b i d . , a r t . 100(2). 24 L o i no 66-537, a r t . 130; Deer, no 67-236, a r t . 106, as amended by a r t . 3, Deer, no 69-1226 of December 24th, 1969. 25 L o i no 66-537, a r t . 95 para. 2 provide e x p l i c i t e l y that i n the case of members of the administrative board such shares s h a l l be f u l l y pledged to guarantee a l l acts of management, including wholly personal acts of an admi-n i s t r a t o r : on the other hand, no provision i n t h i s sense i s made f o r the members of the supervisory board. 35 Legal capacity, although not expressly mentioned by the Act, 2 6 i s required. Any l e g a l person, as opposed to the German law, may be appointed to the supervisory board as a member, 27 but not to the positions of president and vice-president. The l e g a l person must designate a permanent representative subject to the same q u a l i f i c a t i o n s and o b l i g a t i o n s , to the same c i v i l and penal l i a b i l i t y as i f he were a member i n h i s own name, without prejudice to the j o i n t l i a b i l i t y of the 2 8 l e g a l person represented. Unless otherwise provided i n the by-laws, a member of the supervisory board, and also the permanent representative of a l e g a l person, may be represented by another member; but each member may not hold more than one proxy f o r the 29 same meeting. An age lxmit f o r the members of the super-v i s o r y board must be set i n the by-laws or, i n the absence 26 I b i d . , a r t . 365; Gourlay, P.G., Le conseil- d'admini-s t r a t i o n de l a soci^te" anonyme, no 164, p~, 99" (Paris, Librairje Sixey, 1971. 2 7 I b i d . , a r t . 138 para. 2. 28 I b i d . , a r t . 135. 29 The p o s s i b i l i t y of representation i s c r i t i c i z e d , how-ever, by French a u t h o r i t i e s , due to the personal cha-r a c t e r of the functions and to the c o l l e g i a l character of the board (Baffroy, G., La nullite* des d e l i b e r a t i o n s  du Conseil d'administration dans l e s socidt^s anonymes, p. 83 (Paris, 1965). Deer, no 67-236, a r t . 107-1, added by a r t . 8, Deer, no 68-25 of January 2nd, 1968. 36 o f such a p r o v i s i o n , the law p r o v i d e s t h a t not more than 30 o n e - t h i r d o f the members may be seventy. The F r e n c h law has a p r o v i s i o n , s i m i l a r t o the German one, p r o h i b i t i n g a d u a l membership on the managing and on the 31 s u p e r v i s o r y board. Moreover, i t i s p r o h i b i t e d f o r i n d i v i -d u a l s t o b e l o n g to more than e i g h t s u p e r v i s o r y ( o r admini-32 s t r a t i v e ) boards i n m e t r o p o l i t a n F r a n c e . I n case of a v i o l a t i o n o f t h i s p r o v i s i o n , a member must, w i t h i n t h r e e months o f the appointment, r e s i g n from one o f h i s mandates 33 or he i s deemed t o have r e s i g n e d from the l a s t one. T h i s l i m i t a t i o n of the number o f board h e l d by a person does not a p p l y t o the permanent r e p r e s e n t a t i v e o f a l e g a l person or t o members o f the s u p e r v i s o r y board who do not r e c e i v e any remuneration. Nor does i t a p p l y to members o f r e s e a r c h or development companies, o f r e g i o n a l development companies, or of companies c o n t r o l l e d i n a t l e a s t twenty per c e n t of the shares by a company i n which they a c t a l r e a d y i n these capa-30 L o i no 66-537, a r t . 129-1, added by a r t . 5, Law no 70-1284 o f December 31st, 1970. 31 I b i d . , a r t . 133. 32 I b i d . , a r t s . 136 para. 1, 151 p a r a . 1. 33 I b i d . , a r t . 136 p a r a . 2, as amended by art. 3, Law no 69^12 of January 6th, 1969; Deer, no 67-236, a r t . 104. 37 c i t i e s . 35 Other i n c o m p a t i b i l i t i e s r e s u l t from sp e c i a l statutes. I t appears, however, that the v i o l a t i o n of the r u l e s con-cerning i n c o m p a t i b i l i t i e s does not bring the n u l l i t y of the appointment or of the proceedings i n v o l v i n g a member impro-36 perly appointed. The Netherlands law only provides that overseers must be natural persons of not more than seventy-two years of 37 age. . The general provisions of the C i v i l and Penal Codes apply. As to the i n c o m p a t i b i l i t i e s the law states that a person may not be an overseer i f he i s i n the employment of the company or of a l e g a l person d i r e c t l y or i n d i r e c t l y c o n t r o l l e d by the company, or i f he i s i n the employment of 34 I b i d . , a r t . 136 para. 3. These exceptions are not without c r i t i c s e s p e c i a l l y because they contrast with the norm which states the same conditions and o b l i g a t i o n s and the same l i a b i l i t y f o r l e g a l and natural persons s i t t i n g on supervisory boards (Vimont, J . - C , De quelques d i s c o r -dances ou ambiguit^s dans l a l o i nouvelle sur l e s socie'-tes commerciales, Gaz^ Pal. 1967.2.Doct., pT 7 K 35 See also Leblond, J . , Des i n c o m p a t i b i l i t e s existant entre  l e mandat d'administrateur et certaines fonctions ou pro-f e s s i o n s , J . Soc. 1960, p. 259. 36 Gourlay, op. c i t . , no 190-91, p. 113. 37 W.v.K., a r t s . 50b(3-4), 52h(3). 38 a labour union concerned with the determination of the terms 38 of employment of the persons above mentioned. Instead of regulating the problem of multiple memberships on overseers' boards by a l i m i t i n g or p r o h i b i t i n g provision, the Netherlands law provides a p e c u l i a r s o l u t i o n : i n case of recommendation to or candidacy i n the shareholders' general meeting, a great deal of information on the occupation, ownerships, overseerships, p a r t i c i p a t i o n s i n other companies, etc. of the prospective overseer must be communicated to the 39 shareholders. C. Nature and duration of the appointment In German law the appointment of the members of the su-pervisory board by the shareholders i s seen as a contract of service ( i f a remuneration i s determined) or as a mandate 40 ( i f g ratouitously performed), but some authors consider i t as a contract s u i generis or even deny that such appointment 3 8 I b i d . , a r t . 52j. 3 9 I b i d . , a r t . 50b(3). 40 Godin-Wilhelmi, Aktiengesetz vom 6. September 1965, Kommentar Band I+II, p. 515 ( B e r l i n , Walter de Gruyter & Co, 1967). 39 c o n s t i t u t e s a c o n t r a c t a t a l l . The d u r a t i o n o f the appointment i s f o u r complete f i s c a l y e a r s , the year o f commencement o f s e r v i c e n ot b e i n g taken i n a c c o -42 unt. R e - e l e c t i o n a r e p e r m i t t e d and q u i t e common. In F r e n c h law the c o n t r a c t i s a mandate and an employ-ment r e l a t i o n s h i p between the company and the members o f the 43 s u p e r v i s o r y board s h o u l d not be p e r m i t t e d . The d u r a t i o n o f the appointment i s determined by the by-laws but cannot exceed t h r e e y e a r s f o r the members d e s i g n a t e i n the by-laws ( i n i t i a l members) and s i x y e a r s f o r the members 44 a p p o i n t e d by the s h a r e h o l d e r s ' g e n e r a l meeting. R e - e l e c -t i o n i s p o s s i b l e (and a g a i n common), u n l e s s p r o h i b i t e d by 45 the by-laws. 41- N a t z e l , A., Die AG, 1959, p. 96, c i t e d by Godin- W i l h e l m i , op. c i t . , p. 515. 42 AktG., a r t . 102(1). 43 The views on t h i s matter a re not c l e a r s i n c e , c o n t r a r y t o the case o f the members of the a d m i n i s t r a t i v e board, the law does not s e t out any express p r o h i b i t i o n . The m a j o r i t y o f the s c h o l a r s , however, r e c o g n i z e t h i s p r o h i -b i t i o n (Aubert, J . - L . , L a r e v o c a t i o n des orqanes d'admi-n i s t r a t i o n des socidites commerciales, R.T.D.Comm. 1968, p. 977), but some s c h o l a r s deny i t ( V u i l l e r m e t , G.(Hu-r e a u , G . ) , 1 D r o i t des s o c i ^ t ^ s commerciales, p. 417 (Pa-r i s , Dunod, 1969). 44 L o i no 66-537, a r t . 134 para. 2; Deer, no 67-236, a r t s . 101-02. 45 L o i no 66-537, a r t . 134 para. 3. 40 I n N e t h e r l a n d s law the p r o h i b i t i o n o f an employment r e -l a t i o n s h i p s t a t e d by the Code f o r the members o f the board of o v e r s e e r s i n the " l a r g e " companies (where the board i s compulsory) suggests t h a t t h e i r appointment c o n s t i t u t e s a 46 c o n t r a c t f o r s e r v i c e s o r a mandate. I n the o t h e r companies the p r a c t i c e admits the p o s s i b i l i t y t h a t the o v e r s e e r s are 47 i n the employment o f the company. The term o f the appointment i s f o u r y e a r s and r e - e l e c t i o n s 48 are i m p l i c i t l y p e r m i t t e d by the Code. D. Remuneration In German law the remuneration o f the members of the s u p e r v i s o r y board i s determined by the a r t i c l e s o f a s s o c i a -t i o n or may be a u t h o r i z e d by the s h a r e h o l d e r s * g e n e r a l mee-t i n g , which i s o n l y competent to f i x the remuneration o f the i n i t i a l s u p e r v i s o r y board. The remuneration must be commen-s u r a t e w i t h the d u t i e s performed by the board and w i t h the 46 W.v.K.« a r t . 52j. 47 Wynendaele, J.V.-Wouters, H., Le d r o i t des societ^s ano-nymes dans l e s pays de l a Communaute Economique Europeen-ne, no 77, p. 352 (Bruxelles, E'tablissements Emile Bruy-l a n t , 1961). 48 W.v.K., a r t . 52k(l). 41 f i n a n c i a l s i t u a t i o n o f the company. A share i n the y e a r ' s p r o f i t o f the company may be gra n t e d , but i t must be compu-ted from the r e t a i n e d e a r n i n g s reduced by an amount o f a t l e a s t f o u r per cen t o f the c o n t r i b u t i o n s r e n d e r e d on the par 49 v a l u e o f the s h a r e s . Moreover, s p e c i a l remunerations may be g r a n t e d t o members o f the s u p e r v i s o r y board r e n d e r i n g p r o f e s s i o n a l s e r v i c e s t o the company ( l i k e g i v i n g e x p e r t i -ses) , w i t h o u t c r e a t i n g an employer-employee r e l a t i o n s h i p , 50 but o n l y by ap p r o v a l o f the s u p e r v i s o r y board. In F r e n c h law the r u l e s r e l a t i n g t o remunerations are pr o b a b l y the most s t r i n g e n t . A f i x e d annual amount may be a l l o c a t e d t o the members o f the s u p e r v i s o r y board by the s h a r e h o l d e r s ' g e n e r a l meeting as attendance f e e s , w h i l e the by-laws may p r o v i d e f o r the a l l o c a t i o n o f p r o f i t - s h a r i n g . In a d d i t i o n , the--Supervisory board i t s e l f may a l l o c a t e spe-c i a l remunerations f o r s p e c i f i e d t a s k s a s s i g n e d t o i t s mem-51 b e r s . Any o t h e r form o f remuneration i s v o i d . In N e t h e r l a n d s law a remuneration o f the o v e r s e e r s must 49 AktG., a r t . 113. 50 I b i d . , a r t . 114(2). 51 L o i no 66-537, a r t s . 140-42, 143, 352; Deer, no 67-236, a r t s . 115 para. 2, 118. 42 be determined by the a r t i c l e s o f a s s o c i a t i o n which have t o 52 s e t out a l l the c o n d i t i o n t h e r e o f . I n p r a c t i c e , o f t e n the a r t i c l e s o f a s s o c i a t i o n r e c o g n i z e a remuneration t o the ov-e r s e e r s and then l e a v e t o the s h a r e h o l d e r s ' g e n e r a l meeting 53 to d e c i d e as to the amount o f such remuneration. E. Removal I n German law the removal o f the members of the super-v i s o r y board e l e c t e d by the s h a r e h o l d e r s ' g e n e r a l meeting i s p o s s i b l e a t any time, b ut i t r e q u i r e s a m a j o r i t y o f no l e s s than the t h r e e - f o u r t h s o f the v o t e s c a s t , u n l e s s , i n accordance w i t h the law, the r u l e i s m o d i f i e d by the a r t i -c l e s o f a s s o c i a t i o n . The members d e s i g n a t e d to the super-v i s o r y board pursuant to s p e c i a l norms c o n t a i n e d i n the a r t i c l e s o f a s s o c i a t i o n may be d i s m i s s e d by the p a r t y en-t i t l e d t o s e l e c t them a t any time. Moreover, i f the r e q u i -rements of t h e i r appointment a r e no l o n g e r b e i n g met, these members may be d i s m i s s e d by the s h a r e h o l d e r s ' g e n e r a l mee-t i n g w i t h a simple m a j o r i t y . The s u p e r v i s o r y board by simple m a j o r i t y , or i n case o f members d e s i g n a t e d pursuant t o the a r t i c l e s of a s s o c i a t i o n 52 W.v.K., a r t . 50e. 53 Wynendaele-Wouters, op. c i t . , no 80, p. 353. 43 shareholders holding at l e a s t one-tenth of the stated c a p i -t a l or holding shares with a par value of at l e a s t 2 m i l l i o n German marks, may p e t i t i o n the court f o r the dismissal of a members of the supervisory board i f compelling reasons exist, (e.g., breach of f i d u c i a r y duties, v i o l a t i o n of competition p r o h i b i t i o n ) . F i n a l l y , f o r the members appointed pursuant to the Works Council Act or Co-dtermination laws, these statutes i 54 apply. The French law gives complete freedom to the shareholders i n general meeting to dismiss the members of the supervisory board at any time, even without having to s t i p u l a t e the mat-55 ter i n the agenda of the meeting; any provision of the by-laws l i m i t i n g the p o s s i b i l i t y of removals to c e r t a i n c l a u -ses or statuing a payment of damages to members removed 5 6 without reason, i s void. This r u l e , g i v i n g a large power to the general meeting i s a d i r e c t consequence of the law of manadate and has been c r i t i c i z e d , but no true abuses have been made by the companies, since there i s indeed nothing to be gained from acting improperly i n t h i s regard. Removal by the court i s not contemplated by the Code and 54 AktG., a r t . 103. 55 L o i no 66-537, a r t s . 134 para. 2, 160 para. 3. 56 Vuillermet, op. c i t . , p. 357. 44 attempts to have i t recognized, despite the support of d i s -57 stmguished scholars have f a i l e d at t r i a l . In the Netherlands law the overseers may be dismissed 5 8 at any time by the body which appointed them. In the "large" companies t h i s r i g h t i s given only to the govern-ment while the overseers' board (which appoint i t s members) has only the r i g h t to suspend members for up to one month. In these companies, a dismissal of overseers may be pro-nounced only by the Corporation Chamber of the Court of Appeal i n Amsterdam, upon a reasonable request from the board i t s e l f , from a representative of the shareholders' general meeting appointed f o r t h i s purpose, or from the employees' co u n c i l . F. C o n f l i c t s of i n t e r e s t s and prohibited f i n a n c i a l transse actions In German law an already mentioned provision requires that contracts of professional services between the members 57 Houin, R., R.T.D.Comm. 1962, p. 699. 58 W.v.K., a r t . 50d. 59 I b i d . , art*;, 52k(2-4). 45 of the supervisory board and the company must be previously authorized by the board. Any other agreements are void, with the r e s u l t that any remuneration o r i g i n a t i n g i n such con-t r a c t s and granted without the due consent of the super-60 v i s o r y board i s redeemable to the company. Other trans-actions are allowed and do not even need the approval of the board, but s t i l l s u f f e r a l i m i t a t i o n due to the f a c t that every administrative (managing) function i s prohibited f o r the members of the supervisory b o a r d . ^ Loans may be granted to members of the supervisory board but only under c e r t a i n conditions and upon approval of the board i t s e l f . ^ 2 In French law the same ru l e s l a i d down i n r e l a t i o n to transactions between the company and. .members of the supervi-sory board apply to the transactions between the company and the members of the d i r e c t o r a t e . The Code deals quite extensively with the matter. Agreements between the com-pany and members of the supervisory board or of the d i r e -ctorate necessitate p r i o r authorization of the supervisory 60 AjctG., a r t . 114. 61 Godin-Wilhelrai, op. c i t . , p. 600. 62 AJctG. , a r t . 115. 