This country-specific Q&A provides an overview of Corporate Governance laws and regulations applicable in Austria.
What is the typical organizational structure of a company and does the structure typically differ if the company is public or private?
Most privately held companies in Austria are incorporated as limited liability companies (Gesellschaft mit beschränkter Haftung, GmbH). The legal form of a joint stock corporation (Aktiengesellschaft, JST) may be used for both private and public, i.e. exchange-listed, companies, whereby recent changes to the Austrian Stock Corporation Act introduced more stringent rules applicable to exchange-listed JSTs. The European Company (Societas Europea, SE) is a less frequently used form for a public company in Austria.
Considering the material differences between the regimes applicable to the various legal forms available, the focus of the following lies with the JST.
Who are the key corporate actors (e.g., the governing body, management, shareholders and other key constituencies) and what are their primary roles? How are responsibilities divided between the governing body and management?
The organisational structure of a JST provides for a mandatory two-tier board structure. Key corporate actors are (i) the management board, (ii) the supervisory board, and (iii) the general shareholders’ meeting.
The management board manages and represents the company at its sole responsibility and, safe for certain transactions defined by law that require prior approval, is not subject to instructions from the supervisory board or the shareholder meeting.
The supervisory board monitors and controls the actions of the management board. One of the supervisory board’s key review functions concerns the company’s financial reporting. For this purpose, the Austrian Stock Corporation Act provides for the mandatory establishment of an audit committee for public companies and certain other (large) companies; otherwise the supervisory board may, at its discretion, establish and delegate certain tasks to committees.
The rights of the shareholders of a JST are materially limited to information rights, voting right and the right to receive dividends. Shareholders have no right to directly instruct or otherwise influence the management board, other than with respect to certain reserved decisions to be made in shareholder meetings (see below) and those fundamental business decisions that the management board or the supervisory board put to a vote by the shareholders. In addition, Austrian doctrine (following the Holzmüller-doctrine developed by the German Supreme Court) requires shareholder approval with respect to certain structural decisions that may significantly interfere with shareholders’ rights by impacting their asset and control position. The Austrian Supreme Court, however, is reluctant to apply this doctrine, and – in a very recent decision rendered with respect to a limited liability company – applied analogies to provisions of the Austrian Stock Corporation Act, instead of taking stance to the Holzmüller-doctrine.
What are the sources of corporate governance requirements?
The most relevant sources of corporate governance requirements are primarily contained in
Austrian and European company law rules (e.g. the Austrian Stock Corporation Act, the Societas Europea Act, the Limited Liability Company Act, the SE Regulation),
the Austrian Commercial Code,
for public companies: the Stock Exchange Act and ancillary laws and regulations, including the Takeover Act or the Accounting Control Act,
the (principally non-binding) Austrian Code of Corporate Governance,*)
certain regulatory laws, e.g. the Austrian Banking Act, as well as regulations and circulars of regulatory bodies like the Austrian Financial Markets Authority or the e-Control,*)
*) Whilst private companies may voluntarily undertake to adhere to the principles of the Austrian Code of Corporate Governance, such a commitment is mandatory for a public company to be admitted to the prime market of the Vienna Stock Exchange.
Further the articles of association of the private and public companies may provide for additional rules on corporate governance, e.g. setting forth additional obligations of the management board and the supervisory board. Finally, special (internal) rules of procedure may regulate corporate governance requirements on company level.
What is the purpose of a company?
A company may pursue any purpose except for illegal purposes (forbidden by law, e.g. drug of human trafficking etc). Companies are usually profit oriented, but charity purposes are also allowed. However, other forms of association than a corporation might be more convenient for non-profit organizations.
Is the typical governing body a single board or comprised of more than one board?
The typical governing body of an Austrian public company consists of a two-tier board, even though the two-tier board structure is only mandatory for the JST. In the following, we focus on the supervisory board and provide our comments to the management board in the next section.
