Initiative calls for the possibility of parental leave for board members in Germany

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Max Hirschberger

SZA Schilling, Zutt & Anschütz, Frankfurt

max.hirschberger@sza.de

Christoph Allmendinger

SZA Schilling, Zutt & Anschütz, Frankfurt

christoph.allmendinger@sza.de

On 3 March 2020, Delia Lachance, member of the management board (Vorstand) of Westwing Group AG, announced her resignation from her position as a board member of the company because she intended to take maternity leave followed by parental leave of six months. The reason for this step was that German corporate law de facto forces board members to resign from their office in the event of a temporary absence in order to avoid liability for all measures and decisions taken and implemented during their absence.

The case led to a wide-ranging discussion in social media, and finally to a movement called #stayonboard. In the meantime, renowned representatives from German politics, business and law backed the initiative.

The initiative calls for a change to the German Stock Corporation Act (Aktiengesetz) that would give members of the management board the option to suspend their mandate for a period of up to six months in specific cases, such as a parental leave, long-term illness or the care of close relatives, without having to fear liability risks.

Status quo

According to section 76 paragraph 1 and section 93 paragraph 1 of the German Stock Corporation Act, the management board of a German stock corporation (Aktiengesellschaft) is to manage the affairs of the company on its own responsibility and with the due care of a prudent manager, faithfully complying with its duties. Upon assumption of office, a board member assumes liability risk if it acts in breach of these duties. This liability risk is of particular importance because, as a general rule, the members of the management board are jointly and severally liable for liability claims,[1] and the liability claims must be enforced by the supervisory board (Aufsichtsrat)[2] and cannot be waived within a specific period.[3]

If a member of the management board is not able or willing to perform its mandate as a board member for personal reasons, such as the birth of a child, long-term illness or the care of a family member, it regularly faces a dilemma:

Deputy

According to section 105 paragraph 2 of the German Stock Corporation Act, the supervisory board can resolve that a supervisory board member acts as a deputy for a member of the management board who is prevented from serving as such. This measure is limited to one year. However, the single board member is not entitled to such a resolution by the supervisory board. Moreover, the measure is seldom used in practice and is found to be inconvenient, as it changes the composition of the supervisory board, possibly creating the need for an additional supervisory board member appointed by a court (section 104 paragraph 1 of the German Stock Corporation Act).

Leave from duty

As a solution within the management board and an existing practice, the board member may ask for leave from duty (Dienstbefreiung) and ask another member of the management board to take over their responsibilities in their field of competence. While the German Stock Corporation Act does not expressly stipulate this procedure, it is accepted practice, for instance, in the case of the prolonged illness of a member of the board.[4] However, here again, this measure is only possible with the consent of the management board and the supervisory board. The single board member concerned is not entitled to such leave from duty. Further, this measure might modify the tasks and therefore, certain aspects of liability of the board member. However, it does not deliberate the board member from its general manager liability, in particular, with respect to monitoring duties and compliance duties. Inter alia, the board member is obliged to monitor the financial performance and might face severe liability risks or even criminal charges in the case of a financial crisis of the company.

Suspension

Further, the supervisory board could suspend the respective board member. This measure is not foreseen in the German Stock Corporation Act. Therefore, the criteria for the admissibility, conditions and legal effects of such a suspension have been legally contested.[5] Leaving aside the considerable legal uncertainty, the measure is rather discussed in cases of possible severe breaches of duty by a board member. Finally, again, the single board member is in no way entitled to such a measure.

Resignation

In many cases, board members resign from office, as happened in the case of the board member of Westwing Group AG, Lachance. This solution exonerates the board member from liability for the time of its absence. Further, the board member is not dependent on the approval of other bodies when taking the decision. However, the board member faces the risk that resignation from office is not only temporary but for good.

Proposal

Against this background, a group of lawyers, legal scholars and managers presented a position paper,[6] campaigning for the amendment of the German Stock Corporation Act. On a political level, the initiative argues that greater diversity and gender equality with respect to board members in a stock corporation is only possible if suitable solutions to the compatibility of family life and profession are found. While employees in Germany enjoy the benefits of maternity leave (Mutterschutz), parental leave (Elternzeit) and care time (Pflegezeit),[7] members of the management board of German stock corporations do not have similar possibilities. Capable managers could be prevented from taking the leap into the management board because, for instance, their family planning is not complete or there is a desire to dedicate time to their family in certain instances in the future. Finally, it is argued that members of management boards of larger companies can be role models in society and therefore, the possibility to care for their families and children should be provided.

