ii. Statutory Exculpation Clauses
As a second line of defense, where the director is neither protected by the business judgment rule nor can prove the entire fairness of his action, a U.S. corporation might include an exculpation provision in its articles of incorporation that exempts the directors from monetary liability for breaches of their duty of care. (198) Under the SE-Reg and German corporate law, such an abstract waiver of liability is simply not possible. According to AktG section 93, paragraph 4, sentence 3, the SE may only punctually waive the liability of administrative organ members with regard to a specific unlawful action if at least three years have passed, if the majority of shareholders in a general meeting agrees, and if no minority, representing at least 10% of the SE's capital, objects. Similarly, the shareholders in the general meeting may adopt a resolution authorizing a particular action of the administrative organ that would normally violate AktG section 93, paragraph 1, and thereby ex ante relieve the acting members from personal liability for this conduct. (199)
a. Number, Personal Requirements
On both sides of the Atlantic, the number of board seats and the requirements that candidates must fulfill to become eligible for directorships are, for the most part, left to the individual corporation or SE. Both entities, however, are subject to a second layer of regulation: while U.S. corporate law is supplemented by the NYSE and NASDAQ listing rules on committee structure and board independence, the German SE may be codetermined. Because the codetermination rules contained in the SEBG are significantly more complex and more flexible than the aforementioned passages in the NYSE and NASDAQ listing standards, they will be addressed in a separate subchapter.
i. The Board of Directors
Neither the Model Business Corporation Act nor the Delaware Code prescribes a minimum or maximum number of seats on the board of directors. Instead, the matter is entirely left to the individual corporation's articles of incorporation and bylaws. (200) And neither do the codes address personal requirements for board members, such as independence, apart from excluding judicial persons as board members. (201)
Independence criteria, however, are mentioned in the NYSE and NASDAQ listing standards and the non-binding American Law Institute's Principles of Corporate Governance (ALI Principles). Both NYSE and NASDAQ rules require a majority of independent directors on the board (202) and entirely independent audit committees, consisting of at least three members and including at least one director with financial or accounting expertise. (203) Even small boards, therefore, must consist of at least three independent directors, including at least one director with the necessary financial literacy. The NYSE and NASDAQ independence criteria, generally, focus on the absence of ties to the officers and to the auditing firm, (204) whereas an equity stake in the corporation is not regarded as interfering with independence. The recommendation in section 3A.01 of the ALI Principles, on the other hand, also asks for a majority of independent board members, but defines independence only as independence from the officers.
ii. The Administrative Organ
Similarly, in the SE, the statute generally determines how many members serve on the administrative organ. (205) Only if the administrative organ is codetermined or the SE possesses a legal capital of more than 3,000,000 [euro] must the organ consist of at least three members. (206) The maximum number of administrative organ members depends on the SE's legal capital. (207) Nine members are allowed if the legal capital does not exceed 1,500,000 [euro] and fifteen members are permitted with a capital basis between 1,500,001 [euro] and 10,000,000 [euro]. All other Ses may have a maximum of twenty-one directors.
Unlike the Model Business Corporation Act and the Delaware Code, German corporation law sets out a few personal criteria for membership in the administrative organ. First, identically to the American codes, the option of granting a seat in the administrative organ to a judicial person--SE-Reg article 47, paragraph 1208--does not exist under German corporate law. (209) Second, a person is not eligible if he or she already occupies a seat in the supervisory board or administrative organ of ten other companies, serves as the legal representative of one of the SE's subsidiaries, or is the legal representative of a company that has a supervisory board that consists of at least one of the managing directors of the aforementioned SE. (210) Membership of employee representatives in a codetermined board depends on emerging successfully from the election and nomination procedure as it is prescribed either by the standard rules on employee involvement [Beteiligung kraft Gesetzes], (211) or by an involvement agreement [Mitbestimmungsvereinbarung] (212) Finally, the German legislature took a first step into the field of director independence by stipulating that the managing directors may not occupy a majority of the administrative organ seats. Limits on shareholdings or independence from shareholders, on the other hand, are not provided for. (213)
b. Codetermination [Mitbestimmung]
Codetermination is probably the area of corporate governance in which the German one-tier SE and the U.S. corporation differ most from each other. While mandatory employee participation on the board of a U.S. corporation is simply non-existent, employees of a German SE may elect up to 50% of the administrative organ members.
In the following subchapter i, the basic structure of codetermination in a German SE will be outlined, while subchapter ii will present a number of ways in which the affected parties do or may profit from the unusually flexible SE codetermination rules. Subchapter iii will then briefly shed a light on the unresolved issue of whether the present SE codetermination regime violates German constitutional law.
i. General Features of Codetermination in a One-Tier Structure: The Three Options Model
German worries about the future of mandatory codetermination in larger stock corporations have been among the most important reasons why almost thirty years passed between the first draft SE-Regulation and the present Regulation. (214) The final result represents a compromise between a complete abolition of German-type codetermination within the SE and the inclusion of the SE in the mandatory codetermination regime of the German Codetermination Act [Mitbestimmungsgesetz] (MitbestG) (215) as it applies particularly to the AG. (216)
Neither the SE-Reg nor the SEAG regulate employee involvement. Instead, the question of codetermination has been outsourced to SE-Directive 2001/86/EC217 and the SEBG. (218) Neither act aims at substituting the MitbestG with a similarly mandatory set of rules, (219) but rather seeks to provide for a regulated negotiation procedure between, on one side, the management of the entities that participate in the formation of the SE and, on the other, a special negotiating body composed of employee representatives. Depending on the outcome of the negotiations, the SE is (1) governed by an employee involvement (220) agreement [Mitbestimmungsvereinbarung] pursuant to SEBG section 21, (2) not codetermined at all, or (3) subject to the SEBG standard rules on employee consultation, information and participation. SE-Reg article 12, paragraph 2 mirrors these three options by providing that a new SE may be registered only if (1) the negotiations have led to an involvement agreement, (2) the special negotiating body has unilaterally decided not to open negotiations or to terminate negotiations already opened according to SEBG section 16, or (3) the parties have negotiated over six months without reaching an agreement on employee involvement or on the extension of the six month period, SEBG sections 20 and 22, paragraph 1, No. 2. Registration without any codetermination-related negotiation is only possible if the companies participating in the formation of the SE altogether employ fewer than ten persons. (221)
(1). Involvement Agreement [Mitbestimmungsvereinbarung], SEBG Section 21
The first option, an involvement agreement, is an agreement between the management of the companies participating in the SE formation and the employees' special negotiating body on all aspects of employee information, consultation, representation, and participation. Corresponding to the universal scope of the agreement, the parties generally can develop an entirely customized codetermination (or non-codetermination) regime without having to adhere to certain minimum standards. According to SEBG section 21, paragraphs 1-3, the parties must agree on the following topics: the scope, effective date and duration of the agreement; the number and allocation of seats on the employee representative body; financing, information, consultation, and frequency of the meetings of this body; alternative ways of information and consultation if no employee representative body is provided for; and--if parties agree on employee participation in the administrative organ--the number of employee representatives in the administrative organ, the rights of these members, and their nomination and election.
Generally, the agreement must be supported by a majority of employee representatives in the special negotiating body representing the majority of the employees. (222) If the agreement would decrease the level of employee involvement in at...