How are members of the governing body appointed and removed from service?
The shareholders‘ meeting appoints the members of the supervisory board for a term of up to five years. The shareholders vote with simple majority for the appointment, 75% majority, but no reasoning is required for revoking the appointment of a member. The articles of association may provide for a higher or lower threshold with respect to the resolution on revocation. The employees (workers’ council) may also send representatives to the supervisory board of a JST: one workers’ representative for each two board members elected.
Who typically serves on the governing body and are there requirements that govern board composition or impose qualifications for directors regarding independence, diversity, tenure or succession?
Supervisory board members used to be primarily white, male and over 40 years of age. There are restrictions as to the maximum number of mandates in other supervisory boards (usually 10, 8 for listed companies) and regulations that require the shareholders’ meeting to consider diversity (age, gender, international background) while electing the board members. Since January 2018 listed companies as well as companies with more than 1000 employees need at least 30% female and/or 30% male members of the supervisory board, provided that the board consists of 6 members or more and at least 20% of the employees are female /male. Elections to the board that do not fulfill this requirement are void. This is the first enforceable diversity/gender equality regulation in the history of company law.
Special regulations apply to companies like banks, very big or listed JST etc and require single board members to have special qualifications (e.g. financial expert for the audit committee).
Pursuant to Section 75 of the Austrian Stock Corporation Act, the Supervisory Board appoints board members for a maximum period of five years. If a board member is appointed for a longer term, for an indefinite period of time or without time specification, the appointment is effective for five years. A reappointment is permissible; however, it requires the written confirmation of the chairman of the supervisory board to be effective. These provisions apply analogously to the employment contract of a board member.
What are the common approaches to the leadership of the governing body?
The supervisory board shall elect a chairman and at least one vice chairman from among its members. The Stock Corporation Act confers various special tasks on the chairman, e.g. to prepare and chair supervisory board meetings, to represent the supervisory board vis-à-vis the management board and, in particular, to chair the annual general meeting. Notwithstanding this special role, the chairman has no right to issue instructions to the other members of the supervisory board nor has his vote a higher weight either. In practice, however, a large number of articles of association of private and public companies provide for the chairman’s right to direct the vote, which gives preference to his vote in the event of a tie.
What is the typical committee structure of the governing body?
The supervisory board may organize committees for different subjects that usually prepare decisions and supervise the implementation of resolutions of the board. Listed companies as well as very big incorporations need an audit committee with one member as financial expert. The audit committee supervises the reporting and accounting of the company, as well as the control systems. According to the Austrian corporate governance code JSTs should also have a nominating committee that prepares elections of new board members and directors of the company. The remuneration committee treats with the remuneration system for directors and their employment contracts.
How are members of the governing body compensated?
The remuneration of supervisory board members is subject to a resolution of the shareholders‘ meeting. Compensation is not obligatory, usually members receive a fixed amount per meeting that should cover their expenses and an annual fee that may vary according to the different functions in the board (chairman, chairman of a committee, simple member etc). Employee representatives are not compensated since they are paid employees anyway.
Are fiduciary duties owed by members of the governing body and to whom are they owed?
Members of the supervisory board owe fiduciary duties to the company. Members of the supervisory board have to put their private interests behind the interests of the company. In order to safeguard an unbiased control over the managing directors, business transactions between members of the governing body and the company are subject to the prior approval of the governing body (duty of loyalty).
Do members of the governing body have potential personal liability? If so, what are the key means for protecting against such potential liability?
They may be liable for damage caused by their action or omissions to the company. Members are liable jointly and severally with their entire personal property, but are only liable if they personally have acted unlawfully and culpably. D&O liability insurance policies for both directors and members of the supervisory board have become standard in most Austrian JSTs and LLCs. The best way to protect against liability is to comply with the standards of the Business Judgment Rule: make a business judgment on an informed basis, without any conflict of interest and in the best interest of the company.