The discussed legislative proposal includes the following cornerstones:

• Each member of the management board should be entitled to rest its mandate for a time of up to six months in specified cases, such as maternity leave, parental leave, long-term illness or the care of a family member.

• The resting of the mandate shall not be possible if the management board is composed of only one board member.

• The board member shall communicate to the supervisory board its request for the resting of the mandate within a certain period prior to the resting of the mandate.

• The supervisory board of the company shall resolve on the resting of the mandate. However, the supervisory board shall not have any discretion if the resting of the mandate is granted. The supervisory board may only refuse the resting of the mandate if it shall take place at an inappropriate time or severely endangers the interests of the company. This could, for instance, be the case if the company is in a financial crisis during the commencement of the resting period or if complex corporate measures, such as an initial public offering (IPO), shall take place within the relevant timeframe.

• The supervisory board shall decide if for the duration of the resting of the mandate: (1) another person is appointed as an interim board member; (2) the other members of the management board temporarily assume the duties of the rested mandate; or (3) a member of the supervisory board is appointed as a deputy to the member of the management board.

• During the resting of the mandate, the board member is exempt from its duties as a board member, and the respective liability.

• At the end of the specified period of the resting of the mandate, the mandate of the board member revives without the need for a supervisory board resolution.

• The period of suspension must be submitted to the commercial register (Handelsregister) by the chairperson of the supervisory board.

• If not agreed otherwise, during the resting period, the board member is not entitled to fixed or variable remuneration components.

• The resting of the mandate or a corresponding request does not create a cause for the revocation of the mandate of the board member.

The proposal focuses on members of the management board of stock corporations. Whether similar rules should apply to supervisory board members is in discussion. The initiative has not taken a clear stand on this question. The position paper states that comparable rules for supervisory board members could be implemented, however, considering the structural differences between supervisory boards and management boards. In particular, it is emphasised that the role of a member of the supervisory board is not as intense as the role of a member of the management board. Whereas a member of the management board is heavily involved in day-to-day business, the role of a supervisory board member involves, in most cases, less timely resources. Therefore, it can be considered that the role of a supervisory board member is much more compatible with family life.

Also in discussion is whether similar rules should be implemented in the case of the German limited liability company (Gesellschaft mit beschränkter Haftung or GmbH). The legal regime for limited liability companies is more flexible, both in terms of governance and directors' liability. Therefore, in practice, more flexible solutions can be found, even without a legal regulation. On the other hand, many subsidiaries and group companies in large groups are limited liability companies. In addition, a corresponding rule for limited liability companies could play an important role for many medium-sized companies.

Outlook

The legal community and the political community received the proposal very positively. On 2 July 2020, a motion was introduced in the German Parliament (Bundestag) asking the German Government to draft a respective legislative act. The proposal was discussed in the German Parliament, whereby representatives of almost all political parties showed their support. The Ministry of Justice (Bundesjustizministerium) and the Ministry of Employment (Bundesarbeitsministerium) announced that they will consider the initiative and are likely to present a respective legislative proposal. Recently, the gender committee of the German Bar Association (DeutscherAnwaltVerein) welcomed the initiative, and also provided a proposal for the possible wording of the new law.

The initiative and discussion reflect a change in the general perception of the roles of the management board, by which it is more and more accepted that its members spend significant time on their family life in addition to their professional role. The discussion shows that the compatibility of family and career will also increasingly play a role in top management while companies strive for greater diversity on their boards. It remains to be seen whether such an amendment to the German Stock Corporation Act will actually increase gender equality on German management boards and if temporary leave will actually be used by the respective executives. In this respect, some participants in the discussion are sceptical and refer to the situation in Denmark, where similar rules already exist.

However, while the positive effects of gender equality are in doubt, the current German Stock Corporation Act barely provides suitable solutions in the case of the longer absence of a board member besides resignation. A legislative solution for this issue is overdue.

Notes

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