The company constitution in the European Company (Societas Europaea or SE) provides for a right to vote on the SE’s organisational structure (Art. 38). Companies can choose between two systems: (i) the dual or two-tier system of separate supervisory board and management board, which is customary in Austria, or (ii) the one-tier system, in which control and management are combined in one body (board or administrative body), used predominantly in Anglo-Saxon countries. This right to vote on the organisational structure of the company constitution is new in Austria. It is mandatory by law for national companies to adopt the dual or two-tier management system.

The governing bodies – supervisory board and management board – are not in a control relationship, the management board controlling the supervisory board or the supervisory board controlling the management board: both have distinct duties. Whilst the management board is responsible for running the company, the supervisory board is tasked with monitoring and advising (for example, on corporate strategy, transactions that require approval in accordance with §95(5) öAktG, and so on) the management board. Both bodies must help promote the well-being of the company, taking into account the interests of shareholders, employees and the general public.

Within the framework of implementing the SE regulation in national law there was lengthy discussion of whether the one-tier system should also be made available to national companies, along with the right to vote on the company’s form of corporate governance. Advocates of opening up the one-tier system to national companies emphasised the greater flexibilisation it would bring to Austrian company law and potential positive effects in terms of competition between legal systems. However, the various interest groups emphasised that the two-tier system of company constitution is well established in Austria and has proved efficient, with mandatory participation of employees’ representatives.

As a result, the Federal government decided that it was better to wait until empirical data were available on the functioning of the one-tier system in Austria before considering possible extension of the option to national companies. The SE statute adopted by the National Assembly is therefore limited to implementation of European Community Law standards and continues to require the two-tier system for national companies.

The new – in Austria – one-tier model of corporate governance is at the centre of Austria’s implementing statute on the SE regulation. The option of the two-tier system (supervisory board/management board) is practically identical to that applying to national companies. The transactions that require approval in accordance with national company law (§95(5) öAktG) must in the case of an SE be specified in the company statute.

The one-tier system has been subject to detailed discussion in Austria. The standard administrative organ is called the “administrative body” and must consist of at least three persons. Within the meaning of recital 14 of the SE regulation, which holds that clear demarcation is desirable between the areas of responsibility of management personnel and supervisory personnel, the administrative body in Austria must appoint one or more executive directors (§59(1) SE-Gesetz). In doing so the administrative body can make appointments from among its own members or make external appointments. In listed companies, executive directors who manage the affairs of the company cannot be members of the administrative body, that is, the appointment of external directors is compulsory and the administrative body consists exclusively of non-executive directors.

The mandatory appointment of executive directors should guarantee the proper functioning of management and control in private companies and the existing two-tier system should not be copied under any circumstances. The status and function of the administrative body as the supreme management body is clearly anchored in §39(1) of the Austrian SE law. The administrative body thus has the right of instruction and initiative, is much more integrated in management than the supervisory body within the framework of developing strategic objectives for the company, and exercises control in pursuing the stipulated objectives.

The lack of a supervisory body in the one-tier system means that the administrative body’s non-executive directors have a central role in monitoring the company. As a result, no executive director may belong to the financial audit committee and the positions of chairman and vice-chairman of the administrative body must be occupied by non-executive directors. There has also been a lively discussion regarding the relationship between the shareholders’ meeting and the administrative body. It was wrongly concluded from the ministerial draft that in the one-tier system the administrative body is subject to instructions from the shareholders’ meeting (see Kalss and Greda, “The European Company (SE) Austrian-style based on the ministerial draft”, in GesRZ (2004), p. 91ff). Whilst the shareholders’ meeting has the power to recall members of the administrative body both individually and en masse, it is not entitled to give instructions to the administrative body. This is also heavily stressed in the justice committee report.

In addition, Austria’s implementing statute on the SE regulation (SE statute) deals with the protection of minority shareholders and of creditors. Protection of minority shareholders basically relies on three instruments: timely information, right of participation in decision-making and right of withdrawal for disapproving partners with the possibility of examining the adequacy of the cash settlement. Protection of creditors is also of key importance for cross-border transactions, particularly if transfer of the head office and company seat renders the pursuit of creditor’s rights more difficult. Creditors have the right to reasonable protection provided they can show that their claim would be endangered by transfer of the company’s domicile.

Employee participation under the board system

In order to implement the Council Directive, a new chapter has been added to the Labour Constitution Act (chapter VI – involvement of employees in the SE; §208 onwards). The clauses that deal with the implementation of the standard rules relating to participation are laid down in §§245–248 of this Act.

These provisions are as follows:

Standard rules for participation § 245. (1) The representative bodies for employees or employees’ representatives that exist in an SE, its subsidiaries and establishments have the right to elect or appoint a part of the members of the supervisory or administrative body of the SE or recommend or oppose their appointment. Their number is determined by the highest proportion of employees’ representatives in the supervisory or administrative body in the participating companies before registration of the SE. (2) In the case of an SE to be established by way of transformation, the provisions on employee participation applicable to the company being transformed apply according to §§ 246 to 248.