How are managers typically compensated?
In general, members of the management board of private and public companies receive a salary that includes fixed and variable performance-linked components. In addition to these basic components, applicable laws also include other types of pecuniary benefits, i.e. profit participations, expense allowances, insurance payments, commissions, incentive-related remuneration commitments and fringe benefits of any kind, under the term “compensation”.
When determining the aggregate amount of the compensation payable to a member of the management board, the supervisory board must ensure that the compensation bears a reasonable relationship to the duties and performance of such member of the management board and to the financial situation of the company, and that it creates long-term incentives for a sustainable corporate development. Variable remuneration components shall be linked, above all, to sustainable, long-term and multi-year performance criteria. Performance criteria shall also include non-financial criteria and shall not entice the members of the management board to take unreasonable risks.
With respect to public companies, the Corporate Governance Code, and with respect to credit institutions, applicable laws and regulations, provide for detailed regimes regulating the various components of the remuneration and the conditions for the pay out of the variable remuneration, e.g. deferral periods resp. vesting periods applicable to financial instruments granted.
How are members of management typically overseen and evaluated?
In general board members of a JST are under supervision of the supervisory board. The main task of the supervisory board of a JST is to monitor the performance of management board with respect to legality, expediency and economic efficiency. In order to be able to fulfil this task, the supervisory board requires comprehensive information. It can therefore demand a report from the management board at any time on the affairs of the company and can inspect and check the books and records of the company, the company’s funds, etc. Although the supervisory board cannot instructions the management board, it must object to deficiencies in the management of the company and provide the necessary advice.
In order to ensure that the variable remuneration components comply with the principles summarized above, evaluation policies and measurable criteria must be fixed in advance and serve as a basis for an ex ante risk and performance assessment. In addition, these policies serve as a basis for an ex post assessment of the performance and, if need be, an ex post adjustment of the deferred variable remuneration resp. a clawback of remuneration already paid out based on obviously false data.
Do members of management typically serve on the governing body?
No. The Austrian two-tier board system requires a strict separation of tasks between management and supervisory board and prohibits members of the management board to be appointed as members of the supervisory board.
This strict rule also applies within a group of companies and prohibits appointing a member of the management board of a subsidiary as member of the supervisory board of the respective holding entity.
What are the required corporate disclosures, and how are they communicated?
Corporations are obliged to publish the annual report, the management report, as well as the corporate governance report (obligatory for listed companies) and hand them over to the commercial register. Usually the reports are published on the company’s website. See question 28 for further reports.
How do the governing body and the equity holders of the company communicate or otherwise engage with one another?
The annual shareholders’ meeting (or additional extraordinary meetings) are the main source of information for the shareholders. The management and the supervisory board inform about the last business year and answer questions of the shareholders. Companies may publish information on their website (e.g. business forecasts, profit warning). Listed companies use ad hoc announcements. Equal treatment of all shareholders under similar conditions is mandatory, therefore separate communication by the management/supervisory board to single shareholders could lead to claims by other discriminated shareholders.
Are dual or multi-class capital structures permitted and how common are they?
The Austrian Stock Corporation Act expressly allows shares vested with different legal positions, i.e. membership rights. In practice, the most prevalent form of non-common shares in Austria is the issue of non-voting preference shares with preferential dividend rights. The law also permits the granting of individual rights such as individual presence rights when resolutions are to be passed resp. specific approval rights to an amendment to the articles of association, capital increases or similar structural decisions such as mergers or split-offs.
The principle of equal treatment only prohibits arbitrary unequal treatment of shareholders but allows differentiation on objective grounds. If the articles of association specify several classes of shares, the respective membership rights have different contents and the different legal treatment does not affect the equal treatment requirement. The downside of this flexibility is, however, that dual or multi-class capital structures increase the complexity of the decision-making process and the efforts required for the holding of general meetings. Therefore public companies tend to reduce non-voting preference shares with preferential dividend rights by converting preference shares into common shares, or, in the case of new issues, to refrain from issuing preference shares.
