Supervisory board
A supervisory board or supervisory committee, often called board of directors, is a group of individuals chosen by the stockholders of a company
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

 to promote their interests through the governance of the company and to hire and supervise the executive directors and CEO.

Corporate governance
Corporate governance
Corporate governance is a number of processes, customs, policies, laws, and institutions which have impact on the way a company is controlled...

 varies between countries, especially regarding the board system. There are countries that have a one-tier board system (like the U.S.) and there are others that have a two-tier board system (like Germany).

In a one-tier board, all directors (both executive directors as well as non-executive directors) form one board, called the board of directors
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...


In a two-tier board there is an executive board (all executive directors) and a separate supervisory board (all non-executive directors).


German corporation law Aktiengesetz requires all Aktiengesellschaft
Aktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e. owned by shareholders, and may be traded on a stock market. The term is used in Germany, Austria and Switzerland...

en to have two boards:
a management board called Vorstand
In German corporate governance, a Vorstand is the management board of a corporation. It is hierarchically subordinate to the Aufsichtsrat , as German corporate law imposes a two-tier board system....

 and a supervisory board called Aufsichtsrat.

In Germany the supervisory board of large corporations is composed of 20 members, 10 of which are elected by the shareholders, the other 10 being employee representatives. The supervisory board oversees and appoints the members of the management board and must approve major business decisions.

The minimum of members a board can consist of is three, the maximum 21. The number of members has to be divisible by three, as stated in the law.

When it comes to internal elections the head of supervisory board Aufsichtratvorsitzender has two votes in case of a draw.

The supervisory board, in theory, is intended to provide a monitoring role. However, appointment of supervisory board members has not been a transparent process and has therefore led to inefficient monitoring and poor corporate governance in some cases (Monks and Minow, 2001).
The discussion whether a one-tier or a two-tier board system leads to better corporate governance is ongoing in Germany and many other countries. Improvements in corporate governance are often the result of shareholders (such as active private investors or activist investment funds) holding boards (whether one- or two-tier) of companies in which they invest to account.
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