common law jurisdictions such as the US or UK, the laws of civil law jurisdictions
Germany and Austria provide for a two-tier structure for stock companies (Aktiengesellschaft), thereby strictly
distinguishing the tasks, duties and responsibilities of the Management Board (Vorstand) from those of the Supervisory Board
(Aufsichtsrat). Under the Austrian
Stock Companies Act (Aktiengesetz),
the Management Board has the sole competence to represent the company vis-à-vis
third parties. There are only limited exceptions in which the Supervisory Board
may act for, in the name of and on behalf of the company.
developments in Germany show that it becomes increasingly common to involve
(members of) the Supervisory Board in the company's communication towards third
parties, e.g. in cases of "roadshows" for potential investors and future
shareholders. This issue has sparked discussions on the possibilities of such
involvement among German law experts. Due to similarities between German and
Austrian laws on stock companies the discussion in Germany has an impact on Austrian
academics and legal practitioners.
article, the competences of (members of) the Supervisory Board to represent the
company are described as well as the "pros and cons" of such
representation towards third parties. Further, the circumstances will be
explored under which (members of) the Supervisory Board may be involved in
external communication and what restrictions there are under Austrian law in
2. The competences of management board and supervisory board under Austrian law
The Austrian Stock Companies Act (Aktiengesetz) provides for a two-tiered board structure, distinguishing between a management board and a supervisory board. The main task of the management board is to run the company's day-to-day business and to represent it vis-à-vis third parties, e.g. potential investors. The management board is considered as the sole communicator towards the public and existing and future shareholders. This principle is reflected in the slogan "one voice policy", as commonly used in capital markets law.
The actions of the management board are supervised and controlled by a supervisory board which is basically conceived as an internal "audit" body and which generally has no management competences. There are only very few exceptions to this rule. The supervisory board may e.g., communicate with shareholders or third parties when providing its report on the company to the shareholders during the annual general meeting (Hauptversammlung). Apart from that, the Supervisory Board may by and large not communicate with shareholders or potential investors.
3. Arguments supporting the involvement of supervisory board members in investor relations
Even though the communication with potential investors is part of management responsibilities, Austrian law does not expressly prohibit the supervisory board from entering into discussions with third parties. Rather, the wording of the statute gives wide leeway for interpretation. It should therefore seem possible for the supervisory board to enter into talks with investors on matters that fall within its remit.
A minimum requirement of discussion between the supervisory board and shareholders is necessary in order for the supervisory board to properly perform its tasks, e.g. discussions on the profile for future members of the management board, the remuneration system of the management board etc.
Members of the supervisory board are elected and appointed by the shareholders in the annual general meeting. The annual general meeting further passes resolutions on the discharge of members of the supervisory board. Against this backdrop, it would seem odd if the members of the supervisory board were bound to refrain from communicating with the shareholders who have elected or appointed them.
In light of the above, recent German academic literature favours the idea of increasing involvement of (members of) the supervisory board to enter into independent communications with future or potential investors and shareholders, provided that the topics discussed fall within its remit. An initiative called "Developing Shareholder Communication" has recently published guidelines on the communication between supervisory board and potential investors. Also, the German Government Committee of the German Governance Code has proposed amendments to the German Governance Code which enable the chairman of the supervisory board to engage in direct discussions with potential investors on specific supervisory-related matters.
4. Circumstances and prerequisites under which supervisory board might be involved
The supervisory board may only communicate with third parties on topics that fall within its scope of tasks, e.g. activities of the supervisory board, convocation of the annual general meeting, the profile for members of the management board, auditing and reporting duties etc. However, the supervisory board may not have a dialogue with third parties on the company's transactions, strategic orientation, investments or divestments or personnel issues below the management level.
Only in very restricted and exceptional instances may the supervisory board become involved in external communication on strategic or operative issues of the company. There would have to be material reasons requiring such involvement, e.g. specific needs for the benefit of the company. However, the supervisory board should under no circumstances be involved in the regular communication with investors. The management board shall remain solely responsible for the communication with third parties.
For good order's sake, management boards are well advised to issue communication guidelines for the supervisory board. Such communication guidelines may be adjusted according to the company's specific needs. When setting up these guidelines, the management board would have to consider the company's welfare and external perception. The supervisory board would then have to observe these guidelines when entering into dialogues with investors.
In times of corporate crisis the supervisory board is regularly more closely involved in the company's affairs. However, issues falling within the supervisory board's remits under these circumstances will most likely not be the subject of information in discussions with future investors as information required by potential investors will often fall under the supervisory board's duty of confidentiality.
5. Other limitations of communication
Further to the above, the supervisory board would have to observe other basic restrictions:
Under the principle of equal treatment of all shareholders, shareholders need to be treated equally in matters of information access. Information given to one shareholder outside the annual general meeting must be also be given to the other shareholders. This may lead to situations in which minor shareholders are granted the same information as institutional investors. Deviations from that principle are basically possible subject to objectified reasons justifying such unequal treatment.
The duty of confidentiality requires members of the supervisory board not to disclose trade and business secrets as well as other commercially or competitively sensitive information to third parties with the exception of publicly available information. Only in very limited instances may members of the supervisory board disclose confidential information, i.e.
- the sharing of information is for the benefit of the company,
- the information shared stems from the supervisory board's remits and is limited to a necessary minimum.
From a capital markets law perspective, any external communication by the supervisory board needs to comply with limitations on disclosure of insider information
Finally, the principle of one voice policy has to be observed, meaning that the management board shall be informed on all matters of communication by the supervisory board with potential investors.
In general, communication is part of management responsibilities and is vested with management board as the sole representative of company towards third parties. The supervisory board may communicate with shareholders during the annual general meeting.
Recent developments support the possibility to involve members of the supervisory board in communication with investors. However, such involvement would be subject to certain limitations, inter alia the duty of confidentiality, the principle of equal treatment of shareholders and capital market restrictions. If members of the supervisory board were to be involved in third party communication, management boards are well-advised to issue communication guidelines for the supervisory board designed to the specific needs of the company.
Author: , Partner DORDA Attorneys at Law