8.3.3.2 Appointment of SDs

The appointment of supervisory directors depends on whether a company falls within the ambit of the structure regime or not. Normally, the general meeting appoints supervisory directors. However, the articles of association may provide that one-third of the supervisory board is appointed otherwise than by the general meeting, such as by the supervisory board or priority shareholders. The articles of association may also provide that a binding nomination is made for appointments by the general meeting. In the case of a structure regime the general meeting may appoint the candidates for the supervisory board, who are nominated by the supervisory board itself. The candidates must be nominated in line with an outline profile for the entire supervisory board, which must be discussed with the general meeting and works council. A majority of the general meeting, representing one-third of the issued capital, may reject the nominee. If the nominee is neither appointed nor rejected, the supervisory board may appoint the nominee. Furthermore, in companies that fall within the ambit of the structure regime, the works council and the general meeting have the right to recommend candidates as well. However, this supervisory board is not obliged to nominate these recommended supervisory directors. In addition, the works council has an enhanced right of recommendation for one-third of the supervisory board seats. The nominee need not be an employee of the company. However, the supervisory board may object to the recommendation under certain circumstances.

The power of the general meeting can therefore be decreased in normal companies and the structure regime limits the power of the general meeting in favour of the supervisory board. From an independence viewpoint, the limited power of the general meeting is a good practice. However, an increase in power of the supervisory board needs well-developed control mechanisms. Therefore, it is important to have a well-developed evaluation process and it must be possible to remove the supervisory board if it does not behave in the interest of the company and the stakeholders. If these preconditions are in place, then this way of appointing supervisors is a strong building block of independence.