Vorstand
Encyclopedia
In German
corporate governance
, a Vorstand is the management board of a corporation
. It is hierarchically subordinate to the Aufsichtsrat (supervisory board
), as German corporate law imposes a two-tier board system.
German law confers power on the Vorstand as an organ. It is expected to act collectively and collegiately. In contrast to a board of directors
in a United States
or United Kingdom
company, the Vorstand is not an adjunct to a Chief Executive Officer
. In contrast to Japan
ese corporate governance, the Vorstand has a real decision-making power. It is, by law, the driving management of a company, and may not be instructed by any person or entity to act in a way that is injurious to the business. The members of the Vorstand are personally liable for accepting any such instructions.
The specific scope of duties of a Vorstand varies from business to business. (A group of companies may each have their own individual Vorstands, for example.) The head of the Vorstand, and the role of that office, is determined by the Aufsichtsrat. German law permits, but does not require, members of the Vorstand to elect a chairman from amongst their number. There are no specific legal requirements for the role of chairman, or even for the name of the office of chairman, although in practice the most common title is Sprecher (cf. Speaker
) with the implication that the chairman is no more than primus inter pares
.
The exact relationship between the chairman and the other members of the Vorstand can depend from the type of company, how it was founded, and indeed the individual personalities of the people involved. A family-founded family-run company could, for example, have a strong chairman who is a member of the founding family who exercises a great deal of power over the other members of the Vorstand. In another company members of the Vorstand could consider themselves accountable to the Vorstand as a whole and not at all accountable to the chairman as an individual.
The relationships of members of the Vorstand to one another can vary, too. It is common practice for individual members to have individual areas of executive responsibility. However, the law requires that they oversee the activities of their colleagues, since they are still personally liable for any failings outside of their specific departments.
Each member of a Vorstand has one vote. Decisions are never referred, when there is a lack of consensus, to the Aufsichtsrat. Vorstand meetings are commonly held on a weekly basis, and can last up to a whole day.
Formally, the power to appoint members of the Vorstand lies with the Aufsichtsrat, which can appoint members with a two-thirds majority vote of approval, or a simple majority if multiple rounds of voting are required in order to reach a decision. Because 50% of the members of the Aufsichtsrat are employees, this prevents employees from blocking the appointment of members of the Vorstand.
Members of a Vorstand enjoy a degree of job security
, which is in part a preventitive measure aimed at ensuring that Vorstands are not dominated and that they are not "packed" with hand-picked appointees. They are usually appointed for the maximum term permitted by law: 5 years. Removal can only be for good cause such as gross breach of duty, and is subject to veto by the Aufsichtsrat. When a member of a Vorstand is less able to perform their duties because of old age, it is customary for them to serve out their term but with their duties being performed with the aid of a deputy. Neither the shareholders nor the Vorstand may compel a member to retire. However, the Aufsichtsrat may.
Commonly the chairman receives between 30% and 50% greater salary than that of the other members. A member's remuneration usually comprises 65% basic salary, and 35% that is equally split between annual bonuses and benefits.
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
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...
, a Vorstand is the management board of a corporation
Corporation
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...
. It is hierarchically subordinate to the Aufsichtsrat (supervisory board
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 to promote their interests through the governance of the company and to hire and supervise the executive directors and CEO.Corporate governance varies...
), as German corporate law imposes a two-tier board system.
German law confers power on the Vorstand as an organ. It is expected to act collectively and collegiately. In contrast to a 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 United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
or United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
company, the Vorstand is not an adjunct to a Chief Executive Officer
Chief executive officer
A chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization...
. In contrast to Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
ese corporate governance, the Vorstand has a real decision-making power. It is, by law, the driving management of a company, and may not be instructed by any person or entity to act in a way that is injurious to the business. The members of the Vorstand are personally liable for accepting any such instructions.
The specific scope of duties of a Vorstand varies from business to business. (A group of companies may each have their own individual Vorstands, for example.) The head of the Vorstand, and the role of that office, is determined by the Aufsichtsrat. German law permits, but does not require, members of the Vorstand to elect a chairman from amongst their number. There are no specific legal requirements for the role of chairman, or even for the name of the office of chairman, although in practice the most common title is Sprecher (cf. Speaker
Speaker (politics)
The term speaker is a title often given to the presiding officer of a deliberative assembly, especially a legislative body. The speaker's official role is to moderate debate, make rulings on procedure, announce the results of votes, and the like. The speaker decides who may speak and has the...
) with the implication that the chairman is no more than primus inter pares
Primus inter pares
Primus inter pares is Latin phrase describing the most senior person of a group sharing the same rank or office.When not used in reference to a specific title, it may indicate that the person so described is formally equal, but looked upon as an authority of special importance by their peers...
.
The exact relationship between the chairman and the other members of the Vorstand can depend from the type of company, how it was founded, and indeed the individual personalities of the people involved. A family-founded family-run company could, for example, have a strong chairman who is a member of the founding family who exercises a great deal of power over the other members of the Vorstand. In another company members of the Vorstand could consider themselves accountable to the Vorstand as a whole and not at all accountable to the chairman as an individual.
The relationships of members of the Vorstand to one another can vary, too. It is common practice for individual members to have individual areas of executive responsibility. However, the law requires that they oversee the activities of their colleagues, since they are still personally liable for any failings outside of their specific departments.
Each member of a Vorstand has one vote. Decisions are never referred, when there is a lack of consensus, to the Aufsichtsrat. Vorstand meetings are commonly held on a weekly basis, and can last up to a whole day.
Formally, the power to appoint members of the Vorstand lies with the Aufsichtsrat, which can appoint members with a two-thirds majority vote of approval, or a simple majority if multiple rounds of voting are required in order to reach a decision. Because 50% of the members of the Aufsichtsrat are employees, this prevents employees from blocking the appointment of members of the Vorstand.
Members of a Vorstand enjoy a degree of job security
Job security
Job security is the probability that an individual will keep his or her job; a job with a high level of job security is such that a person with the job would have a small chance of becoming unemployed.-Factors affecting job security:...
, which is in part a preventitive measure aimed at ensuring that Vorstands are not dominated and that they are not "packed" with hand-picked appointees. They are usually appointed for the maximum term permitted by law: 5 years. Removal can only be for good cause such as gross breach of duty, and is subject to veto by the Aufsichtsrat. When a member of a Vorstand is less able to perform their duties because of old age, it is customary for them to serve out their term but with their duties being performed with the aid of a deputy. Neither the shareholders nor the Vorstand may compel a member to retire. However, the Aufsichtsrat may.
Commonly the chairman receives between 30% and 50% greater salary than that of the other members. A member's remuneration usually comprises 65% basic salary, and 35% that is equally split between annual bonuses and benefits.