46 board, which i n turn must n o t i f y the auditors of the d e t a i l s of the agreements, a f t e r which the agreements and the report of the auditors must be submitted to the shareholders' gene-r a l meeting f o r d e f i n i t i v e approval. Such agreements, whether concluded by the proper procedure or not, are nevertheless e f f e c t i v e so f a r as t h i r d parties are concerned, unless they are annulled f o r fraud. Moreover, the company may void agre-6 3 ements concluded without approval within three years. Loans by the company to members of the supervisory board or of the d i r e c t o r a t e are s t r i c t l y prohibited, except i n the case of companies carrying on a banking or another f i -nancial business. In Netherlands law there are no e x p l i c i t pro—visions on t h i s matter i n the Code: the provisions of the C i v i l and Penal Codes apply. G. Composition of the supervisory board In German law the supervisory board must have at l e a s t three members or a la r g e r number f i x e d by the a r t i c l e s of 63 L o i no 66-537, a r t s . 143-47. 64 I b i d . , a r t . 148. 47 a s s o c i a t i o n and d i v i s i b l e by three. This number may not exceed nine, or f i f t e e n i f the company's stated c a p i t a l exceeds 3 m i l l i o n German marks, or twenty-one i f i t exce-eds 20 m i l l i o n German marks. For the companies subject to the Co-determination laws s p e c i a l r u l e s a p p l y . ^ The board may be composed of members representing exclu-s i v e l y the shareholders, or of members representing the shareholders and members representing the employees (one-t h i r d of the board) i f the company i s subject to the Works Council Act, or of members representing the shareholders and members representing the employees (one-half of the board) and of other member(s) i f the company i s subject to the Co-determination laws. When the composition of the supervisory board does not comply with the applicable statutory provisions, the ma-naging board must intervene by publishing the f a c t on the O f f i c i a l Commercial Journal and f i x i n g a l l i n t e r e s t e d par-t i e s with a term of one month from the date of the p u b l i -cation to make a p p l i c a t i o n to the court of the d i s t r i c t 6 7 where the company i s domiciled to adjudicate the matter. 65 AktG., a r t . 95. 66 I b i d . , a r t 96(1); see also chapter VI. 67 I b i d . , arts.97-99, 14. 48 The supervisory board must appoint from among i t s members a chairman and at l e a s t one vice-chairman. I t may also appoint one or more committees but some duties s p e c i f i e d by the law 68 may not be delegated to them. The French law has very few provisions on the matter of composition. The supervisory board i s composed of no le s s than three members and no more than twelve. In the case of mergers between companies (either having both a supervisory board or having one a supervisory board and the other an ad-m i n i s t r a t i v e board) the law permits that the number of the 69 members may be increased up to twenty-four. The supervisory board must e l e c t a president and a viee-$0 president from among i t s i n d i v i d u a l s members. In contrast with the German law no representative of the employees are member of the supervisory board: the French law merely requires the presence of two members delegated by the work council to a s s i s t the supervisory board's me-71 etings with^consultative vote. 68 I b i d . , a r t . 107. 69 L o i no 66-537, a r t s . 129, 152. 70 I b i d . , a r t . 138. 71 Ordonnance no 45-280, of February 22nd, 1945, a r t . 3, as modified by the Law no 66-427 of June 18th, 1966. 49 The Netherlands law leaves even more freedom than the French law. While the board of overseers may con s i s t of one or more persons, as stated i n the a r t i c l e s of ass o c i a t i o n , i n the "large" companies the compulsory board of overseers 72 must c o n s i s t of at l e a s t three members. Other provisions are to be found i n the a r t i c l e s of ass o c i a t i o n or i n the i n -terna l regulations of the board. The Netherlands law, l i k e the French, does not provide for d i r e c t employee, representation on the overseers' board. How-ever, the employees, l i k e any interested t h i r d party, may appoint up to one-third of the board's members, except i n the case of "large" companies where t h i s p o s s i b i l i t y i s given only to the government. In these companies the emplo-yees' council can merely recommend persons f o r appointment 73 as overseers. The very purpose of the supervisory board requires mul-t i p l e membership i n i t . The minimum of three members appears to be a good one, as well the maximum number fixed, by the German law: i t avoids the p o s s i b i l i t y of bodies which are too large, u s u a l l y l e s s e f f i c i e n t than smaller ones. On the other 72 W.v.K., a r t s . 50(1), 52h(l,3). 73 I b i d . , a r t s . 50c, 52h(12), 52i(2) 50 hand, the Fr e n c h r u l e r e s t r i c t i n g the s u p e r v i s o r y board t o twelve members may cause some problems i n the case of v e r y l a r g e companies, f o r which t h i s number c o u l d be too s m a l l . Hs- P r o c e e d i n g s The German A c t p r e s c r i b e s t h a t the s u p e r v i s o r y board should meet every t h r e e months, b ut i t must h o l d meetings a t l e a s t e v e r y s i x months. I n a d d i t i o n the board must meet a t the r e q u e s t o f each o f i t s members o r of the managing board 74 w i t h i n f i f t e e n days from the r e q u e s t . The d e c i s i o n s o f the s u p e r v i s o r y board are taken i n the form of r e s o l u t i o n s , which r e q u i r e a quorum. T h i s may be f i x e d i n the a r t i c l e s o f a s s o c i a t i o n or by s t a t u t e ; i f i t i s not, the quorum i s reached i f h a l f of the t o t a l membership of the s u p e r v i s o r y board r e q u i r e d by the a r t i c l e s o f a s s o c i a t i o n or by s t a t u t e i s p r e s e n t . I n any event, a t l e a s t t h r e e mem-bers must v o t e . A l t h o u g h the meeting are open o n l y t o mem-be r s of the s u p e r v i s o r y or the managing board, the a r t i c l e s o f a s s o c i a t i o n may a l l o w o t h e r persons t o a t t e n d the mee-t i n g s i n l i e u o f members o f the s u p e r v i s o r y board unable to a t t e n d , p r o v i d e d t h a t they have w r i t t e n a u t h o r i z a t i o n from such members. These persons can a l s o d e l i v e r w r i t t e n v o t e s 74 AktG., a r t . 110 51 of such members. In the F r e n c h law must of the r u l e s r e l a t i n g t o the pro c e e d i n g s o f the s u p e r v i s o r y board a r e c o n t a i n e d i n the company's by-laws. However, the Code i m p l i c i t l y r e q u i r e s t h a t the board meet a t l e a s t every t h r e e months, and expre-s s l y r e q u i r e s a meeting i f t h e r e i s a r e q u e s t by o n e - t h i r d 76 of the s u p e r v i s o r y board's members. The quorum i s reached i f h a l f o f the members o f the super-v i s o r y board are p r e s e n t : d e c i s i o n s are taken by a m a j o r i t y of members p r e s e n t o r r e p r e s e n t e d , u n l e s s the by-laws p r o -v i d e f o r a g r e a t e r m a j o r i t y . U n l i k e the German law the p r e -s i d e n t o f the s u p e r v i s o r y board may have a c a s t i n g v o t e , i f 77 so a u t h o r i z e d by the by-laws. The two r e p r e s e n t a t i v e s o f the works c o u n c i l a r e , as men-t i o n e d e a r l i e r , not members o f the s u p e r v i s o r y board, but a s s i s t a t i t s meetings. They must be informed and g i v e n no-t i c e o f the meetings l i k e the o t h e r members. D e c i s i o n taken by the s u p e r v i s o r y board without t h e i r c o n s u l t a t i o n would 78 i n e f f e c t be v o i d . The p a r t i c u l a r s o f a l l meetings o f the 75 I b i d . , a r t s . 108-09. 76 L o i no 66-537, a r t . 128 para. 4; Deer, no 67-236, a r t . 107. 77 L o i no 66-537, a r t . 139, as amended by a r t 21, Law no 67-559 of J u l y 12th, 1967. 78 Burgard, J . , Conseil d'administration et Conseil d'entre-p r i s e , Rev. Soc. 1961, p. 379. 52 s u p e r v i s o r y board must be r e c o r d e d i n minutes e n t e r e d i n a s p e c i a l r e g i s t e r kept a t the r e g i s t e r d o f f i c e o f the com-79 pany. N e t h e r l a n d s law c o n t a i n s no r u l e s on t h i s matter, which may be r e g u l a t e d e i t h e r by the a r t i c l e s o f a s s o c i a t i o n or by a s p e c i a l r e g u l a t i o n of the board. D e c i s i o n s are taken by a m a j o r i t y , u n l e s s s p e c i f i e d f u n c t i o n s are d e l e g a t e d t o s i n -80 g l e o v e r s e e r s . The a c t i v i t y o f the s u p e r v i s o r y board, by i t s n a t u r e , must be l e f t f r e e o f r u l e s which are too s t r i c t c o n c e r n i n g i t s mode o f pr o c e e d i n g s . However, some g u i d l i n e s have t o be f o l l o w e d , because i n a l l c o u n t r i e s where the two-board mana-gement s t r u c t u r e has been adopted, persons o t h e r than the r e -p r e s e n t a t i v e s of the s h a r e h o l d e r s , p a r t i c i p a t e to the a c t i -v i t y o f the board d e f e n d i n g v a r i o u s i n t e r e s t s . Moreover, a minimum number o f meetings t o be h e l d d u r i n g the year should be f i x e d : i n t h i s way the c o n t r o l f u n c t i o n of the board w i l l be more e f f e c t i v e , a m e l i o r a t i n g the p o s s i b i l i t y t o a v o i d c o r p o r a t e mismanagements, sudden c o l l a p s e s or o t h e r m i s f o r -tunes which u s u a l l y c o u l d not be t i m e l y a v e r t e d by the 79 Deer, no 67-236, a r t s . 109-10. 80 Wynendaele-Wouters, op. c i t . , no 82, p. 355. s h a r e h o l d e r s i n g e n e r a l meeting. I . Powers and d u t i e s of the s u p e r v i s o r y board I n the German law, as i n the o t h e r j u r i s d i c t i o n s , the main t a s k o f the s u p e r v i s o r y board i s o b v i o u s l y the c o n t r o l 81 of the management of the company by the managing board. But the e x t e n t and the means of t h i s c o n t r o l a r e not equal i n a l l j u r i s d i c t i o n s a d o p t i n g t h i s management s t r u c t u r e . The German s u p e r v i s o r y board has the w i d e s t powers i n t h i s c o n t e x t . I t may i n s p e c t and examine the company's books and r e c o r d s , as w e l l as the company a s s e t s (cash, i n v e n t o r y of s e c u r i t i e s and merchandise, e t c . ) . The s u p e r v i s o r y board may a l s o d e l e g a t e to i t s members or t o e x p e r t s a p p o i n t e d by i t f o r t h i s purpose, s p e c i a l t a s k s ( l i k e the c o n t r o l and e s t a b l i s h m e n t o f c o m p l i c a t e i n v e n t o r i e s , a c c o u n t i n g , e t c . ) . Moreover, i t can d e c i d e , by simple, m a j o r i t y , to c a l l a s h a r e h o l d e r s ' g e n e r a l meeting whenever i t f e e l s the i n t e r -82 e s t s o f the company r e q u i r e i t . Although i t does not have any managerial f u n c t i o n , the a r t i c l e s o f a s s o c i a t i o n can p r o v i d e t h a t some t r a n s a c t i o n s d e e p l y a f f e c t i n g the company 81 AktG., a r t . 111(1); MitbEG., a r t . 15. 82 AktG., a r t . 111(2-3). 54 (for instance, the a l i e n a t i o n of r e a l property, the acqui-s i t i o n of extreemely expensive machinery, etc.) may be un-83 dertaken only with i t s approval. The supervisory board also has important tasks i n the control of the f i n a n c i a l aspects of the company's a f f a i r s . I t must examine the annual f i n a n c i a l statements (general operating account, balance sheet, p r o f i t and loss account) possibly (and usually) with the p a r t i c i p a t i o n of the audi-tors: i t must also consider any proposal f o r the d i s p o s i -t i o n of retained earnings as stated i n the balance sheet. The supervisory board then makes a written report i n d i c a -t i n g i n what manner and to what extent i t has examined the conduct of company's a f f a i r s during the f i s c a l year, com-menting on the r e s u l t s of the audits and giving i t s appro-v a l or i t s objection to the annual f i n a n c i a l statements. The report of the supervisory board i s then submitted to the 84 managing board and to the shareholders' general meeting. The approval of the f i n a n c i a l statements by the supervisory board has an important consequence: the f i n a n c i a l state-ments are considered by the law determined (approved) unless 83 AktG., a r t . 111(4); i n the case of a r e f u s a l , the managing board can submit the decision to the shareholders' ge-neral meeting which can approve by a three-quarts majority. 84 I b i d . , a r t . 171. the supervisory board i t s e l f or the managing board decide to leave the f i n a l approval of the f i n a n c i a l statements to 8 5 the shareholders* general meeting. For the exercise of i t s tasks the supervisory board also receive regular and s p e c i a l reports from the managing board regarding matters of business p o l i c y , questions r e -garding the future conduct of the business, the p r o f i t a b i -l i t y of the company, the business transacted that may sub-s t a n t i a l l y a f f e c t the p r o f i t a b i l i t y or l i q u i d i t y of the com-86 pany. The supervisory board has no authority to represent the com-pany except i n two cases - i n dealings or disputes between the company and members of the managing board, or, together with the managing board, i n cases of actions of n u l l i t y 87 brought against the decisions of the general meeting. In French law the control of management exercised by the supervisory board follows the l i n e s of the German law, a l -though i t does not reach a l l the consequences of the German 85 I b i d . , a r t . 172. 86 I b i d . , a r t . 90; see also next chapter f o r the duties of the managing board towards the supervisory board. 87 I b i d . , a r t s . 112, 246(2), 249(1). 56 law. The board may confer upon one or more of i t s members any s p e c i a l powers and create i n t e r n a l committees, but i t cannot delegate the function that the statute or the by-laws 89 confer upon i t . The supervisory board makes any v e r i f i c a -t i o n and examination i t considers advisable and may ask to examine a l l the documents i t deems necessary f o r the accom-plishment of i t s tasks. Moreover, the d i r e c t o r a t e must sub-mit to the supervisory board, at l e a s t once each quarter, a report on the various aspects of the company's business a f f a i r s (e.g., commercial a c t i v i t y , s o c i a l matters, techni-90 c a l problems). Within three months a f t e r the close of the f i s c a l year, the d i r e c t o r a t e must also submit to the super-v i s o r y board the general operating account, the p r o f i t and loss statement and the balance sheet. The board then com-ments on the f i n a n c i a l statements and the report of the d i r e c t o r a t e . The law does not specify the extent of these comments, but i t appears that the supervisory board i s not l i m i t e d to a technical evaluation of the exactitude of the statements but on the propriety of the acts undertaken by the management.9 1 88 L o i no 66-537. a r t s . 119 para. 3, 128 para. 1. 8 9 £ecr. no 67-236. a r t . 115. 90 • L o i no 66-537. a r t . 128 para. 3-4. 91 Deer, no 67-236, a r t . 114; L o i no 66-537. a r t s . 128 para. 4-5, 157 para.2; Vuillermet, op. c i t . . p. 423. 57 Unlike the German law, the view of the supervisory board i s not f i n a l , the ultimate approval of the f i n a n c i a l s t a -92 tements remaining i n the hands of the general meeting. The law prescribes also that c e r t a i n transactions, mostly touching corporate finance, may be undertaken only with the 93 p r i o r approval of the supervisory board. The Netherlands law requires the board of overseers be-sides i t s main task of supervision, to advise the managing board and i n general to act i n the best i n t e r e s t of the entreprise as a whole . The d e t a i l s of the execution of the tasks of the overseers' board are usually contained i n the 94 a r t i c l e s of a s s o c i a t i o n . The supervision of the general conduct of the business covers also the control of the f i -n ancial statements. The overseers are i n p a r t i c u l a r respon-s i b l e not only f o r t h e i r exactitude but also must determine that they give an accurate representation of the company's a f f a i r s . I t i s within the compatences of the board to ap-point an accountant f o r the control of the f i n a n c i a l aspects 95 of the business. 92 L o i no 66-537, a r t . 157 para. 3. 93 I b i d . , a r t . 128 para. 2; Deer, no 67-236, a r t . 113. 94 W.v.K., ar t s . 50, 50a. 95 I b i d . , a r t . 