“Do you speak German?” – The challenges for foreign supervisory board members in German companies
One look at the annual reports of the DAX30 companies shows that the members of supervisory boards of Germany’s leading companies are becoming more and more international. Only ten of the thirty companies in the index still have a majority of Germans on their supervisory board.
This trend will lead to more diversity in the decision-making processes of the supervisory boards. Many combine this increasing internationalisation with the hope for more strategic vision on supervisory boards and expect “better” decisions from it. In practice, this development frequently leads to uncertainty in many companies because the membership of foreigners in the supervisory board gives rise to legal questions only seldom discussed so far. Many foreign supervisory board members, in particular, struggle with language difficulties when they try to fulfil their duties as board members which are already demanding.
Our practice has shown that many of the arising uncertainties can be resolved by applying a couple of principles which we would like to present here.
- A lack of sufficient command of the German language is no legal obstacle for the electability of a candidate for the supervisory board.
- Whether the working language of the supervisory board may be determined with binding effect in the articles of association of a stock corporation is doubtful because such rules adversely affect the right of the board to organise its own matters. On the contrary, provisions on the working language in the rules of procedure of the supervisory board are unproblematic, and individual decisions of the supervisory board chairman (e.g. at a meeting) are also possible.
- The chairman or, as the case may be, the supervisory board as a whole has discretion when deciding on the working language. It is not mandatory that German be spoken in the supervisory body. Such discretion is, however, exceeded in case of an arbitrary choice of language, for example if the stipulated working language is not spoken by any or only a few of the supervisory board members.
- Decisions of the supervisory board can be recorded in a language other than German. If, however, minutes have external effects (e.g. because they must be filed with the commercial register), a German translation may become necessary.
- It must, however, be possible for supervisory board members who do not have adequate knowledge of the relevant language to duly fulfil their obligations as board members. The company must therefore procure that the members are in a position to take notice of information received, to understand the content thereof and to discuss it with other supervisory board members and the management board. It follows that every member of the supervisory board who does not have sufficient command of the working language, can demand that the proceedings of the supervisory board be translated simultaneously into a language understood by him (however, not necessarily the language desired by him) and that his own contributions be simultaneously translated into the working language of the meeting.
- Each supervisory board member must accordingly be provided with translations of working documents (e.g. draft resolutions, drafts of agreements on transactions requiring approval) and minutes into a language understood by him.
- If all participating shareholders do not agree otherwise, general shareholder meetings of German companies are to be held in German. If supervisory board members participating in the general shareholder meeting do not have adequate command of German, the above comments on the engagement of simultaneous translators and the translation of documents apply accordingly.
These principles show that supervisory board members have the rights which allow them to duly fulfil their duties as board members, even if they do not have sufficient command of the German language (or another working language of the supervisory board). The responsibility for duly exercising these rights, however, remains with the supervisory board members themselves.
This applies in particular if the supervisory board has on the agenda a resolution to approve management measures (e.g. the conclusion of an M&A transaction). It is then required by the members that they, based on reasonably sufficient information, make an entrepreneurial decision. The information is usually acquired on the basis of company documents and the direct contact to management board members, employees or advisors of the company. However, a member of the supervisory board must, if necessary independent of the information made available by the management board, independently collect the necessary knowledge to place him in a position to be able to duly assess a proposal for resolution. In light of the comprehensive duty of the supervisory board member to obtain information, the decisions of a foreign supervisory board member made on the basis of insufficient or false information, the rule: “No German? – No Excuse!” must be followed.
If you have any questions on the above abstract or wish to receive further information, please contact the authors, Dr Stephan Schulz and Dr Ingo Theusinger.
The information in this abstract is general in nature and does not constitute legal advice. It refers to the legal position at the time of publication and will not be updated on a regular basis.