What percentage of public equity is held by institutional investors versus retail investors?
According to statistics of the Austrian stock exchange, in the year 2018 two thirds of investors in the free float are institutional investors, whereas only 17% are private investors and 13% non-financial investors.
What matters are subject to approval by the shareholders and what are the typical quorum requirements and approval standards? How do shareholders approve matters (e.g., voted at a meeting, written consent)?
The general rule is that the shareholders shall have not direct influence on the management of the company.
Accordingly, the main matters subject to approval by the shareholders relate to changes of the company’s structure (i.e. amendments to the articles of association, issuance of new stock, mergers and spin-offs, the dissolution of the company), the appropriation of the profit or the appointment of members of the supervisory board.
Are shareholder proposals permitted and what requirements must be met for shareholders to make a proposal?
Generally, shareholder(s) holding at least 5 % of the share capital of a JST may request adding of new items on the agenda of the shareholder meeting. The motion must contain (i) the formulated agenda item and (ii) the resolution proposal, together with a reasoning. The shareholder(s) may file the motion prior to the publication of the agenda, or afterwards. In the latter case, the motion needs to be filed no less than 21 days (or 19 days in case of an extraordinary shareholder meeting) prior to the shareholder meeting.
In addition to the above, shareholders holding at least 1 % of the share capital of a public company may request adding of additional proposals for resolutions with respect to items on the agenda as published by the management board.
During the shareholder meeting, shareholders may – similar to the management board and the supervisory board – submit motions for resolutions with respect to any item on the agenda.
May shareholders call special meetings or act by written consent?
Yes, shareholder(s) holding at least 5 % of the share capital (or less if stated in the articles of association) of a private or public JST may request convocation of a shareholder meeting, provided that the applicants – at the date of filing the motion – hold the shares for more than three months and still hold the shares as of the time the decision on the motion is made. Further to this minimum holding period requirement, the motion must contain (i) the agenda and (ii) the resolution proposal for each item on the agenda.
As a general rule, the only way for shareholders of a private or public JST to exercise their voting rights is to attend the general meeting in person / send a proxy. Other than in a limited liability company, written resolutions in the form of circular resolutions are not available for JSTs.
Is shareholder activism common and what are the recent trends?
Even though the Austrian Shareholder Association and certain Austrian activist shareholders continue to take more active roles in representing (minority) shareholders’ interests, shareholder activism does still not play an important role in Austria.
Notwithstanding the above, shareholders of public companies tend to make a more active use of their rights leading to an increased number of opposing votes to e.g. the appointment of members of the supervisory board and other, also structural, decisions. In addition, in merger and squeeze out situations, shareholders are even more willing to contest e.g. the share exchange ratio of mergers resp. the squeeze-out compensation in court.
What is the role of shareholders in electing the governing body?
Unless the articles of association provide certain shareholders with nomination rights or provide for an increased quorum, the members of the supervisory board are elected by the shareholders’ meeting with simple majority. See question 6.
As stated above, members of the management board are appointed by the supervisory board for a term of 5 years. The appointment may be revoked by the supervisory board during the term for good cause, whereby, among others, the rescission of confidence by the shareholders’ meeting (provided the respective resolution was based on objective considerations) may serve as a good cause.
Are shareholder meetings required to be held annually or otherwise, and what information needs to be presented?
The ordinary shareholders’ meetings are to be called by the management board once a year, at the latest within 8 months following the end of the preceding business year. The convocation must be published and state the name of the company as well as the time and place of the meeting. The last publication of the convocation must not be made later than 28 days before the date of the meeting.