52, 51b. 58 Moreover, the board o f o v e r s e e r s must a l s o g i v e p r i o r a s s e n t t o a number o f f i n a n c i a l t r a n s a c t i o n s s p e c i f i e d by the Code. In Dutch law the s e p a r a t i o n between s u p e r v i s i o n and ma-nagement i s not complete; i n e f f e c t , the a r t i c l e s o f a s s o -c i a t i o n may a u t h o r i z e the o v e r s e e r s t o perform management 97 a c t s xn c e r t a i n c i r c u m s t a n c e s . L i k e i n the o t h e r laws, the o v e r s e e r s ' board has the a u t h o r i t y t o r e p r e s e n t the company i n case o f a c o n f l i c t o f i n t e r e s t s between the company and 98 a member o f the managing board. F o r many reasons the s h a r e h o l d e r s ' g e n e r a l meeting has appeared t o be an inadequate organ of c o n t r o l over the mana-gement of the company. Being w i d e l y - s c a t t e r e d the s h a r e h o l -d e r s ' prime concern remains u s u a l l y the d i v i d e n d on t h e i r i nvestments and o t h e r a s p e c t s o f a c o r p o r a t e a f f a i r are o f secondary importance. Moreover, the s h a r e h o l d e r s i n g e n e r a l meeting g e n e r a l l y c o n s t i t u t e a p a s s i v e and i n e x p e r i e n c e d body, unab l e to a p p r e c i a t e the f i n a n c i a l and f a c t u a l p o s i -t i o n o f the company. Some European c o d i f i c a t i o n s , l i k e those examined here, have 96 I b i d . , a r t . 52n 97 I b i d . , a r t . 50(3). 98 I b i d . , a r t s . 52a, 52b, 51 59 r e c o g n i z e d t h i s f a c t and a t the same time r e c o g n i z e d t h a t two types o f c o n t r o l have t o be made and have t o be p o s s i b l y c o n f e r r e d upon two d i f f e r e n t b o d i e s . One c o n t r o l , the f i n a n -c i a l one, i s the main ta s k o f the a u d i t o r s ; the second, the 99 management c o n t r o l , i s the task of the s u p e r v i s o r y board. But i t i s submitted t h a t the two 11 c o n t r o l S - f u n c t i o n s cannot p r o p e r l y be c o n s i d e r e d s e p a r a t e l y . They sh o u l d be e x e r c i s e d by the s u p e r v i s o r y board which by v i r t u e of i t s c o m p o s i t i o n , power and i n f o r m a t i o n s o u r c e s , i s i d e a l l y s u i t e d f o r t h i s r o l e . I n t h i s r e s p e c t , i t appears t h a t the German law has cho-sen the b e s t s o l u t i o n s . F i r s t , i t has c o n s t i t u t e d a s t r o n g s u p e r v i s o r y board i n which not o n l y the i n t e r e s t o f the s h a r e h o l d e r s i s r e p r e s e n t e d b ut a l s o the i n t e r e s t o f the e n t r e p r i s e (employee r e p r e s e n t a t i o n ) and o f the p u b l i c (government, m u n i c i p a l i t i e s and o t h e r p u b l i c b o d i e s o f t e n have r e p r e s e n t a t i v e s on the s u p e r v i s o r y b o a r d s ) . Second, i t has removed the s u p e r i o r i t y o f the s h a r e h o l d e r s ' g e n e r a l meeting g i v i n g i t t o the s u p e r v i s o r y board. The p o s i t i o n o f the French s u p e r v i s o r y board i s not as 99 D j i a n , Y., Le contrS le de l a d i r e c t i o n des societes  anonymes dans l e s pays du Marche Commun, pp. 124-125 ( P a r i s , L i b r a i r i e S i r e y , 1965). 60 s t r o n g . A l t o u g h i t s d u t i e s are s i m i l a r t o those o f the German board, i t s powers are l e s s and the s h a r e h o l d e r s ' g e n e r a l me-e t i n g i s s t i l l the most important organ of the company. Two, among i t s powers, demonstrate t h i s . F i r s t , a l t o u g h the members of the d i r e c t o r a t e a r e a p p o i n t e d by the s u p e r v i s o r y board, they can always be dismissed:.-by the g e n e r a l meeting,'Cand not by the s u p e r v i s o r y b o a r d ) . 1<">^ Second, a l t o u g h the super-v i s o r y board i s r e s p o n s i b l e f o r the c o n t r o l and the comments on the f i n a n c i a l statements, the f i n a l a p p r o v a l r e s t s by the , 101 g e n e r a l meeting. T h i s s i t u a t i o n i s p r o b a b l y the r e s u l t o f the r e l u c t a n c e of the F r e n c h l e g i s l a t o r t o adopt the two-board management sy-stem and w i l l s u r e l y be a m e l i o r a t e d i n the f u t u r e , with the 102 enforcement of the E.E.C. M i n i s t e r s ' C o u n c i l . The N e t h e r l a n d s law i s p r e s e n t l y i n a changing s i t u a -t i o n . A l t o u g h i t i n t r o d u c e d the board of o v e r s e e r s y e a r s 100 L o i no 66-537, a r t . 121 para. 1. 101 I b i d . , a r t . 157 para. 3. 102 See a l s o c hapter I I , e s p e c i a l l y f o o t n o t e 24, and chapter V. The r e c e p t i o n of the new system by the commercial w o r l d has been, a t l e a s t a t the b e g i n n i n g , q u i t e c o l d , but not c o m p l e t e l y n e g a t i v e . Between A p r i l 1 s t and December 31st, 1967 on 3737 newly c r e a t e d companies 171 chose the new management s t r u c t u r e ( P a d i s , P., L ' a v e n i r en France du  c o n s e i l de s u r v e i l l a n c e dans l e s s o c i ^ t ^ s de c a p i t a u x T Gaz. P a l . 1968, Doct., p. 67). 61 ago, on a non-compulsory basis, i t did not reach a cle a r - c u t separation between supervision and mangement leaving to the overseers more a r o l e of"adviser" than "superviser". However, a f t e r the 1971 reform, which introduced a compulso-ry overseers* board f o r "large" companies, the p o s i t i o n of the overseers appear to be much stronger, with a greater deal of powers and duties to control the management. L. L i a b i l i t y In German law the same norms regulating the l i a b i l i t y of the mebers of the managing board apply f o r the members 103 of the supervisory board. The members of the boards s h a l l act with the d i l i g e n c e of an orderly and conscientious exe-cutive and s h a l l remain s i l e n t about secrets or c o n f i d e n t i a l information, which has become known to them i n the course 104 of the execution of t h e i r functions. In case of breach of duties (the duties of the supervisory board being owed to the company alone, not to the people who appointed the members, not even to the shareholders) 1^^ the members of the boards s h a l l be j o i n t l y and s e v e r a l l y l i a b l e to the company 103 AktG., a r t . 116. 104 I b i d . , a r t s . 76(1), 93(1), 147. 105 Godin-Wilhelmi, op. c i t . , p. 609. 62 f o r the r e s u l t i n g damage, i n p a r t i c u l a r when they have v i o -l a t e d the l e g a l provisions concerning the f i n a n c i a l matters * ^ 106 of the company. The shareholders' general meeting, but not the supervisory board, may r a t i f y the acts of the members of the boards rendering them free from l i a b i l i t y . Moreover, the general meeting can waive or compromise damage claims, but only three years a f t e r the claim has a r i s e n , and i f there i s no recorded objection by a minority holding more than one-107 tenth of the stated c a p i t a l . Where the c r e d i t o r s have not been s a t i s f i e d and i t i s a case of gross breach of duty, they can sue d i r e c t l y the members of the boards, or t h e i r s u b s t i -tutes, but a l l claims are barred a f t e r the e x p i r a t i o n of 108 f i v e years. Claims f o r damages by the company must be asserted i f the shareholders by simple majority adopt a r e s o l u t i o n to t h i s e f f e c t , or i f a minority holding no l e s s than one-tenth of the stated c a p i t a l so requests: such an action must be brought within s i x months of the shareholders' general me-eting. The shareholders may, and i n c e r t a i n circumstances 106 AktG., a r t s . 93(2-3), 92. 107 I b i d . , a r t s . 93(4), 136(1). 108 I b i d . , a r t s . 93(5-6), 94. 63 must, appoint s p e c i a l representatives to assert the claim fo r damages. Often the court require a guarantee from the suing shareholders who are i n any event l i a b l e f o r the costs 109 i f the ac t i o n i s usuccessful. A p a r t i c u l a r case of l i a b i l i t y regulated by the German Act arises i n case of abuse of influence on the company. This l i a b i l i t y attaches not only to any person who int e n -t i o n a l l y causes a members of the managing or supervisory board or another executive of the company to act to the de-triment of the company but also to these members and exe-cutives i f they acted i n v i o l a t i o n of t h e i r duties, except i n the case when t h e i r actions were based on a lawful shareholders r e s o l u t i o n . However, l i a b i l i t y f o r damages i s not precluded by the f a c t that the supervisory board has approved such action. Moreover, the members of eithe r board or the executives involved i n such actions must bear the burden of the proof as to whether they acted with the care required by the law.11**' In French law the members of the supervisory board are l i a b l e to the company as well to the shareholders and t h i r d p a r t i e s f o r any personal f a u l t s committed i n the performance 109 I b i d . , a r t . 147. 110 I b i d . , a r t . 117. 64 of t h e i r duties. They are not l i a b l e however f o r acts of ma-nagement performed by the directorate) but may be declared c i v i l l y l i a b l e f o r offenses committed by the members of the di r e c t o r a t e i f they f a i l e d to d i s c l o s e them to the share-holders although they had knowledge t h e r e o f . 1 1 1 Contrary to the case of the members of the administrative board the law does not provide f o r a j o i n t l i a b i l i t y of the members of the supervisory board: the law induces however that these members 112 also are j o i n t l y l i a b l e f o r f a u l t s j o i n t l y committed. In a d d i t i o n to a personal action, the shareholders, i f they represent at l e a s t one-twentieth of the c a p i t a l , may bring a d e r i v a t i v e action f o r damages, against the members of the supervisory board (as well as against the members 113 of the d i r e c t o r a t e ) . The by-laws may not subordinate the d e r i v a t i v e action to the p r i o r authorization of the share-holders' general meeting nor can the general meeting decide to extinguish a cause of action f o r damages against the mem-114 bers of the boards f o r t h e i r default. I n d i v i d u a l and d e r i v a t i v e actions are barred a f t e r three years from the 111 L o i no 66-537, a r t . 250 para. 1. 112 Vuillermet, op. c i t . , p. 438. 113 L o i no 66-537. a r t s . 249 para. 1, 250 para. 2. 65 date o f the a c t g i v i n g r i s e t o damages o r , i f t h i s a c t was co n c e a l e d , from the date on which i t was d i s c o v e r e d . A term of t e n y e a r s i s l a i d down f o r the case where the a c t c o n s t i -, , . 114 t u t e s a crime. In N e t h e r l a n d s law the l i a b i l i t y o f the members o f the o v e r s e e r s ' board i s a l s o r e g u l a t e d a c c o r d i n g t o the norms s t a t e d f o r the l i a b i l i t y o f the members of the managing bos^ a r d ; 1 1 ^ b u t i f the l i a b i l i t y o f the two boards i s i d e n t i c a l i n the form i t i s not i d e n t i c a l i n the e x t e n t , the two board 116 pe r f o r m i n g d i f f e r e n t t a s k s . Each member of the two boards i s l i a b l e t o the company f o r the proper performance o f h i s d u t i e s . The st a n d a r d a p p l i e d i s the o b j e c t i v e one of the "prudent man". F o r d u t i e s which are w i t h i n the f u n c t i o n o f more than one o f f i c e r o r o v e r s e e r those o f f i c e r s or o v e r s e e r s a r e j o i n t l y and s e v e r a l l y l i a b l e but each can be r e l i e v e d o f such l i a b i l i t y i f he can show 117 t h a t he a c t e d w i t h o u t f a u l t . Moreover, t h e r e i s the pos-s i b i l i t y t h a t a c o u r t may d i s r e g a r d the p r i n c i p l e o f j o i n t 114 I b i d . , a r t . 247. 115 W.v.K., a r t . 51c. 116 Van der G r i n t e n , op. c i t . , 60.10 57. 117 W.v.K., a r t . 47c. 66 and several l i a b i l i t y , i f an o f f i c e r or an overseer who i s sued can show that the company's loss can only be imputed 118 s l i g h t l y to him. The overseers, together with the executive o f f i c e r s , are also j o i n t l y and s e v e r a l l y l i a b l e towards t h i r d p a r t i e s f o r any loss they may su f f e r which r e s u l t from an improper pre-paration of the f i n a n c i a l statements or i f the f i n a n c i a l statements provide a misleading representation ofthe compa-ny's a f f a i r s . On the other hand, any overseer who can prove that these f a c t s are not due to h i s negligence i s not l i a b l e . Both the German and the French laws regulate the problem of the l i a b i l i t y of the management organs (managing board + supervisory board) quite s t r i c t l y , s e t t i n g i n p a r t i c u l a r a standard of care of a "prudent executive". Moreover, both l e g i s l a t i o n s are also generous i n allowing shareholders and t h i r d p a r t i e s to sue the management, and i n the case of the German law to sue also a c o n t r o l l i n g shareholder abusing of 120 i t s p ossible influence on the boards' members. 118 I b i d . , a r t . 47d. 119 I b i d . , a r t . 52. 120 Giving the p o s s i b i l i t y to the holders of a given f r a c t i o n of the company's c a p i t a l to sue i n the company's name, European laws avoid the Foss v. Harbottle problem. 67 The p o s i t i o n of minority shareholders i s of course stron-ger i n so f a r they exercise t h e i r r i g h t to bring a d e r i v a t i -ve s u i t , which often remains a r i g h t only i n theory. More-over, European shareholders do not enjoy protections l i k e those granted, f o r instance, by the American S e c u r i t i e s and 121 Exchange Commission. * * * In the three countries surveyed there are many s i m i l a -r i t i e s as f a r as the mangement structure i s concerned. Nevertheless, i t i s easy to remark some s i g n i f i c a n t d i f f e -rences which place the supervisory board on s l i g h t l y d i f -ferent l e v e l s . In German law the supervisory board c o n s t i -tutes a strong body watching c l o s e l y the management and rendered stronger i n the performance of i t s duties by the presence of workers' representatives s i t t i n g on i t with the same r i g h t s as the shareholders' representatives. In French law the supervisory board i s s t i l l on a developing stage and needs to f i n d a stronger i d e n t i t y both i n the law and i n the p r a c t i c e . In Netherlands law, f i n a l l y , the overseers exerce e s s e n t i a l l y a preventive supervision, r e s u l t i n g i n a form of co-management with the managing board. 121 See a l s o , although a l i t t l e outdated, Koessler, M., The stockholder's s u i t : a comparative view, 46 Colum. L.R. (1946), p. 238. 68 CHAPTER IV THE MANAGING BOARD The managing board i n the context of management structure w i l l be examined i n lowing the plan of the previous chapter; status of the members w i l l be considered p o s i t i o n of the board as an organ of the examined ( G r — M). • A. Appointment In German law the appointment of the managing board members i s within the exclusive competence of the super-v i s o r y board, 1 which cannot delegate that task to a com-p mittee and which has also the exclusive competence, but not 3 the o b l i g a t i o n , to appoint a chairman of the board. I f the company i s an i r o n , s t e e l and coal industry submitted to the Co-determination laws, one of the members of the ma-naging board must be a representative of the employees and the two-board t h i s chapter f o l -f i r s t , t h e l e g a l (A - F ) ; then, the company w i l l be 1 2 3 AktG., a r t . 84(1). I b i d . , a r t . 107(3) I b i d . , a r t . 84(2). 69 cannot be appointed (and removed) aginst the votes of the ma-j o r i t y of the employees' representatives s i t t i n g on the su-pervisory board.^ I f the managing board lacks a necessary member, the court may, i n urgent cases, provide f o r an appointment.^ In French law the same r u l e apply, the members being ap-g pointed by the supervisory board and l i k e f or the case of the supervisory board's appointments i t seems that the new 7 law leaves no room f o r the co-optation. An appointment by the court, on request of any intere s t e d party, i s also p r o v i -ded f o r i n case of a vacancy not f i l l e d by the supervisory g board within two months. In Netherlands law the executive o f f i c e r s (= the members of the managing board) are appointed i n i t i a l l y by the a r t i -c l e s of a s s o c i a t i o n and thereafter by the shareholders i n general meeting; however, the law i n the case of "large" companies, and the a r t i c l e s of associations i n other cases 4 MitbG., a r t . 