Supervisory board

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A supervisory board 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 does vary 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.

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

[edit] Germany

German corporation law Aktiengesetz requires all Aktiengesellschaften to have two boards: a management board called Vorstand 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 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.