Board-level Representation

Employee representatives have a right to seats on the supervisory board of larger companies – one-third in companies with 500 to 2,000 employees, half in companies with more than 2,000.

Employees in larger share-based companies (500 employees or more) also have representation on the supervisory board to which the day to day management of the company reports. This right applies both in a public limited company (AG) and a limited company (GmbH), as well as in some other company forms. It does not apply in “ideological companies” – companies whose purposes are primarily political, religious, educational or artistic, or produce news or comment.

The supervisory board can normally appoint and dismiss the main management board, and it reviews its performance. The supervisory board gives advice, participates in setting the company’s strategy, and is provided with financial and other information. The supervisory board also draws up a list of operations where its approval is required before they are undertaken. However, the supervisory board should not take on the functions of the management board.

The proportion of worker representatives varies from one third, in companies with between 500 and 2,000 employees, to 50%, in companies with more than 2,000 workers. Even in these larger companies, the shareholders can win any contested votes on the supervisory board, as the chair represents the shareholders and can cast a second vote in the event that a vote is tied. The one exception is the larger coal or iron and steel companies, where there is a neutral member of the supervisory board, in addition to equal numbers of employee and shareholder representatives.[1]

In the coal and iron and steel industries, the employee representatives have additional rights in the appointment of the labour director, who cannot be appointed against the wishes of the employee representatives. The labour director is responsible for personnel and employment issues.

The employee representatives have the same rights and duties as other supervisory board members. Employee supervisory board members must not be discriminated against as a result of their membership of the board, and they must not be restricted in their work as supervisory board members. They are also entitled to reimbursement of their expenses and adequate training.

The nomination and election processes vary depending on the number of employees and whether the company is in the coal and iron and steel industries.

In companies with 500 to 2,000 employees, the employee representatives, who make up one-third of the total membership of the supervisory board, must be company employees. They are nominated by the works council or by at least 10% of the workforce or 100 employees if this is a smaller number. They are elected by all employees in a secret ballot.

In larger companies, above 2,000 employees, where half of the supervisory board is chosen by the employees, some of the employee representatives are nominated directly by the union or unions with members in the company, and are usually union officials. The others are company employees, although at least one of them must be a representative of the senior managers. The non-senior manager representatives are nominated by at least 20% of the workforce or 100 employees (excluding senior management). The senior manager representatives are nominated by the senior managers, who must put forward two candidates for the single position.

All of the employee representatives, both the employees and the union officials are elected by the whole workforce, either directly or, in larger companies with more than 8,000 employees, indirectly through workforce delegates.

The legislation sets out precisely the make-up of the supervisory board, which depends on the number of employees. There is always a single representative of senior managers and the shareholders always have the same number of representatives as the employees, but the proportion of union nominated members varies depending on the size of the company, although there are always at least two (see table). Typically one of the external union representatives will be the vice-chair of the supervisory board.

Composition of the supervisory board in a company with more than 2,000 employees

Number of employees Nominated by normal employees Nominated by unions Nominated by senior managers Chosen by shareholders Elected by all employees 2,001 to 10,000 3 2 1 6 10,001 to 20,000 5 2 1 8 More than 20,000 6 3 1 10

In companies covered by the legislation for the coal and iron and steel industries, the standard arrangement is an 11-person supervisory board. On the employees’ side this is made up of two employees (nominated by the works council) and two union officials (nominated by the union) plus an additional member chosen by the employee side, who may not be from a union or work in the company. There are five shareholder representatives, although as with the employees, one of them must be not be directly involved. The final (eleventh) member of the supervisory is neutral, and must be nominated by a majority of both sides. The whole supervisory board is formally elected by the annual general meeting of the shareholders. However, this meeting must accept the employee side’s proposals. It is also possible to have 15-strong or 21-strong supervisory boards with a parallel composition.

Legislation passed in 2015 to increase the proportion of women in leading positions in companies and public sector organisations requires companies quoted on Germany’s main stock exchanges and companies whose supervisory boards included employee representatives, to set binding targets for increasing the number of women (formally the under-represented sex, but in practice women) in leading positions. Companies, which were both quoted on the stock exchanges and 50% of whose supervisory board members were employee representatives, had in addition to ensure that 30% of the supervisory board members were women from 2016 onwards.

In calculating this 30% ratio it is possible to take the employee representatives and the shareholder representatives together. However, if either side objects the ratios must be calculated separately, meaning that in this case each side must have at least 30% women.

Employee representatives on supervisory boards have the same term of office as those representing shareholders. This is limited by legislation to a period ending at the annual general meeting following four full financial years in office. As supervisory members are normally appointed at the annual general meeting when the financial year has already begun, this first part-year does not count towards the total and neither does the period between the end of the fourth year and the next annual general meeting. In effect, therefore, the period of office is five years.

A study for the Hans-Böckler-Foundation in 2009 found that there were 1,477 companies with between 500 and 2,000 employees and therefore subject to legislation requiring one third of board members to be employee representatives.[2]

At the end of 2016, figures from the Hans-Böckler-Foundation show that there were 641 companies in Germany with more than 2,000 employees, where employee representatives made up half the supervisory board (including 234 AGs and 354 GmbHs). This figure, which includes 11 European Companies (SEs), is slightly higher than in 2015, when there were 635. This is the first increase in the number of companies where employees account for half the supervisory board since 2002, when there were 767 companies in this position.[3]

[1] This system of board level representation in coal, iron and steel companies was introduced in 1951, reflecting the popular determination that these powerful industries should be brought under greater democratic control and should not be able to be misused, as they had been during the Nazi period.

[2] Drittelbeteiligung in Deutschland – Ermittlung von Gesellschaften, die dem DrittelbG unterliegen, by W Bayer Hans-Böckler-Stiftung

[3] Statistiken zur Mitbestimmungslandschaft, Hans-Böckler-Stiftung http://www.boeckler.de/38347.htm (Accessed 17.07.2019)