13. 5 AktG., a r t . 85. 6 L o i no 66-537, a r t . 120 para. 1. 7 See chapter I I I , footnote no 11. 8 Deer, no 67-236. a r t . 97. 70 may vest the power of appointment i n the board of the o-9 verseers. L i k e above mentioned, i n the case of "large" companies, the exclusive power of appointment i s vested i n the board of the overseers, which n o t i f y the shareholders i n general meeting of i t s i n t e n t i o n to appoint an executive o f f i c e r : t h i s notice, which can also be transmitted to a committee of shareholders i f they have elected one f o r appointment purpose, i s not a request of r a t i f i c a t i o n what-soever, but merely a communication which binds the general 10 meeting. The a r t i c l e s of a s s o c i a t i o n must provide a means for temporarily managing the company i n case of absence or i n -11 capacity of the executive o f f i c e r s . Moreover, at the r e -quest of inte r e s t e d p a r t i e s s p e c i f i e d by the law ( i . e . , holders representing a c e r t a i n amount of shares, employee asso c i a t i o n s , persons who have been so authorized by the a r t i c l e s of association) or upon p e t i t i o n of the Attorney General at the Appelate Court of J u s t i c e of Amsterdam, the Corporation Chamber of t h i s court can make temporary appoin-12 tments of executive o f f i c e r s . 9 W.v.K.. a r t s . 48, 48a. 10 I b i d . , a r t s . 521, 5 2 h ( l l ) . 11 I b i d . . a r t . 48b(3). 12 I b i d . . a r t s . 53, 54a(c). 71 B. Q u a l i f i c a t i o n In German law only a natural person with f u l l l e g a l ca-13 pacxty can be a member of the managing board. The a r t i c l e s of a s s o c i a t i o n can add other r e q u i s i t e s f o r person to be ap-14 pointed. As noted i n the l a s t chapter, members of the sup-erv i s o r y board cannot be member of the managing board and 15 viceversa. Moreover, the German Act includes a non-compe-t i t i o n clause which requires the engagement of a managing board member on a second managing board, to be s t r i c t l y 16 approved by the supervisory board. Special statutes p r o h i b i t c e r t a i n persons ( i . e . , public o f -f i c i a l , c i v i l servants, and the l i k e ) from becoming members of managing boards."1"7 In French law members of the managing board ( the d i r e -ctorate) must be i n d i v i d u a l s and the law s p e c i f i e s they need 18 not even be shareholders. An age l i m i t f o r the members of the d i r e c t o r a t e must be set out i n the by-laws; i n absence 13 AktG., a r t . 76(3). 14 Godin-Wilhelmi, op. c i t . , p. 381. 15 AktG., a r t . 105(1). 16 I b i d . , a r t . 88. 17 Gbdin-Wilhelmi, op. c i t . , p. 381. 18 L o i no 66-537, a r t . 120 para. 3. 72 of an express p r o v i s i o n , the age i s s e t by law a t s i x t y - f i v e y e a r s ; any appointment made i n v i o l a t i o n o f t h i s p r o v i s i o n 19 i s c o n s i d e r e d v o i d . A l t h o u g h the Code does n o t e x p r e s s l y r e q u i r e l e g a l c a p a c i t y f o r the members of the d i r e c t o r a t e , j u r i s p r u d e n t i a l p r i n c i -20 p i e s suggest t h a t i t i s n e c e s s a r y . The same p r i n c i p l e o f p r o h i b i t i o n a g a i n s t d u a l membership on d i r e c t o r a t e and s u p e r v i s o r y board i s contemplated, as 21 above mentioned, by the F r e n c h law. The law a l s o p r e c l u d e s any person from b e l o n g i n g s i m u l t a n e o u s l y t o more than two d i r e c t o r a t e s , except i n the case where the o t h e r companies a r e d o m i c i l e d o u t s i d e F r a n c e . I n case o f appointment on two d i r e c t o r a t e s a p r e v i o u s a p p r o v a l o f the s u p e r v i s o r y board o f the f i r s t company i s n e c e s s a r y . Any appointment made i n v i o l a t i o n of these p r o v i s i o n s i s deemed v o i d and c r e a t e s an o b l i g a t i o n of r e s t i t u t i o n o f any remuneration i m p r o p e r l y r e c e i v e d , a l t h o u g h the p r o c e e d i n g s i n which an i m p r o p e r l y 22 a p p o i n t e d member took- p a r t s h a l l n o t be v o i d . 19 I b i d . , a r t . 120-1, as added by a r t . 4, Law no 70-1284 of December 31st, 1970. 20 Roblot, op. c i t . . no 1271-72, p. 647. 21 L o i no 66-537. a r t . 133. 22 I b i d . , a r t . 127, 151 para. 2. 73 The Netherlands law does not set out any express rule s r e l a t i n g to q u a l i f i c a t i o n : the general pro v i s i o n of the C i -v i l and Penal Codes apply. In p r a c t i c e , however, the a r t i c l e s of a s s o c i a t i o n often require that executive o f f i c e r s must be 23 Dutch c i t i z e n s and shareholders of the company. The Act also does not contemplate cases of i n c o m p a t i b i l i t y , except of course the usual p r o h i b i t i o n of dual membership 24 on the two: hoards. Moreover, the board of the overseers must give p r i o r approval to executive o f f i c e r s to c o l l a -borate permanently, d i r e c t l y or i n d i r e c t l y , with another company (and also to discontinue such c o l l a b o r a t i o n i f the c o l l a b o r a t i o n or i t s discontinuance are of fundamental 25 i n t e r e s t to the company). C. Nature and duration of the appointment In German law the contract with the members of the mana-ging board i s one of ser v i c e , having as i t s main object the conduct of a business, but when a manager exerces h i s funct-ions gratouitously the contract can also be a contract of 23 Van der Grinten, op. c i t . , no 60.10 35. 24 W.v.K., a r t . 52j(a). 25 I b i d . , a r t . 52n(d). 74 mandate. 2^ The duration i s l i m i t e d by the law to f i v e years. A f t e r t h i s period a reappointment i s permissible and common, but needs a further r e s o l u t i o n of the supervisory board passed not e a r l i e r than one year before the exp i r a t i o n of the precee-27 ding term of o f f i c e . In French law the contract with the members of the d i r e -ctorate i s generally one of employment, and the law s p e c i f i e s that t h i s l e g a l r e l a t i o n s h i p does not nec e s s a r i l y terminate 28 i n case of removal from the functions of managers. 29 The term of o f f i c e i s set by the law at four years. The _ p o s s i b i l i t y of reappointment i s not mentioned i n the Code, although expressly recognized f o r members of the administra-30 t i v e board. The s i l e n c e on t h i s point, however, i s usually 31 interpreted as an i m p l i c i t acceptance. 26 Godin-Wilhelmi, op. c i t . , p. 413. 27 AktG., a r t . 84(1). 28 L o i no 66-537, a r t . 121 para. 2. 29 I b i d . , a r t . 122. 30 I b i d . , a r t s . 90 para. 2, 110 para. 2. 31 Roblot, op. c i t . , no 1314, p. 671; Vuillermet, op. c i t . , p. 432. 75 I n N e t h e r l a n d s law the c o n t r a c t w i t h the e x e c u t i v e o f -32 f i c e r s i s one of employment. The A c t f o r e s e e s t h a t the D i -s t r i c t C o u r t i n whose d i s t r i c t the company i s d o m i c i l e d , has j u r i s d i c t i o n t o d e c i d e any c l a i m a r i s i n g from t h i s employ-ment c o n t r a c t i f the amount c l a i m e d i s u n s t a t e d o r i s s t a t e d 33 to exceed 1500 g u i l d e r s . The Dutch Code does not c o n t a i n any p r o v i s i o n s as to the du-r a t i o n of the appointment. D. Remuneration The p o s s i b i l i t y o f members o f the managing board p a r t i -c i p a t i n g i n p r o f i t s i s w e l l r e c o g n i z e d by the German A c t . The share o f the company's annual p r o f i t i s t o be computed from the p r o f i t o f the year l e s s a l o s s c a r r y - f o r w a r d from the p r e v i o u s y e a r and l e s s any amount which i s by law a l i o -c a t e d t o the d i s c l o s e d r e s e r v e s . 3 4 The t o t a l compensation i s f i x e d by the s u p e r v i s o r y board and must comprehend a l l remunerations p e r c e i v e d i n any man-ner ( s a l a x y , p r o f i t - s h a r i n g , commission, e t c . ) . The super-v i s o r y board i s r e s p o n s i b l e f o r e n s u r i n g t h a t such compen-32 Van der G r i n t e n , op. c i t . . no 60.10 35. 33 W.v.K., a r t . 47e. 34 AktG.. a r t . 86. 76 sation, or other payments made to the members of the mana-ging board (pensions, e t c ) , bears a reasonable r e l a t i o n s h i p to the functions of the member and to the actual f i n a n c i a l s i t u a t i o n of the company. Consequently, i f the company's conditions d e t e r i o r a t e , a reasonable reduction of t h i s com-35 pensation has to be effected . The French law leaves i t to the instrument of appoint-ment to specify the manner and the amount of the remunera-3 6 t i o n perceived by the members of the d i r e c t o r a t e . No pro-f i t - s h a r i n g i s expressly mentioned by the Code, but i n pra-c t i c e i t i s a common mode of remuneration f o r management, i n p a r t i c u l a r f o r senior o f f i c e r s . The law o f f e r s only one l i -mited way of c o n t r o l l i n g these operations, merely giving the shareholders access to the t o t a l amount of remuneration of the f i v e highest-paid o f f i c e r s (ten i n the companies em-37 ploying more than 200 persons). In Netherlands law the s a l a r i e s of the executive o f f i -cers are f i x e d by the shareholders general meeting, unless 35 I b i d . . a r t . 87(1-2). 36 L o i no 66-537, a r t . 123. 37 I b i d . , a r t . 168(4). 77 the a r t i c l e s of as s o c i a t i o n provide otherwise; and they often 38 provide f o r p r o f i t - s h a r i n g to the executive o f f i c e r s . E. Removal In German law the power to revoke the appointment of members of the managing board i s vested i n the body which appoint them, the supervisory board. This r i g h t , however, i s not absolute: i t can be exercised only f o r compelling reasons (e.g., gross breach of duty, d i s a b i l i t y , vote of no-confidence by the shareholders i n general meeting, unless 39 such a vote appears to be a r b i t r a r y ) • The general meeting does not have any d i r e c t power to d i s -miss a member of the managing board, since the law always require a formal d e c i s i o n of the supervisory board, which 40 cannot delegate such a decision to a committee. A revoca-t i o n d e c i s i o n may be brought,of course, before the court: i f t h i s i n v a l i d a t e the de c i s i o n , the member concerned i s r e i n -41 stated to h i s p o s i t i o n as i f nothing had happened. 38 W.v.K., a r t . 48c. 39 AktG., a r t . 84(3). 40 Godin-Wilhelmi, op. c i t . , p. 416. 41 I b i d . , p. 417. 78 In French law the members of the d i r e c t o r a t e , although they are appointed by the supervisory board, may be remo-ved only by the shareholders general meeting on proposal of 42 the supervisory board. The norm i s c l e a r l y a recognition of the ultimate power of the general meeting over the super-v i s o r y board and does not f i t at a l l i n the l o g i c a l view of the two-board management structure. Moreover, i f the general meeting and the supervisory board do not agree on a removal, there i s no way to dismiss a member of the d i r e c t o r a t e befo-re the e x p i r a t i o n of h i s term of four y e a r s . ^ Causes f o r dismissal are not mentioned i n the Code, but i t appears that only compelling reasons may bring the removal of members of the d i r e c t o r a t e since the law expressly grants 44 the r i g h t to an ac t i o n f o r damages. Moreover, the provision i s s i m i l a r to tha'fciStated f o r the dismissal of the managers of the l i m i t e d l i a b i l i t y company, f o r which the courts i n the past have required a legitimate cause - as, f o r example, incapacity, d i s a b i l i t y , mismanagement or infringement of 42 L o i no 66-537. a r t . 121 para. 1. 43 Vuillermet, op. c i t . . p. 432. 44 L o i no 66-537. a r t . 121 para. 1. 45 Roblot, op. c i t . . no 961, p. 505. 79 The Netherlands law empowers the body appointing the mem-bers of the managing board to dismiss or suspend them, and gives the court a power to reduce excessive indemnity given 46 i n a case of removal. Since the contract between the compa-ny and the executive o f f i c e r s i s one of employment, the spe-c i a l forum ( D i s t r i c t Court i n whose d i s t r i c t the company i s domiciled) and Dutch labor law apply.for disputes a r i s i n g 47 from revocation or suspension. F» C o n f l i c t s of i n t e r e s t s and prohibited f i n a n c i a l trans-actions In German law a non-competition clause p r o h i b i t s any engagement of members of the managing board i n other b u s i -ness ventures which are within the company's l i n e of b u s i -ness, unless the supervisory board has s p e c i f i c a l l y appro-ved such a c t i v i t y . In case of v i o l a t i o n of t h i s provision the company may claim damages or the transfer to i t s e l f of a l l the gains improperly made by the offending member. Such claim of the company needs a quick intervention since i t i s barred a f t e r the expiration of thcee months from the date on which the other members of the managing board and 46 W.v.K.. a r t . 48b(l-2). 47 Van der Grinten, op. c i t . , no 60.10 36. 80 the members of the supervisory board had knowledge of the act giving r i s e to the claim f o r damages, and i n any event i t i s 48 barred a f t e r the e x p i r a t i o n of f i v e years. Loans may be granted to members of the managing board, but only under c e r t a i n conditions and only pursuant to a reso-49 l u t i o n of the supervisory board. In French law, as above mentioned, the same r u l e apply i n r e l a t i o n to transactions between the company and members of the supervisory board and between the company and members of the d i r e c t o r a t e . Similarly,' loans to the members of the d i r e c t o r a t e are s t r i -51 c t l y prohibited. The Netherlands Code states only that, unless the a r t i -c l e s of association provide otherwise, i n case of c o n f l i c t of i n t e r e s t s , the company i s represented i n t h i s matter by the overseers. However, the shareholders general meeting may always designate one or more other persons to serve f o r 48 AktG., a r t s 88. 49 I b i d . , a r t . 89. 50 Supra, pp. 45-6. 51 L o i no 66-537. a r t . 148. 81 that purpose. A c o n f l i c t of i n t e r e s t s i s presumed i n every agreement or dispute between the company and a member of the managing board, or when a member of the managing board r e -presents the i n t e r e s t s of a t h i r d party which are contrary 53 to those of the company. G« Composition of the managing board In German law the managing board may c o n s i s t of one or more persons. The board of a company having a stated c a p i -t a l of at l e a s t 3 m i l l i o n German marks must have at l e a s t two members, unless the a r t i c l e s of a s s o c i a t i o n specify 54 that i t s h a l l c o n s i s t of one person only. Companies subject to the Co-determination law have always at l e a s t two mem-bers on the managing board, since the labour manager cannot 55 act as sole manager. The appointment of a chairman of the managing board i s o p t i o n a l ; i f one i s appointed, h i s p o s i -t i o n i s simply of f i r s t among e q u a l s . ^ 52 W.v.K., a r t . 51 53 Van Wynendaele-Wouters, op. c i t . . no 65, p. 349. 54 AktG., a r t . 76(2). 55 MitbG., a r t . 13. 56 AktG., a r t s . 84(2), 77(2). Only the supervisory board may appoint the chairman of the managing board. 82 In French law the d i r e c t o r a t e s h a l l be composed of no more than f i v e members; t h e i r number s h a l l be determined i n 57 the by-laws or by the supervisory board. Only i n companies whose c a p i t a l i s l e s s than 250*000 francs may the d i r e c t o -rate c o n s i s t of one member, who assumes the t i t l e of sole 58 general manager. The supervisory board must appoint a pre-sident of the d i r e c t o r a t e , and t h i s perso w i l l then have a stronger p o s i t i o n than the other members, being the one em-powered to represent the company i n dealings with t h i r d ,. 