The shareholders’ meeting is the centre of information and the statutory platform for communication for shareholders vis-à-vis the company and among each other. Accordingly, the Austrian Stock Corporation Act provides for various information duties applicable to the management board and the supervisory board, as well as information and proposal rights for shareholders, each to be exercised in the shareholders’ meeting. The duty to provide information is linked to the respective items on which the shareholder meeting shall render its decision and may vary from information on the course of business (in relation to the resolutions related to the financial statements, the distribution of profits as well the release form liability of the management board and the supervisory board for a specific business year) to providing background information with respect to a potential filing of claims against the management board or the supervisory board. Further information that needs to be presented may relate to amendments to the articles of association, changes to the share capital, reorganisation matters (mergers, spin-offs), the sale of all or a material part of the assets of the company as well as the liquidation of the company.
Further, the shareholders’ right to request information about the items on the agenda is one of the core member ship rights. The answers usually have to be given by members of the management board during the shareholder meeting and in any case have to be true, complete and understandable. The information request may only be denied if the information, in the reasonable opinion of the company, it is likely to cause a substantial disadvantage to the company itself or to its affiliates or if providing such information would be punishable by law.
Do any organizations provide voting recommendations or otherwise advise or counsel shareholders on whether to approve matters?
Up to now, activist shareholders in Austria mainly applied standard strategies to exercise their influence – also beyond their proportionate shareholding – by e.g. issuing open letters to the company or using press and social media channels to reach other shareholders.
Further, Proxy Advisors issued voting guidelines also for public companies in Austria and provide voting recommendations based on these guidelines. Even though these voting recommendations are primarily addressed at institutional investors, these recommendations may have a significant effect also on the decision-making of the retail investors, in particular as regards corporate governance aspects and e.g. capital measures.
What role do other stakeholders, including debt holders, employees, suppliers, customers, the government and communities, typically play in the corporate governance of a company?
The directors of a JST have to consider not only the benefit of the company but also the interest of the employees, the shareholders and the public (whether represented by the government or communities). Employees’ interest is pursued both through the workers’ representatives in the supervisory board and by the workers’ council in the company. There are no statutory provisions for the involvement of debt holders, suppliers, customers, the government, or communities, but individual agreements or actual influence of such stakeholders may exist (e.g. provisions in a loan agreement that require the consent of the bank or information rights prior to certain actions of the company).
What consideration is given to ESG (environmental, social and governance) issues, including climate change, sustainability and product safety issues, and are there any legal disclosure obligations regarding the same?
There are numerous statutory provisions about product safety, environmental protection, worker protection etc that any company must comply with. In addition, some companies (big corporations, companies of public interest) are obliged to publish a “non-financial statement” that describes the business and aim of the company and also comprises environmental issues, social issues, workers’ interests and the protection of human rights, as well as anti-corruption measures.
How are the interests of shareholders and other stakeholders factored into decisions of the governing body?
See question 27. Sometimes decisions that are in the best interest of the company (e.g. continuance in times of economic troubles) are not in the interests of other stakeholders, such as the employees (e.g. workers being laid off). Ultimately, from a legal perspective, the interest of the company prevails, although public opinion is also often crucial for a company’s success. Thus the management will usually consider other stakeholders’ interests while taking decisions.
Do public companies typically provide earnings guidance on either a quarterly or annual basis?
Usually earnings guidance are published quarterly.
May public companies engage in share buybacks and under what circumstances?
Share buybacks are allowed only under certain restrictions of the Austrian Stock Corporation Act and for certain purposes, e.g. to prevent imminent harm to the company, to offer shares to the directors or employees of the company (subject to authorization by the shareholders’ meeting), for capital reduction.
What do you believe will be the three most significant issues influencing corporate governance trends over the next two years?
Apart from the impact of the implementation of Directive (EU) 2017/828 on the encouragement of long-term shareholder engagement, we expect the following issues to impact corporate governance over the next years: encouraging Board diversity, sustainability-related risk mitigation and director knowledge. Further, cyber security, digitalization as well as agile methodologies in corporate management will have an impact on the work of the supervisory boards and corporate governance.