Vorstand
In German corporate governance, a Vorstand is the executive board of a corporation (public limited company). It is hierarchically subordinate to the supervisory board (Aufsichtsrat),[1] as German corporate law imposes a two-tier board of directors.
German law confers executive powers on the executive board as a body. It is expected to act collectively and collegially. In contrast to the executive committee (aka operating committee or executive council) of a US or UK company, the executive board is not an adjunct to the CEO (managing director). In contrast to Japanese corporate governance, the executive board has real decision-making power. It is, by law, the managing body of a company and cannot be instructed by any person or entity to act in a way that is injurious to the business. Executive board members are personally liable for accepting any such instructions.[1]
The specific scope of an executive board's duties varies from business to business. (A group of companies may each have their own individual executive boards, for example). The CEO of the executive board, and the role of that office, is determined by the supervisory board. German law permits, but does not require, executive board members to elect a CEO from among their number. There are no specific legal requirements regarding the CEO's role, or even for the name of the office of CEO, although in practice the most common title is simply Vorstandsvorsitzender "CEO", literally, "chairman of the Vorstand". A noticeable minority refer to their CEOs as Sprecher (lit., "speaker") with the implication that the CEO is no more than primus inter pares.[1]
The exact relationship between the CEO and the other executive board members depends on the company's type, how it was founded, and indeed the individual personalities of the people involved. A family business could, for example, have a strong CEO who is a member of the founding family who exercises a great deal of power over the other executive board members. In other companies, executive board members may hold themselves accountable to the executive board as a whole and not at all accountable to the CEO as an individual.[1]
The relationships between executive board members 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.[1] Each board member has one vote. Decisions are never deferred, when there is a lack of consensus, to the supervisory board. Executive board meetings are commonly held on a weekly basis and can last up to a whole day.[1]
Formally, the power to appoint executive board members lies with the supervisory board, 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. Since up to 50% of the supervisory board members are delegates of the employees (or even external trade union representatives, for details see Mitbestimmung), this prevents employees from blocking the appointment of members to the executive board.[1]
Executive board members enjoy a degree of job security, which is in part a preventative measure aimed at ensuring that executive boards 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 the supervisory board's veto. When an executive board member's ability to perform their duties is diminished due to old age, it is customary for them to serve out the remainder of their term but with their duties being performed with the aid of a deputy. Neither the shareholders nor the executive board can compel a member to retire, whereas the supervisory board can.[1]
Commonly the CEO 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.[1]