59 partxes. In Netherlands law the number of the members of the mana-60 ging board i s e s t ab l i shed by the a r t i c l e s of a s s o c i a t i o n . Moreover, i t should be noted , that Dutch law considers to be an executive o f f i c e r with regard to h i s r i g h t s and dut ies to the company and to t h i r d p a r t i e s , any person performing the dut ies of such an o f f i c e r pursuant to a p r o v i s i o n of the a r t i -c l e s of a s s o c i a t i o n or a r e s o l u t i o n of the shareholders ge-57 L o i no 66-537, a r t . 119 para. 1; Deer, no 67-236. a r t . 96. 58 L o i no 66-537. a r t . 119 para. 2, as amended by a r t . 18, Law no 67-559 of J u l y 12th, 1967; a r t . 120 para. 2. 59 I b i d . . a r t s . 120 para. 1, 126 para. 1. 60 W.v.K., a r t . 48, 83 neral meeting (including also overseers). The f l e x i b l e provisions of the German and Dutch laws ap-pear to be preferable to the s t r i c t p o s i t i o n of the French law. A company i s an i n s t i t u t i o n which can assume many forms: i t can run a simple business with a s i z a b l e c a p i t a l or i t can run a complicated business with a l i t t l e c a p i t a l and, of course, i t can also run a complicated business with a large c a p i t a l . This complexity means that i t should possible to choose the most s u i t a b l e number of members f o r the managing 62 board. Any norm l i m i t i n g t h i s number appear absurd. Moreover, c r i t i c i s m can also be made about the p o s i t i o n of the president being above that of the other members of the managing board: the board should act as a c o l l e c t i v e organ and should be f r e e to choose whether a president i s needed f o r i n t e r n a l r e a s o n s . ^ 61 I b i d . , a r t . 52a. 62 French law makes novexception to the norm f i x i n g at f i v e the maximum number of the d i r e c t o r a t e members, contrary to the exception made for the supervisory board i n case of mergers (Supra, p. 48). 63 Again, i h French law,the p o s i t i o n of the managing board president i s so strong being modelled on that of the pre-sident of the administrative board (Supra, p. 26). The p o s i t i o n of the president i s also c r i t i c i z e d by French scholars (see D.S., Chron., no 40-1, pp. 138-9, 1967). 84 H » Proceedings In German law decisions on management matters generally must be taken by the unanimous vote of the members of the managing board. The a r t i c l e s of a s s o c i a t i o n or the i n t e r n a l r u l e s of procedure established ei t h e r by the managing or by the supervisory board, may provide otherwise, i n p a r t i c u l a r that a simple majority s h a l l be s u f f i c i e n t , but the p o s s i b i -l i t y of decisions by a minoryty i s prohibited. The law does not prescribe any s p e c i a l form ( r e s o l u t i o n , f o r instance) for the d e l i b e r a t i o n s . ^ In French law the mode of proceeding i s l e f t to the by-laws. The v i o l a t i o n of such norms means that any decisions taken are a n u l l i t y . 6 ^ Under the o l d law the courts recogni' zed decisions taken by a majority, sometimes even without a quorum and i t appears l i k e l y that the courts w i l l adopt the 66 same view under the new law. The only formal requirement stated i n the Code i s that the d e l i b e r a t i o n s must be set down i n minutes, recorded i n a s p e c i a l r e g i s t e r kept at the 64 AktG., a r t . 77. 65 L o i no 66-537% a r t s . 124 para. 4, 360 para. 2. 66 Roblot, op. c i t . . no 1320, p. 672. 85 r e g i s t e r e d o f f i c e of the company. The Netherlands Code requires f o r the decisions of the managing board the unanimity of votes, but the a r t i c l e s of a s s o c i a t i o n may provide that a majority s h a l l be s u f f i c i e n t . An a c t i v e management needs f l e x i b l e r u l e s governing the way i t takes decisions, but shareholders and t h i r d p a r t i e s must be s u f f i c i e n t l y protected. The German and Dutch r u l e permitting decisions by simple majority ( i f so authorized by the a r t i c l e s of association) and p r o h i b i t i n g (the German Act) a d e c i s i o n by a minority seems to be the best s o l u t i o n and could well be supplemented with the. formal requirement of French law of recording the d e l i b e r a t i o n s i n minutes, therby providing information always useful f o r the sharehol-ders and the t h i r d p a r t i e s and also useful i n the future of the company. I. Representation In German law as a general p r i n c i p l e a l l the members of the managing board represent the company j o i n t l y , but seve-67 L o i no 66-537, a r t s . 438, 464. 68 W.v.K., a r t . 47a; Van Wynandaele-Wouters, op. c i t . . n o 63, p. 349. 86 r a l exceptions are contemplated. The a r t i c l e s of associa-t i o n may provide that a member alone or together with an agent ('Prokurist 1) represents the company. I f the a r t i c l e s permit, such a pr o v i s i o n can also be made by the supervisory board. Moreover, s i n g l e members may be authorized to repre-69 sent the company i n carrying out s p e c i f i e d transactions. Although the power of representation i s vested exclu-s i v e l y i n the managing board, the a r t i c l e s of ass o c i a t i o n may provide that f o r s p e c i f i c types of transactions the 70 previous approval of the supervisory board i s needed. The members of the managing board may also be r e s t r i c t e d i n t h e i r power of representation by the a r t i c l e s , by the supervisory board, by the shareholders i n general meeting and by the i n t e r n a l r u l e s of procedure, but these l i m i t a t i o n s have e f f e c t only as between the managing board and th corapa-71 ny and do not a f f e c t outsiders. In French law the unlimited pany i s vested i n the person of 69 AktG., a r t . 78. 70 I b i d . , a r t s . 82(1), 111(4); 71 I b i d . , a r t . 82(2). power to represent the com-the president of the d i r e -supra, pp. 53-4. 87 ctorate. The by-laws may, and usually do, authorize the su-pervisory board to grant the power of representation also to one or more of the other members of the directorate, who ta-kes then the t i t l e of general manager ('directeur general'). Limitation on the power of representation included in the by-laws may not be re l i e d upon the company as against third 72 partxes. In Netherlands law, unless the ar t i c l e s of association provide otherwise, each member of the managing board has f u l l power to represent the company and no res t r i c t i o n on the capacity of executive officers to represent the company 73 can be r e l i e d upon as against or by third parties. More-over, the managing board may confer authority to represent 74 the company on persons other than i t s members. In the "large" companies the power i s limited by the fact that some transactions specified by the law require the 75 approval of the overseers board. In a l l three countries, then, the power of representa-72 Loi no 66-537. art. 126; Deer, no 67-236, art. 99. 73 W.v.K., arts. 47, 47a, 47b. 74 Van der Grinten, op. c i t . , no 60.10 34. 75 W.v.K., art. 52n. 88 t i o n i s i n v a r i a b l y v e s t e d i n the managing board and e x e r c i -sed by i t s members e i t h e r j o i n t l y o r s e v e r a l l y ; b e s i d e s , i s a l s o q u i t e common f o r o t h e r persons to r e p r e s e n t the compa-ny. F o r the p r o t e c t i o n o f t h i r d p a r t i e s a l l the laws p r o -v i d e t h a t l i m i t a t i o n s on the power o f r e p r e s e n t a t i o n s h a l l 76 have i n t e r n a l e f f e c t o n l y . As s t a t e d b e f o r e , the purpose o f the French law v e s t i n g the managing board p r e s i d e n t of t h i s power remains obscure and the f o r e s e e n e x c e p t i o n ( r e p r e s e n t a t i o n c o n f e r c e d a l s o upon o t h e r members of the d i r e c t o r a t e ) i s l i k e l y t o become the i 77 r u l e . L . Powers and d u t i e s o f the managing board I n German law the managing board has s o l e r e s p o n s a b i -l i t y f o r d i r e c t i n g the company. When i t c o n s i s t s o f more than one member i t s h a l l a c t j o i n t l y , u n l e s s the a r t i c l e s of a s s o c i a t i o n , o r the i n t e r n a l r u l e s o f procedure p r o v i d e 78 o t h e r w i s e . A l t h o u g h the requirement i s no l o n g e r e x p r e s s l y s p e c i f i e d i n the A c t , the board s h a l l manage the company not 76 C i v i l law has no u l t r a v i r e s d o c t r i n e . 77 Supra, pp. 8 2 - 3 ; see a l s o D.S. 1 9 7 0 , Chron., p. 5 5 . 78 AktG., a r t s . 7 6 ( 1 ) , 7 7 . 89 only i n the company's i n t e r e s t , but also i n the i n t e r e s t of the employees and of the public ( i . e . , i n the i n t e r e s t of 79 the state economy). The managing board acts completely indipendently of the supervisoryfcboard and of the sharehol-ders' general meeting, unless the a r t i c l e s of a s s o c i a t i o n or the supervisory board provide that c e r t a i n transactions may be undertaken only with the approval of the l a t t e r . I f the supervisory board refuses to approve such transactions, the matter can be brought before the general meeting, which may give i t s assent, but i t needs f o r t h i s a majority of at l e a s t three quarters of the votes cast. Moreover, i t i s also possible f o r the managing board to ask the opinion of the shareholders' general meeting before undertaking c e r t a i n 81 transactions deeply a f f e c t i n g the company. Among the duties of the managing board are the organiza-t i o n of shareholders' meeting and the implementation of sha-82 reholders* r e s o l u t i o n s ; the n o t i f i c a t i o n of changes i n the managing board or i n the power of representation of i t s mem-79 I b i d . , a r t . 396; AktG. 1937. a r t . 70(1): see also chapter I I , footnote no 12, p. 23. 80 AktG., a r t s . 83(2), 111(4). 81 I b i d . , a r t . 119(2). 82 I b i d . , a r t s . 83, 121-27. 90 bers to the Commercial Register; reporting to the super-v i s o r y board on the prospective business p o l i c y , the pro-f i t a b i l i t y and the important transactions of the company; reporting to the chairman of the supervisory board a l l im-portant events which may a f f e c t the s i t u a t i o n of the com-84 pany; -that the accounts are kept up to date and that the f i n a n c i a l statements and the business report are prepared within the f i r s t three months of each f i s c a l year. Moreover, i t the duty of the managing board to make appro-p r i a t e steps i n case of loss ( c a l l i n g a shareholders' gene-r a l meeting) and i n case of insolvency or i f the company's l i a b i l i t i e s exceed i t s assets ( p e t i t i o n i n g the court to or-86 der bankruptcy proceedings or composition proceedings). I n French law the d i r e c t o r a t e i s vested with very broad powers to manage the company. Third p a r t i e s are protected since the d i r e c t o r a t e binds the company even acting outside the scope of the purposes of the company: l i m i t a t i o n s on the management powers of the d i r e c t o r a t e have i n t e r n a l e f -83 I b i d . , a r t . 81. 84 I b i d . , a r t . 90. 85 I b i d . , a r t s . 91, 148. 86 I b i d . , a r t . 92. 91 fe e t only unless they are part of the general law. S p e c i f i c duties of the d i r e c t o r a t e include the c a l l i n g of the general meeting of the shareholders and the d r a f t i n g of i t s 88 agenda; the establishment of the general operating account; preparation of the p r o f i t and l o s s statement and the balance sheet, to be presented to the supervisory board and to the 89 general meeting; and the submission of a report, at l e a s t 90 once per quarter, to the supervisory board. Occuring dispu-tes between the d i r e c t o r a t e and the supervisory board, s h a l l 91 be resolved by the general meeting of the shareholders. In Netherlands law unless the a r t i c l e s of a s s o c i a t i o n provide otherwise, the managing board has complete power to administer the company's a f f a i r s and i t s property. The execu-t i v e o f f i c e r s bind the company whenever they act within the purpose clause; the l i m i t a t i o n s which are almost always i n -cluded i n the a r t i c l e s of as s o c i a t i o n have only i n t e r n a l 87 L o i no 66-537. a r t s . 119 para. 1, 124, as amended by a r t . 5, Ordonnance no 69-1176 of December 20th, 1969, 128 para. 2 as amended by a r t . 3, Law no 67-16 of January 4th, 1967 and by a r t . 19, law no 67-559 of J u l y 12th, 1967, 157 para. 5; Deer, no 67-236. a r t . 99, 113. 88 L o i no 66-537. a r t s . 158, 160, 441, 464. 89 I b i d . . a r t s . 340, 157 para. 2, 128 para. 5. 90 I b i d . , a r t . 128 para. 4. 91 Deer, no 67-236. a r t . 100 92 e f f e c t . In the "large" companies the law provides that ce-r t a i n transactions i n corporate finance, major organizatio-nal changes l i k e amendments of the a r t i c l e s of assoc i a t i o n , proposals to d i s s o l v e the company, the f i l i n g of p e t i t i o n s i n bankruptcy, and any acts which d i r e c t l y concern the en-t e r p r i s e (for example, terminating or increasing the employ-93 ment of a considerable number of employees). Besides, the executive o f f i c e r s must/report to the shareholders' general meeting on the f i n a n c i a l statements and to the board of over-seers on the other aspects of the business subject to the 94 overseers• c o n t r o l . By contrast with what was formerly the usual management structure, i n which the administrative board had powers which were circumscribed the managing board has now received f o r -mal l e g a l recognition of having the p r i n c i p a l managerial po-wer i n the company. However, t h i s apparently unlimited power i s r e s t r i c t e d by the important p r i n c i p l e that managers must act not only f o r the purely f i n a n c i a l p r o f i t , but i n the i n t e r e s t of the enterprise and the public at large. Moreover, the managers f i n d another l i m i t a t i o n on t h e i r power i n the 92 W.v.K., a r t . 47. 9 3 I b i d . , a r t . 52n. 94 I b i d . , a r t s . 49, 42b, 50a. 93 s t r i c t e r c ontrol by the supervisory board, which acts more d i r e c t l y and more frequently than the shareholders 1 gene-r a l meeting. I t must also be noted that the ultimate power on the destiny of the company remains i n the hands of the general meeting, avoiding the p o s s i b i l i t y that the managing board may on i t s own i n i t i a t i v e make fundamental changes i n the company (e.g., by a l t e r i n g i t s purpose or by o b t a i -ning i t s d i s s o l u t i o n ) . M. L i a b i l i t y In German law, as above mentioned, the l i a b i l i t y of the members of the supervisory and managing board i s regulated 95 by the same norms. In French law the members of the d i r e c t o r a t e are subject to the same l i a b i l i t y as the members of the administrative 9 6 board. They are l i a b l e to the company and to t h i r d parties for v i o l a t i o n of the laws governing commercial companies and other r e l a t e d regulations, and f o r default i n the per-95 Supra, pp. 61-3; see also R i t t n e r , F., Zur Verantwortunq  des Vorstandes nach A r t . 76(1) AktG. 1965, Gessler, p. 139. 96 L o i no 66-537, a r t s . 249, 260, 464 as amended by a r t . 8, law no 67-16 of January 4th, 1967, 437-59, 462, 479. 94 formance of t h e i r functions. The l i a b i l i t y i s governed by the general law and consequently the l i a b i l i t y i s only i n -d i v i d u a l , a f a c t that has given r i s e to much discussion and 98 which should be refused f o r the case of j o i n t f a u l t . The law recognizes the p o s s i b i l i t y of d e r i v a t i v e actions, besides i n d i v i d u a l actions, against the members of the d i r e -ctorate. The same r u l e s stated f o r such actions against the 99 members of the supervisory board apply. In Netherlands law we f i n d the same ru l e s regulating the l i a b i l i t y of the overseers and of the managers. 1 0 0 Moreover, a s p e c i a l l i a b i l i t y f o r the executive o f f i c e r s i s prescribed f o r the reporting of inaccurate or misleading f i -nancial statements causing damages to t h i r d p a r t i e s (which includes the shareholders): the managers i n t h i s case bear the burden of proof of showing that the mistake or misre-presentation i s not i n f a c t imputable to them. 1 0 1 Every Every lawsuit against the members of the managing and over-97 I b i d . . a r t . 244. 98 Roblot. op. c i t . , no 1370, p. 695. 99 Supra, pp. 64-65. 100 Supra, pp. 65-66. 101 W.v.K., a r t . 49b. 95 seers' board or against the company, i s barred s i x months a-f t e r the act causing the damage was or could have been d i s c o -102 vered. The new Dutch law also provides that the company may have a l i e n against any shares owned by the executive o f f i c e r s as se c u r i t y f o r i t s damages (although i n pr a c t i c e 103 the l i e n i s not usually taken). In a l l three l e g i s l a t i o n examined the managing board i s i n a strong p o s i t i o n being empowered i n a very broad way to manage the company indipendently from the share-holders' c o n t r o l but under a more f a c t u a l and updated bo-dy of c o n t r o l , the supervisory board. Moreover, i n a l l three countries the de f i n i o n of enter-p r i s e as a d i f f e r e n t concept from the company, has enlar-ged i t s scopes granting a p a r t i c i p a t i o n to and over the management to the other p a r t i e s i n t e r e s t e d i n the well being of the company, namely the employees and the p u b l i c . 102 Van der Grinten, op. cit.„ no 60.10 37, 39 103 W.v.K.. a r t . 48d. 96 CHAPTER V MANAGEMENT IN EUROPEAN COMMUNITY LAW As was noted at the beginning of this study, the evoluti-on of company law i n continental Europe has since the E.E.C. Treaty taken place not only on a national law basis but also on a supranational law basis. 1 This supranational develop-ment has been occuring i n the context of a new entity, the 2 European Economic Community, usually referred to simply as the Common Market, i t s most important part. In this context the evolution has been the direct result of the unification process of commercial law i n general and of company law i n particular within the E.E.C. The most im-portant aspect of unification, namely, the elimination of differences in corporate structures and procedures has been accomplished i n two different but parallel ways - the f i r s t by the the directives issued by the E.E.C. Ministers' Coun-c i l to a l l members states, and the second by the adoption of a unique piece of legislation enabling European companies to be formed i n any memberestate with the same legal incidents under the laws of a l l member states. 1 Supra, p. 3. 2 Cited as "E.E.C.". 97 A. Evolution within the E.E.C. 3 With the conclusion of three important t r e a t i e s i n the 1950s, the basic sources were created f o r a new law i n con-t i n e n t a l Europe, the Community law. By "Community Law", one does not mean a d e f i n i t e branch of eithe r p r i v a t e or public i n t e r n a t i o n a l law but rather a law of i n t e g r a t i o n , the par-t i e s a f f e c t e d by i t being the member states of a community. Community law has three functions: a) i t regulates the r e -4 l a t i o n s h i p between the memberestates within the Community; b) i t defines the powers of the Community i n s t i t u t i o n s over the member states; and c) i t confers r i g h t s and imposes 5 obl i g a t i o n s on i n d i v i d u a l s , firms and companies. This t h i r d function i n so f a r as i t r e l a t e s to companies merits a short survey to show the crea t i o n and the reception of u n i f i c a t i o n : r u l e s of company law i n t o the i n t e r n a l law of the member states and how these r u l e s a f f e c t the manage-ment structure i n j o i n t - s t o c k companies. 3 These t r e a t i e s were: a) the E.C.S.C. Treaty, e s t a b l i s h i n g the European Coal and Steel Community; b) the E.E.C. Treaty, or Treaty of Rome. es t a b l i s h i n g the European Economic Communxty; c) the EURATOM Treaty, e s t a b l i s h i n g the European Atomic Energy Community. 4 Problems i n t h i s context f a l l within the exclusive j u r i s -d i c t i o n of the European Court of J u s t i c e . 5 Zaphiriou, G.A., European Business Law, pp. 14-5 (London, Sweet & Maxwell, 1970). 98 The most s i g n i f i c a n t of the t r e a t i e s i s the E.E.C. Tre-aty which created the Common Market, e s t a b l i s h i n g not only g a customs union of the s i x founding countries, but also an area f o r the free movement of goods, personnel, services and c a p i t a l . The Treaty of Rome i s also the most important i n terms of the evolution of law i n Europe , e s p e c i a l l y com-mercial law one of i t s p r i n c i p a l tasks being the approxima-t i o n and the u n i f i c a t i o n of the domestic laws of the member 7 states. In order to achieve freedom of movement of persons, ser-g vice s and c a p i t a l , the Council of Ministers of the E.E.C. i s empowered, on proposal and recommendation of the Commission 9 10 of the E.E.C, to issue diEectives to member states f o r the 6 Belgium, France, Germany, Luxembourg, I t a l y and The Nether-lands. On January 1st, 1973 three more countries have j o i n t the Community: United Kingdom, Ireland and Denmark. 7 E.E.C. Treaty, a r t s . 3(h), 100. The task i s also compli-cate since thre are countries of the c i v i l law and of the common law j u r i s d i c t i o n . 8 For the Council, see E.E.C. Treaty, a r t s . 145-54. 9 For the Commission, see E.E.C. Treaty, a r t s . 155-63. 10 E.E.C. Treaty, a r t . 54(2). These d i r e c t i v e s have the sa-me force than any other Community enactement (E.E.C.  Treaty, a r t . 189(3)(Bull. Leg. Dev.(1973), no 13, p. 15). However, d i r e c t i v e s . o n l y bind member states to achieve the r e s u l t , leaving them free to determine the l e g a l form and means of implementation (Campbell, A., Common Market Law, V o l . I I , no 2230, p. 138 (London, Longmans Green and Co L t d , 1969). 99 purpose of achieving uniformity i n terms of the guarantees which member states require of companies and f i r m s 1 1 so as 12 to protect the i n t e r e s t s of both members and outsiders. Moreover, member states are obligated to enter negotiations to ensure the mutual recognition of firms and companies, to render possible the t r a n s f e r of a r e g i s t e r e d o f f i c e from one country to another and to f a c i l i t a t e mergers between firms and companies which are subject to d i f f e r e n t domestic laws. 1 14 Under these terms a convention was signed i n 1968. B. The d i r e c t i v e s under a r t . 54(3)(q) of the E.E.C. Treaty The E.E.C. Council of Ministers issued the f i r s t d i r e -c t i v e concerning the approximation of European company law on March 9th, 1968. This d i r e c t i v e covered p u b l i c i t y , the 11 In the meaning of E.E.C. Treaty, a r t . 58, these are com-panies and firms constituted under c i v i l or commercial law, in c l u d i n g co-operative societes and other l e g a l per-sons under p u b l i c or private law, save f o r the non-profit making ones. 12 E.E.C. Treaty, a r t . 54(3)(g). For a comprehensive summary of the vaste l i t e r a t u r e on t h i s important provision, see Renauld, J . , D r o i t Europeen des societes. pp. 8.07-8.41 (Bruxelles, E'tablissements Emile Bruylant, 1969). -13 E.E.C. Treaty, a r t . 220. 14 3 B u l l . Leg. Dev. (1968); no 5,p. 47; Goldman, The conve- nti o n between the member states of the E.E.C. on the mu- t u a l recognition of companies and l e g a l persons. 6 CM. L.Rev. (1968-69), p. 104. 100 v a l i d i t y of company ob l i g a t i o n s and the n u l l i t y of d e f e c t i -vely formed companies.^ A f t e r t h i s f i r s t step - a minor one covering more or le s s formal aspects of company law - the Council issued two years l a t e r a second more ambitious d i r e -c t i v e armed at the coordination of guarantees f o r share-16 holders and t h i r d p a r t i e s . The E.E.C. Commission submitted to the Council a t h i r d d i r e c t i v e on June 16th, 1970 concer-ning the coordination and s i m p l i f i c a t i o n of the r u l e s cove-17 r i n g mergers, and a fourth d i r e c t i v e on November 16tih, 1971 concerning the coordination of the f i n a n c i a l s t a t e -ments of companies. 1 8 The most important d i r e c t i v e todate i s the f i f t h , ado-pted by the E.E.C. Commission on September 7th - October 9th,: 1972 and presently submitted to the member states f o r exami-19 nation and comment. This d i r e c t i v e proposes the coordination 15 1 CCH Comm. Mrkt. Rep. 1350.02-1350.05; D.S. 1968, Le-g i s l . , p. 155. 16 1 CCH Comm. Mrkt. Rep. 1350.11. An extensive study on the impact of the two f i r s t d i r e c t i v e s on the national laws, i s to be found i n Stein, op. c i t . . pp. 237-353. 17 1 CCH Comm. Mrkt. Rep. 1350.21; 8 B u l l . Leg. Dev. (1973), no 3, p. 7, no 11, p. 11. 18 1 CCH Comm. Mrkt. Rep. 1350.31. 19 1 CCH Comm. Mrkt. Rep. 1350.36; 7 B u l l . Leg. Dev. (1972), no 22, p. 296. 101 of the guarantees required i n the member states f o r protecting the i n t e r e s t s of the shareholders and t h i r d p a r t i e s , and also touches upon the managerial structure of companies and the 20 powers and dutiesrof t h e i r organs. Following chapters I I and I I I of the d i r e c t i v e the member states are required to organize the structure of companies i n t o three organs: a) a managing board, empowered to manage and represent the compa-ny; b) a supervisory board, empowered to control the managing 21 board; and c) the shareholders' general meeting. The members of the managing board are appointed by the supervisory board, 22 which also must appoint a labour manager. In the companies employing at l e a s t 500 persons, one-third of the members of the supervisory board must be appointed by the employees: the other members are appointed by the shareholders' general me-eting or by the board i t s e l f (co-optation), which must be com-posed i n any event i n a manner designed to adequately repre-sent the i n t e r e s t of the company, the shareholders and the 23 employees. For other matters the d i r e c t i v e follows much the same r u l e s of the German and French laws, d e l i m i t i n g the 20 For the text of the f i f t h d i r e c t i v e , see R.T.D.Eur., 1973, p. 155. 21 F i f t h d i r e c t i v e , art.2. 22 I b i d . . a r t . 3. 23 I b i d . , a r t . 4. 102 powers, duties and p o t e n t i a l l i a b i l i t y of the management or-24 gans -and providing f o r the exercise of c l a s s actions agai-nst management.2"^ The enforcement of these f i v e d i r e c t i v e s , and of other l i k e l y to be forthcoming i n the near future, w i l l bring a completely new face to the structure of most companies i n continental Europe regulated by various national laws. The most apparent change w i l l l i k e l y be i n the management stru-^ cture and i n the representation of employees on the super-J 26 vxsory board. c» The Societas Europaea: an h i s t o r i c a l background Although the harmonization of l e g i s l a t i o n through the coordination of the d i f f e r e n t parts on the national company laws i s of primary importance i n the context of the E.E.C, i t has been evident since the 1950s that t h i s could be only a p a r t i a l s o l u t i o n to the problems of enabling companies to be formed and to carry on business i n a l l member states su-2 4 I b i d * i a r t s . 5-14. 25 I b i d . . a r t s . 15-21. 26 In the E.E.C. c i r c l e s i t was agreed i n 1971 that a term of four years should be considered f a i r f o r the enacte-ment of the d i r e c t i v e s (6 B u l l . Leg. Dev.1971, no 11,p. 103 b j e c t to uniform r u l e s and to the problems of mergers of 27 companies domiciled i n d i f f e r e n t states. On the other hand much doubt has subsisted regarding the l i k e l i h o o d of 28 a complete approximation of company laws. F i n a l l y i t must be noted that p r a c t i c l y since i t s beginning the Common Mar-ket countries have had a period of economic b o o m f with i n -creasing trading among themselves and abroad. The mobility of companies has become a urgent necessity to meet what Servant-Schreiber c a l l e d the "American challenge" i n Europe. The l e g a l problems of i n t e r n a t i o n a l associations had a l -ready been the objiect of many studies of scholars of i n t e r -national law i n the e a r l y decades of t h i s century: various 27 Loussarn, Y., La proposition d'un statut des societes ano- nymes europ^ennes et l e d r o i t i n t e r n a t i o n a l prive\ 60 Rev. Cr.it.D.I.P. (1971), p. 383. 28 Scholten, Y., The European Company. 5 C.M.L.Rev. (1967/ 1968), p. 10. 29 Siekman, P., Europe's love a f f a i r e with bigness. Fortune, March 1970, p. 95 sustains Servant-Schreiber's ideas that only mergers and European wide companies w i l l help to meet the economical challenge of American enterprises i n Europe. Norton, J . J . , A Cheshire cat a f f a i r : the European  type company and i t s meaning f o r the American entreprise  i n the European Community. 6 Co r n e l l I n t ' l . L . J . (1973), p. I l l denies, however, that an European Company would be of great s i g n i f i c a n c e f o r American entreprises i n Europe, merely recognizing i t s importance i n the European econo-mical and p o l i t i c a l context. See also, Stein, op. c i t . . pp. 364-70. 104 proposals f o r "international'/, "transnational" and "suprana-t i o n a l " associations were made, but none achieved any s i g n i -30 fxcant acceptance. Then, on October 22nd, 1959, i n h i s inaugural address at the Rotterdam School of Economics, Prof. Piet e r Sanders f o r the f i r s t time launched the idea of an "European Company" comple-t e l y f r e e from national connections and operating on an i n t e -31 r n a t i o n a l basis i n the European Economic Community. This proposal aroused great i n t e r e s t i n academic c i r c l e s , but was received by the world of commerce and industry with le s s en-thusiasm. The idea did not die however. From time to time i t s supporters renewed t h e i r arguments f o r i t s acceptance. In the meantime, a committee was charged by the French Mi-n i s t r y of F i n a n c i a l and Economic a f f a i r s to make an extensive study of the l e g a l problems emerging from the a p p l i c a t i o n of the E.E.C. Treaty to commercial matters. As a r e s u l t of t h i s study, the French Government issued a note on March 15th, 1965 formally proposing the cr e a t i o n of a commercial 32 company of the European type proposed by Sanders. 30 For t h i s period, see Wang, M., Die Europaische Aktien-q e s e l l s c h a f t i n der EWG. e s p e c i a l l y the f i r s t part ( F r i -bourg/Switzerland, U n i v e r s i t a t s v e r l a g , 1964). 31 Die AG, 1966, p. 20. 32 Foyer, J . . La proposition f r a n c a i s e de c r e a t i o n d'une  society de type europeen. Rev. March6 Comm.. 1965, p. 268; Dr. et A f f . no 58 of A p r i l 2nd, 1965; Le Monde, March 31st, 1965. 105 Following t h i s note, the E.E.C, Commission published a memorandum which analyzed the problem and proposed three possible s o l u t i o n s , namely, a) a complete a s s i m i l a t i o n (thro-ugh E.E.C. Treaty, a r t s . 54(3)(g), 100, 220(3), b) the crea-t i o n of a European Commercial company governed by a uniform law that each of the member states would incorporate i n t o i t s law, c) the crea t i o n of a company under European law, through 33 a convention that would supplement the Treaty of Rome. The memorandum rejected the f i r s t p ossible s o l u t i o n as u n r e a l i s -t i c and im p r a c t i c a l ; the Commission preferred the t h i r d so-l u t i o n to the second ( s i m i l a r to the French proposal), but no f i n a l choice was made; a further study of the problem was delegated to a group of independent experts in s t r u c t e d 34 to d r a f t quickly a new statute. This group, whose work was e s s e n t i a l l y accomplished by i t s leader, Professor Sanders, was able to produce within a year an exc e l l e n t d r a f t statute and commentary on the Eu-35 ropean stock corporation, c a l l e d Societas Europaea (S.E.) 33 A European-type company. CCH Comm. Mrkt. Rep. no 33, gune 21st, 1966, Part. IV, p. 29. 34 I b i d . . p. 30. 35 European Stock Corporation, Text of Draft Statute with commentary by P.- Sanders, 1967 (published i n English i n CCH Comm. Mrkt. Rep., 1969); hereinafter c i t e d as "San-ders Draft". 106 The Sanders Draft was then send to the Council of Ministers, which charged a group of national governmental delegates to anlyze i t i n view of the redaction of a new d r a f t . On June 24th, 1970 the E;E.C. Commission presented i t s d r a f t s t a -36 37 tute to the E.E.C. Council which has submitted i t , with a report of the E.E.C. Economic and S o c i a l Committee, to 38 academic and commercial i n s t i t u t i o n s f o r further comments. The idea of an European Company has never had an easy time. At the beginning, apathy and even h o s t i l i t y from the i n d u s t r i a l and commercial c i r c l e s frustraded the academic 39 attempts to draw c l e a r l i n e s on the matter. Even a f t e r t h i s stage was overcome, with the c l e a r d r a f t of Professor Sanders, some c r i t i c i s m persisted and t h i s even d i d not com-p l e t e l y stop with the p u b l i c a t i o n of the Commission Draft. 36 Hereinafter c i t e d as "Commission Draft". 37 Sanders, P., The European Company on i t s way. 8 C.M.L.Rev. (1971), p. 29. 38 7 B u l l . Leg. Dev. (1972), no 5, p. 50. 39 Duden, K., Internationale Aktienqesel1schaften. RabelsZ. (1962/63), p. 100. 40 Van der Grinten, W., Contre une societe de type europ^en. N.V. 1964, p. 8; Mann, F.A., European Company. 19 I n t ' l & Comp.L.Q. (1970), p. 468; Van Ryn, F a u t - i l , i n s t i t u e r  l a societe europeenne, J.T. 1967, p. 377; Vasseur, M., Quelle societe" europeenne?. D.S. 1972, Chron. p. 169. 107 Some of the c r i t i c s were i n p a r t i c u l a r aimed to the f a c t that the E.E.C. Treaty d i d not o f f e r a concrete j u r i d i c a l basis 41 f o r a European company, unless such a basis would be found 42 i n a s p e c i a l a p p l i c a t i o n of the a r t . 235 of the Treaty, and on t h i s point Professor Sanders has extensively t r i e d to give a s a t i s f a c t o r y answer i n d i c a t i n g not l e s s than three 43 possible ways of f i n d i n g such a l e g a l b asis. One should not forget that the European s i t u a t i o n i s completely d i f f e r e n t from that i n the United States, where the problem of u n i f i c a t i o n of company law has also had much 44 att e n t i o n . U n i f i c a t i o n of American company law xs co n s i -derably s i m p l i f i e d by the f a c t that a corporation i s always American, no matter i n what state i t i s incorporated; i n 41 'The i n t e r n a t i o n a l law i t s e l f ( i n the case a treaty) must give the moral pe r s o n a l i t y to a company, define the con-d i t i o n s of i t s operation, be competent to di s s o l v e i t , i n short give i t i t s l e g a l status'(Calon, J . B . , La so- cle* te* i n t e r n a t i o n a l e . Elements d'une theorie generale. Clunet 1961, p. 703. 42 Marenco, Les conditions d 1 a p p l i c a t i o n de 1 ' a r t i c l e 235  du T r a i t e C.E.E.. Rev. Marche Comm. 1970, p. 147. 43 Sanders Draft, no 17-20, pp. 8-13. 44 For instance, the Model Business Corporation Act, pre-pared by the American Bar Ass o c i a t i o n . See also Leleux, P«, Corporation law i n the United States and i n the E.E.C. 5 C.M.L.Rev. (1967/68), p. 133, published also i n R.T.D. Eur. 1968, p. 50> Mann, F.A., International corporations  and national law. 42 B r i t . Year B.Int'l.L. (1967), p. 145. 108 Europe a company must lose i t s own n a t i o n a l i t y as a prere-45 quxsxte to becoming European. Two important American s t a t u -tes, the S e c u r i t i e s Act of 1933 and the Security Exchange Act of 1 9 3 4 , together with the law governing problems such as i n d u s t r i a l property and bankruptcy, have had a powerful i n -fluence on the u n i f i c a t i o n of the American state l e g i s l a t i o n ; 46 xn Europe no such statutes e x i s t . Fortunately the idea of a European company has found more supporters than detractors; a considerable amount of l i t e r a t u -47 re favoring i t has appeared i n a l l Common Market countries, and i n t e r e s t i n the idea has not remained confined to the Continent alone. Even i f the r e a l i z a t i o n of a European com-pany i s not imminent, i t i s nevertheless not too f a r away -perhaps j u s t a few y e a r s . ^ 45 Houin, R., Les societes europe'ennes I I I , p. 81, 91 (Bru-x e l l e s , I n s t i t u t de s o c i o l o g i e , 1968). 46 Thompson, D., The proposal f o r a European company, p. 18 (London, Chatham House:PEP, 1969). 47 For a summary of the l i t e r a t u r e on the S.E. see Stein, op. c i t . , pp. 424-6 or Barmann, J . , Europaische Integra-t i o n im Gesellschaftsrech, pp. 144-6 (Koln, Carl.Heymanns Verlag KG, 1970). 48 T r o e l l e r , R.R., Multi n a t i o n a l corporations i n a changing  Europe, 7 J.World Trade L. (1973), p. 293, sustains that these changes i n European company law w i l l f i n a l l y bene-f i t a l l multinational operations,, i r r e s p e c t i v e of o r i g i n . 109 D. The Societas Europaea Before going on to describe the management structure i n the S.E., a short d e s c r i p t i o n of the main features of the S.E. i s necessary. The project defines the S.E. as a commercial company whose c a p i t a l i s divided i n t o shares and whose shareholders are not l i a b l e f o r i t s o b l i g a t i o n s beyond the assets of the company i t s e l f . The S.E. enjoys the same r i g h t s and powers as stock companies under the E.E.C. member states domestic 49 laws. One of the S.E. p e c u l i a r i t i e s i s that i t can only be formed by companies, although i n d i v i d u a l s may become shareholders i n i t by tra n s f e r of shares or on an increase 50 of c a p i t a l . The S.E. may be formed i n four d i f f e r e n t ways and i t s minimum c a p i t a l i s determined by the method chosen. The f i r s t way of forming a S.E. i s by amalgamation of two or more stock companies established under the law of one or more E.E.C. member states ( i n t h i s case the S.E. minimum 49 Sanders Draft, a r t . 1-1. 50 I b i d . . a r t . 1-2. 110 c a p i t a l must be 1 m i l l i o n u n i t s of account each equal to $ 1 US). The second way i s by formation of a holding compa-ny by two or more stock companies established under the law of one or more member states (minimum c a p i t a l i n t h i s case i s also 1 m i l l i o n units of account). The t h i r d way i s by formation of a j o i n t subsidiary by a sin g l e stock company (minimum c a p i t a l i n t h i s case i s 250*000 units of account). The fourth way i s by transformation of a stock company esta-b l i s h e d under the law of a member state i n t o a S.E. ( mini-mum c a p i t a l required i n t h i s case i s 500*000 uni t s of ac-c o u n t ) . 5 1 E» The management structure i n the Societas Europaea The management structure of the S.E. follows the German and French patterns with a managing board d i r e c t i n g the com-52 pany under the control of a supervisory board. The S.E. project follows the general r u l e of appointment of the mem-bers of the managing board by the supervisory board; only i n d i v i d u a l s with f u l l capacity may be appointed. Dual mem-bership on the two boards i s prohibited: other incompati-51 I b i d . , a r t . 1-3. 52 I b i d . , a r t s . IV-1-1, IV-2-1. I l l b i l i t i e s are to be determined by the national law of the party concerned. Moreover, the members of the managing board must seek prioe authorization from the supervisory board be-fore engaging i n other business ventures or before contra-c t i n g with the S.E. i t s e l f . The contract concluded with each member of the managing board include a l l provisions regar-ding duration of the appointment, remuneration and other f i -nancial b e n e f i t s . Removal of the members i s possible only f o r compelling reasons, by a vote of non-confidence by the shareholders i n general meeting. The managing board has very brod powers to manage i n the company's and the employees' i n t e r e s t . I t s members are bound to secrecy with respect to c o n f i d e n t i a l information, even a f t e r t h e i r term has ended. The board can have i n t e r n a l r u l e s but to the outside world i t i s a c o l l e g i a t e organ having j o i n t l i a b i l i t y f o r i t s acts. The managing board must report every three months to the supervisory board on the general a c t i v i t y of the company and immediately on any important matter a f f e c t i n g the compa-ny. The members owe the standard of care of a d i l i g e n t ad-min i s t r a t o r and are j o i n t l y l i a b l e f o r damages and costs. The supervisory board can bring a c t i o n against them i n the national courts: moreover, the d r a f t recognizes a c l a s s a c t -ion which can be brought by one or more shareholders repre-senting e i t h e r f i v e per cent of the c a p i t a l or a nominal 112 share value of 250*000 units of account. The supervisory board of the S.E. must c o n s i s t of at l e -ast three i n d i v i d u a l s person r of f u l l l e g a l capacity appoin-ted by the shareholders i n general meeting. However, the board i t s e l f can submit nominations, which, i f so provided by the a r t i c l e s of a s s o c i a t i o n , are binding i f at l e a s t two candidates are nominated f o r each vacancy. This norm may always be disregarded by the general meeting with a two-thirds majority vote. The a r t i c l e s of a s s o c i a t i o n f i x the term of o f f i c e which i n any event cannot exceed f i v e years. The general meeting f i x e s the remuneration of the members and has also the r i g h t to revoke t h e i r appointment; the mem-bers appointed on a basis of a binding nomination may, how-ever, only be romoved by a two-thirds m a j o i r i t y vote. As i s the case regarding the members of the managing board, loans are s t r i c t l y p rohibited and transactions in v o l v i n g an i n t e -r e s t of a member must be approved by the supervisory board. The two main duties of the supervisory board are the super-v i s i o n of the a c t i v i t y of the managing board.and the task of advising i t on management problems (without of course d i r e c t l y intervening i n the management, except where spe c i a l transactions may be c a r r i e d on only with approval of the 53 I b i d . , a r t s . IV-1-1 - IV-1-11. 113 supervisory board). The board meets usually once a quarter, i n the presence of the managing board and decisions are taken by simple majority unless the a r t i c l e s of association provide otherwise. The supervisory board has access of cou-rse to a l l documents regarding the company and may ask f o r supplementary reports from the managing board. The members of the supervisory board may be held l i a b l e f o r breach of the law or of the company statute: they w i l l be j o i n t l y l i a b l e unless they d i d not take part i n the wrongful acts, can prove that there was no f a u l t on t h e i r part, or that they informed the president of the supervisory board of the act, i n w r i t i n g and without delay, as soon they were aware of i t . * # * In the S.E. one does notice the attempts made to c o l -l e c t various pieces of l e g i s l a t i o n s i n a possible search f o r the best s o l u t i o n s . The task i s obviously not an easy one, but i t was performed u n t i l now i n an exemplar way. Being more r a d i c a l i n respect to the other attempts of u n i f i c a t i o n of the national company laws (E.E.C. Council's d i r e c t i v e s ) i s l i k e l y to become the f i r s t complete solu-t i o n to the many problems of u n i f i c a t i o n . 54 I b i d . . a r t s . IV-2-1 - IV-2-9 114 CHAPTER VI EMPLOYEE REPRESENTATION ON MANAGEMENT As has been s t a t e d b e f o r e , the two-board management s t r u -c t u r e o nt o n l y c r e a t e s a new organ o f s u p e r v i s i o n over the management, but a l s o g i v e s t o p a r t i e s o t h e r than s h a r e h o l d e r s - most n o t a b l y employees - enhanced p o s s i b i l i t i e s o f p a r t i -c i p a t i n g i n t h i s s u p e r v i s i o n ( i . e . , i n the company p o l i c y ) . A s h o r t survey o f the approaches t o t h i s matter taken i n Germany, F r a n c e and The Ne t h e r l a n d s and i n the European Com-munity law r e v e a l s t h a t t h e r e a r e two d i f f e r e n t ways emplo-yees r i g h t s i n r e g a r d to the company have been d e a l t w i t h : e i t h e r by l e t t i n g them have d i r e c t r e p r e s e n t a t i v e on one or both management boards, or by c r e a t i n g works c o u n c i l s w i t h c o n s u l t a t i v e v o t e s a t meetings o f the s u p e r v i s o r y board. A. Germany Employee r e p r e s e n t a t i o n on management i s most predomi-nant i n Germany. Almost a l l companies a r e s u b j e c t t o e i t h e r the Works C o u n c i l "Act or to one of the C o - d e t e r m i n a t i o n laws. Both t h e s e p i e c e o f l e g i s l a t i o n g i v e t o employees r i g h t s y e t unmatched i n a l l o t h e r c o u n t r i e s . l J 115 The Works Council Act applies to a l l companies emplo-ying at l e a s t f i v e persons over 18 years of age. I t reco-gnizes a p a r t i a l co-determination f o r employees, p r e s c r i -bing that the supervisory boards of a l l companies - with the sole exception of family owned companies employing l e s s than 500 persons - must be composed f o r one-third by representa-t i v e s of the employees. 1 The representatives are elected by d i r e c t , secret b a l l o t among the employees i n the undertaking, 2 according to c a r e f u l l y l a i d down norms. The Act gives exte-nsive r i g h t s to the works c o u n c i l s , e s p e c i a l l y i n the new 3 version enacted i n 1972. The works councils must give ap-proval to a l l matters concerning h i r i n g , f i r i n g , t r a n s f e r s , mergers and other fundamental changes i n the undertaking, i n c l u d i n g of course s o c i a l matters, working conditions, ope-r a t i o n a l and personnel planning, and vocational t r a i n i n g . Management-worker r e l a t i o n are i n t h i s way subjected to a continuous check. This gives r i s e o c c a s i o n a l l y to tremen-dous problems. Appropriately the law provides f o r a c o n c i l i -a t i o n board composed of an equal num^ber of worker represen— 1 BetrVG. 1952. a r t . 76(1,6). 2 I b i d . . a r t . 76(2). 3 •Betriebsverfassungsgesetz vom 15. Januar 1972', herein-a f t e r c i t e d as "BetrVG. 1972". Translated i n English by Beinhauer, H. the Works Council Act i s published i n the CCH Comm. Mrkt. Rep. (Chicago, 1972). 116 t a t i v e s and management representatives plus an external mem-ber empowered with very broad functions, touching on almost a l l aspects of the e n t e r p r i s e . 4 Companies mainly devoted to the extraction of coal and ir o n ore and employing more than 1000 workers are subject to the Co-determination Law.5 This statute recognizes f u l l co-determination p r e s c r i b i n g the following: a) the companies must have a supervisory board of eleven members, f i v e of them representing the shareholders, f i v e the employees and one add i t i o n a l member elected by the majority of the other mem— 7 bers; b) the managing board of these companies must have a labour representative acting as a labour manager, who may neither be appointed nor be dismissed without the vote of the majority of the employees' representatives on the super-v i s o r y board.® 4 BetrVG. 1972. a r t . 76. 5 MitbG., a r t . 1 6 Companies with a stated c a p i t a l of at l e a s t 20 m i l l i o n German marks must have a supervisory board of f i f t e e n members, companies with a stated c a p i t a l of at l e a s t 50 m i l l i o n German marks, of twenty-one members. 7 MitbG.. a r t s . 4, 9. 8 I b i d . . a r t . 13. 117 The Co-determination Amendment Law, intended to increase the p o s s i b i l i t i e s of a p p l i c a t i o n of the C6-determination Law and to avoid escapes of t h i s law by the forming of holding companies, covers a l l the companies c o n t r o l l i n g coal and s t e e l producing companies. 1 0 These companies must have a su-pervisory board of f i f t e e n members, seven of them appointed by the shareholders, seven by the employees and one by the majority of the other members. 1 1 The German law on co-determination has given r i s e to a great deal of discussion, both i n Germany and abroad. Some German a u t h o r i t i e s regard co-determination as unim-portant and i n e f f e c t u a l because i t i s not required i n im-portant businesses owned by i n d i v i d u a l s or partnerships and they argue that the supervisory board i s not a proper body for e f f e c t i n g workers p a r t i c i p a t i o n i n managerial decisions because supervisory boards have l i t t l e managerial authority. 9 In 1951, when the co-determination law was enacted, 105 companies were subject to i t : i n 1969, a f t e r heavy con-centrations, they were only 51: (Mitbestimmunq im Unter- nehmen - Bericht der Sachverstandigenkommission zur Aus-wertung der bisherigen Erfahrungen b e i der Mitbestimmung, Stuttg a r t , W. Kohlhammer GmbH, 1970). 10 MitbEG.. a r t s . 1, 3. 11 I b i d . . a r t . 5. 12 N i k i s c h , A., A r b e i t s r e c h t . pp. 586-87 (Tubingen, Mohr, 2nd. ed.1966). 118 But i t i s suggested these arguments m i l i t a t e towards an ex-tension of co-determination rather than against. The majori-ty of Workers s t i l l seem to favour p a r t i c i p a t i o n and German trade-union leaders have also r e c e n t l y pressed the govern-ment to i n s t i t u t e f u l l co-determination i n a l l firms employ-13 ing more than 2000 workers. Moreover, i n companies subject to co-determination law, f o r some time now the custom has always been to include a labour representative on the commi-ttees acting i n the management and dealing with matters that 14 d i r e c t l y or i n d i r e c t l y may concern the^workers. Co-deter-mination has also been the subject of discussion by foreign scholars who have in d i c a t e d extreme i n t e r e s t i n German so-15 l u t i o n , although t h e i r a t t i t u t e s vary from scepticism , to 16 17 c r i t i c i s m , to great admiration. 13 Newsweek, January 29th, 1973, p. 34. 14 Aus Recht und Praxis der Mitbestimmung - Band 2/3 - Die Mitbestimmung im A u f s i c h t s r a t , p. 76 (Koln, Bund-Verlag, 1966). 15 Spiro, H.J., The p o l i t i c s of German Codetermination. pp. 116-38 (Cambridge Mass., Harvard U n i v e r s i t y Eress, 1958). 16 S t e e f e l , E . C . F a l k e n h a u s e n , B., The new German stock  corporation law, 52 Cornell L.Q. (1967), p. 518. 17 Fogarty, op. c i t . . pp. 135-8; the author c l e a r l y i ndicates that the ultimate s o l u t i o n must be the f u l l co-determina-t i o n , the p a r t i a l co-determination having sometimes a f r u s t r a t i n g rather than a supporting e f f e c t on workers* Goyder, G., The responsible company, pp. 93, 131 f f . (Oxford, B a s i l Blackwell, 1961). 119 B. France Works councils were f i r s t i n s t i t u t e d i n France by an Or-donnance of 1945, modified by various laws and decrees and 18 s u b s t a n t i a l l y revised i n 1966. According to the law every company employing at l e a s t 50 people must have a works coun-c i l composed of representatives of the workers and repre-sentatives of senior employees (e.g., foremen, executives). Each of these two groups may send one representative of the works cou n c i l to meetings of the supervisory board (or to those of the administrative board, f o r the companies not 19 adopting the two-board management system). The law gives to the works councils the same r i g h t s of information posse-ssed by the shareholders - general p o l i c y of the undertaking, expenses, investments, s a l a r i e s and remunerations, and various 20 f i n a n c i a l statements. Moreover, the works council must be informed i n due time of a l l labour problems (e.g., employ-ment conditions, working time, diminution of personnel) and must a l s o Bis informed each quarter on production programmes,, 21 market and the employment s i t u a t i o n generally. 18 Ordonnance no 45-280, of February 22nd, 1945 and Law no  66-427. of June 18th, 1966. 19 I b i d . , a r t . 3 para. 9. 20 I b i d . , a r t s 3 para. 3, 4, 8. 21 I b i d . , a r t . 3c para. 1-3. 120 In add i t i o n to the works council law, another very im-portant statute was enacted i n France i n 1967, recognizing a r i g h t f o r workers to p a r t i c i p a t e to the annual benefits 22 of the company. This p a r t i c i p a t i o n i s compulsory i n a l l companies employing at l e a s t 100 persons: other companies are f r e e to adopt the law as well and are l i k e l y to do so 23 since the law permits some f i s c a l advantages. The law prescribes the d e t a i l s f o r the crea t i o n of a p a r t i c i p a t i o n t r u s t , h a l f of which can be d i s t r i b u t e d to the shareholders, reinvested or put i n t o the reserves, while the other h a l f must be d i s t r i b u t e d to the employees. Each amount d i s t r i b u t e d to employees i s i n proportion to the earned salary but may 24 not exceed a c e r t a i n c e i l i n g . Agreements between the com-pany and the employees specify the manner of d i s p o s i t i o n of the p a r t i c i p a t i o n , which can eithe r be effected by a t t r i b u -t i o n of company's shares or bonds, by a c r e d i t on a spe c i a l current account, or by the a c q u i s i t i o n of investments c e r t i -f i c a t e s . 2 5 France then, has broad l e g i s l a t i o n covering workers r i g h t s 22 Ordonnance no 67-693, of August 17th, 1967. 23 I b i d . . a r t s . 1, 9, 14, 7 para. I, I I , 8. 24 I b i d . , a r t s . 2-4. 25 I b i d . . a r t s . 4, 5, 10, 11. 121 w i t h i n companies. I n p a r t i c u l a r the attempt has been made t o cover two s e p a r a t e a s p e c t s o f the problem, namely c o -d e t e r m i n a t i o n ( = p a r t i c i p a t i o n i n decision-making) and p a r t i c i p a t i o n ( ^ p a r t i c i p a t i o n i n the p r o f i t ) . The attempt has been o n l y p a r t i a l l y s u c c e s s f u l . The French co-determina-t i o n does n o t c o n s t i t u t e a t r u e c o - d e t e r m i n a t i o n i n the Ger-man sense, s i n c e the l a b o u r r e p r e s e n t a t i v e s do not form p a r t o f the management ( e i t h e r i n the a d m i n i s t r a t i v e board form o r i n the s u p e r v i s o r y board f o r m ) , but o n l y have an 2 6 a d v i s o r y ( c o n s u l t a t i v e ) v o t e . A l t h o u g h the works coun-c i l s have been v e r y a c t i v e and have a c h i e v e d s i g n i f i c a n t 27 r e s u l t s , e s p e c i a l l y r e g a r d i n g s o c i a l m a t t e r s , t h e i r i n f l u -ence on the conduct o f the company's a f f a i r s has been a t 28 l e a s t l i m i t e d t o a s o r t o f s u p e r v i s i o n . Moreover, French workers have shown i n the p a s t l e s s i n t e r e s t i n co-determina-t i o n t h a n i t h e i r German c o u n t e r p a r t s , and some a u t h o r i t i e s s t i l l t h i n k t h a t the r i g h t p l a c e f o r l a b o u r r e p r e s e n t a t i v e s 29 i s n ot w i t h i n company's management. N e v e r t h e l e s s , the events o f May 1968 have shown t h a t workers, e s p e c i a l l y i n 26 Supra, p. 51. 27 M o n t u c l a r d , M., L a dynamique des comites d ' e n t r e p r i s e . ( P a r i s , C entre de l a Recherche S c i e n t i f i q u e , 1963). 28 Cox., R.W., L a p a r t i c i p a t i o n des t r a v a i l l e u r s a l a qe- s t i o n des e n t r e p r i s e s , I.I.E.S., no 2, F e v r i e r 1967. 29 R o b l o t , op. c i t . . no 1247, p. 630. 122 the view of the new generations, have s t i l l many goals to a t t a i n : i n t h i s respect the r e v i s i o n of the works council 30 law:;:of 1966 was c l e a r l y i n s u f f i c i e n t . C. The Netherlands The h i s t o r y of the Dutch i n d u s t r i a l r e l a t i o n s sy-stem shwes that j o i n t c onsultative bodies have always p l a -yed a r o l e i n p o l i c y making at n a t i o n a l , industry and com-31 pany l e v e l s . Hence, i n 1950 when the f i r s t law i n s t i t u -t i n g the works councils was enacted, some entreprises a l -ready had works c o u n c i l s . The law of 1950, on the other hand, was quite incomplete, and i n p a r t i c u l a r d i d not contain any penalty i n case of absence of the c o u n c i l s . The ideas of worker p a r t i c i p a t i o n , i n s p i r e d by Catholicism as well as protestantism, became stronger and r e s u l t e d i n more worker demands. The Verdam Commission, acting on the r e v i s i o n of 32 the company law, dealt with the problem from two points of view - a strenghtening of the works co u n c i l s , and a presence 30 D.S. 1967, L e g i s l . , p. 65. 31 Windmuller, J.P., Labour r e l a t i o n s i n the Netherlands. (Ithaca NY, C o r n e l l U n i v e r s i t y Press, 1969) i s an exten-sive analysis of the Dutch i n d u s t r i a l r e l a t i o n s system since 1860. 32 Supra, pp. 13-4. 123 of labour representatives on the supervisory board. The solutions reached were a compromise: the p o s i t i o n of works councils was strenghted and a compulsory supervisory board f o r "large" companies was prescribed, but the p o s i t i o n of employees i n respect of t h i s board remained unclear. The new Dutch law on works c o u n c i l s , enacted i n 1971, prescribes that every enterprise employing at l e a s t 100 per-sons must have a works c o u n c i l . The council i s presided over, s u r p r i s i n g l y , by the manager(s) of the undertaking, and i s composed of a number of employees proportional to the number employed by the company. The c o u n c i l must meet at l e a s t s i x times a year: two of these meetings must deal with the gene-r a l conduct of the company's a f f a i r s i n the presence of the managing board, and the f i n a n c i a l statements are also pre-sented and discussed i n one of these meetings. Moreover, the works c o u n c i l has a co-determination power i n the matters r e l a t i n g to the workers' r i g h t s and duties (e.g., workers regulations, working time, vacation, safety, p r o f i t - s h a r i n g plans). The council must also be consulted on the general questions of employment p o l i c y within the enterprise and on the other major decisions concerning the enterprise, l i k e 33 Van Rhijn, A.A., Arbeider of medewerker. nieuwe qeda  chten over de medezegqenschap i n het b e d r i j f s l e v e n (Assen, 1969). 124 the change of seat or l o c a t i o n of f a c t o r i e s , mergers and pa-r t i c i p a t i o n i n or by other companies. The works council law provides also f o r the c r e a t i o n of c o n c i l i a t i o n boards by com-missions of the Economic and S o c i a l Council: these boards are composed of an equal number of employers' representatives and labour representative, and must s e t t l e a l l differences 34 of opxnxon between the employer and the works c o u n c i l . In the Netherlands law then, complete co-determination has not been reached, but employees have many ways to i n f l u -ence the conduct of companies and to defend t h e i r r i g h t s . S Even i f t h e i r representatives do not s i t on the board of over-seers of "large" companies, other representatives, namely 35 these of the government are on the board, and i t i s l i k e l y that these representatives have close regard f o r the workers' i n t e r e s t s . Moreover, the employees can recommend persons f o r appointment to the supervisory board, and the works councils meet quite often with the board. The trend towards a true co-determination w i l l soon or l a t e r p r e v a i l however not only because t h i s w i l l be the p o s i t i o n of the Community law but also because the opinion of Dutch scholars also c l e a r l y 34 Wiersma, K., Le concept d'entreprise dans l e nouveau  d r o i t n^erlandais des s o c i ^ t ^ s commerciales. Rev. Dr. I n t ' l . et Dr. Comp. 1971, no 3-4, p. 149. 35 Supra, p. 49. 125 supports co-determination as the best s o l u t i o n to giving 36 employees r e a l status within the company. D. E.E.C. law In the Community law the trend i s c l e a r l y towards the 37 co-determination. As mentioned above, the f i f t h d i r e c t i v e proposed by the E.E.C. Commission provides that companies employing at l e a s t 500 persons must have a supervisory board 38 composed of one-third wokers' representatives. The same r u l e i s adopted by the E.E.C. Commission i n i t s d r a f t of the S.E.(The Sanders d r a f t did not propose an uniform s o l u t i o n to the problem of employee representation, mantaining the co-determination i n the countries where i t existed already and omitting i t where i t d i d not yet exist.) The Commission proposes an uniform but e l a s t i c s o l u t i o n : each S.E. w i l l have a superviaory board with one-third of i t s members being labour representatives but one of whom i s 36 Van Gorkum, P.H., I n d u s t r i a l democracy at the l e v e l of  the entreprise. I n d u s t r i a l democracy i n the Netherlands, pp. 20-1 (Meppel, 1969). 37 Supra, pp. 100-2. 38 F i f t h d i r e c t i v e , a r t . 4. 126 not employed by the company. Two exceptions are contempla-ted. The employee representation can be extended by the a r t i -c l e s of a s s o c i a t i o n (so that the requirement of German co-determination law can be met) or can be abolished i f the S.E. employees so decide by a vote of at l e a s t a two-thirds ma-40 j o r i t y of a l l employees. A c r e f u l l y regulated procedure i s prescribed f o r the appointment of the employees' represen-t a t i v e s on the supervisory board, designated, by the works c o u n c i l . Moreover, the E,E.C. Commission Draft provides f o r the cr e a t i o n of a new type of works c o u n c i l , the European works c o u n c i l , to be i n s t i t u t e d i n a l l the S.E. companies esta-41 b l i s h e d i n several member states. This newly created works cou n c i l i s elected by the employees i n a l l places of business and has the duty to representing a l l these employees. I t w i l l , however, only act i n respect of matters r e l a t e d to the S.E. as a whole or to more of one of i t s places of b u s i -42 ness. The European works council has wide r i g h t s of i n f o r -39 Commission Draft, a r t . 137. 40 I b i d . , a r t . 138. 41 I b i d . , a r t . 100. 42 I b i d . , a r t , 119(1), 127 mation, i n c l u d i n g the company's economic s i t u a t i o n , i t s ge-neral p o l i c y and conduct of the a f f a i r s , and must give i t s consent to a number of decisions r e l a t i n g to employees' r i g h t s , 4 3 While only few years ago co-determination and p a r t i c i p a -t i o n remained more a conception of the labour law than of the company law and were widely refused as possible solu-t i o n of the many problems r e l a t e d to the status of the emplo-44 yees within the company, today we are presented with quite 45 d i f f e r e n t views i n the countries of continental Europe. In the s p i r i t of the Common Market i t s member states have looked f o r better solutions following an already tested system, the German one, making i t more f l e x i b l e to help 46 Community law become acceptable to a l l member states. 43.1 I b i d . , a r t s . 120(1), 123. 44 Van Omneslaghe, P., Le regime des societes par actions et  leur administration en d r o i t compare^ no.162, pp. 290-3 (Bruxelles, Etablissements Emile Bruylant, 1960). 45 See Garcin, W., Coqestion et p a r t i c i p a t i o n dans les entre-p r i s e s des pays du March6 Commun (P a r i s , Editions J u p i -t e r , 1968). 46 Lyon-Caen, G., La representation des inte're'ts des t r a v a i l -l e u r s dans l e s soci£t4s europeenne*s^ 7 R.T.D.Eur., 1971, pp. 477-9. 128 The d i f f i c u l t i e s i n t h i s quest are multiple but often due 47 to p o l i t i c a l more than to t e c h n i c a l - j u r i d i c a l problems. However, i t i s safe to say today that i n the future of Eu-ropean company law there w i l l be a s i g n i f i c a n t place for employees' r i g h t s within the company both i n the national 48 laws and i n the i n t e r n a t i o n a l Societas Europaea. 47 Saint-Esteben, R., La proposition d'un stat u t des s o c i ^ -t^s europeennes presentee par l a Commission au Conseil  l e 30 j u i n 1970. 7 R.T.D.Eur., 1971, p. 73. 48 See also Purpura, R., Coqestione e l a societa per a z i o n i europea, 10 D i r . Sc. Int., 1971, p. 337. 129 CHAPTER VII CONCLUSION The quest f o r a new management structure i n European company law has reached a c r u c i a l point. Some countries have already adopted a two-tiered board structure of manage-ment, with a managing board and a supervisory board, which appears more adequate to the company structure of our time. This f a c t has found recognition on a wider bas i s , namely within the European Economic Community, which has already started a reform of the national company laws towards the adoption of the management structure with two boards. The reform w i l l be a substantial one because i t w i l l , i n e f f e c t , not only operate i n the i n t e r n a l structure of the company, but also reach other i n t e r e s t e d p a r t i e s which u n t i l now have been, at l e a s t i n part, ignored by company law, namely the employees and the public at large. Moreover, the reform w i l l not only deeply a f f e c t the domestic com-pany laws, but also w i l l create something e n t i r e l y new, the Societas Europaea, a stock company operating i n a l l Common Market countries subject to uniform r u l e s . 130 BIBLIOGRAPHY BOOKS Auracher, 0 . , Aktiengesetz 1965 Wien, Verlag des Osterreichischen Gewerkschaftsbundes, 1967. 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