Allocation of seats in the supervisory or administrative body § 246. (1) The SE Works Council decides on how to allocate seats in the supervisory or administrative body of the SE among the members representing the employees from various Member States according to the proportion of employees of the SE, its subsidiaries and establishments employed in the individual Member States. (2) If several seats then go to employees’ representatives from the same Member State and employees from one or more Member States are not represented, the SE Works Council should allocate the seats again in accordance with (1), with one seat not included in the allocation. This seat should be allocated to an employees’ representative from one of the Member States not represented. At the same time, one should ensure that this seat is allocated to the employees’ representatives in which the SE is headquartered. Should this Member State be given a seat on the supervisory or administrative body in accordance with (1), then this seat should be allocated to employees’ representatives from the Member State so far not represented in which the highest proportion of employees is employed. (3) If the number of members of the supervisory or administrative body appointed by the respective body of the SE changes, the SE Works Council must decide again on the allocation of seats for employees’ representatives with due regard to the standard rules in (1) and (2), in which it recalls surplus employees’ representatives and allocates additional seats to employees’ representatives from the respective Member States.

Appointment procedure for employee board members § 247. (1) The appointment of Austrian members to the supervisory or administrative body of the SE is effected according to the decision of the SE Works Council on the allocation of seats in accordance with § 234. (2) The appointment of members from Member States to the supervisory or administrative body of SEs with headquarters in a country that does not provide for appointment by the respective national workers’ body should be carried out by the SE Works Council. (3) The SE Works Council and the relevant body of the SE should be notified of the members appointed to the supervisory or administrative body of the SE. (4) Austrian representatives’ membership of the supervisory or administrative body of the SE begins with notification of the appointment decision (2) and ends in the cases of § 237(5 Z 2–5) as well as in the case of § 246(3).

Rights of employees’ representatives in the supervisory or administrative body § 248. (1) § 110(3 third and fourth sentence) applies to the resolution on the appointment and recall of members of the management board, the election of the chairman of the supervisory body and his first deputy as well as the election and recall of the chairman of the executive directors. Incidentally, the employees’ representatives in the supervisory or administrative body have the same rights, including the right to vote, and obligations as the members appointed by the relevant body or the statutes of the SE. (2) § 110(4) applies to the right of employees’ representatives to a seat and vote on committees belonging to the supervisory or administrative body, provided that the right of employees’ representatives to a seat and vote does not apply to administrative body committees that regulate relations between the company and the executive directors, with the exception of decisions on the appointment and recall of executive directors, as well as the granting of options on company shares. Comment: § 245 serves to implement the first three paragraphs of Part 3 of the directive’s annex and is also guided to a large extent by its wording. The wording “Point b shall apply mutatis mutandis to that end” was not incorporated. However, the explanatory notes on the government bill make it clear that if there is a change in the organisation’s constitution in the course of a transformation, the number of members in the administrative body of the SE should correspond to the number of employees’ representatives in the company prior to transformation. § 246 implements the fifth paragraph of the directive’s annex. § 247 regulates the following:

• appointment of Austrian members to the supervisory body and administrative body;

• standard rules for appointment from Member States that do not provide for appointment by the relevant workers’ body;

• obligation to notify;

• beginning and end of Austrian representatives’ membership of the supervisory or administrative body.

Trade union representatives can, as with the SE Works Council, be appointed as Austrian members of the supervisory or administrative body only if they are members of the works council. This is possible only if at least four members are to be elected to the works council (i.e. with establishments of more than 50 employees) and is rare in practice (exact statistical data unknown). § 248 regulates the rights of employees’ representatives in the supervisory or administrative body.

With regard to this, the last paragraph in the annex to the directive stipulates that the employees’ representatives are fully entitled members of the respective body with the same rights and obligations (including the right to vote) as those members who represent shareholders.

On the other hand, a provision in Art. 50(3) of EC Regulation 2157/2001 stipulates the following: where employee participation is provided for in accordance with Directive 2001/86/EC, a Member State may provide that the supervisory organ's quorum and decision-making shall, by way of derogation from the provisions referred to in paragraphs 1 and 2, be subject to the rules applicable, under the same conditions, to public limited-liability companies governed by the law of the Member State concerned.

Austrian company law and the Labour Constitution Act stipulate that a so-called double majority is applicable in the following cases (that is, the majority of all supervisory body members as well as the majority of shareholders must agree to it):

• appointment and recall of the management board;

• election of the chairman of the supervisory body and his first deputy.

In accordance with Austrian law, employees’ representatives in the supervisory body also have the right to become members – with a seat and a vote – of supervisory body committees in accordance with the principles of trilateral parity. However, this applies to committees that affect relations between the company and members of the management board (the so-called HR committee), with the exception of decisions on the appointment of management board members, as well as the granting of share options.

These special provisions in Austrian company law and the Labour Constitution Act mean that employees’ representatives and shareholder representatives do not have the same rights and duties and are therefore not compatible with the last sentence of the annex to the directive. The provision in Art. 50(3) of the regulation also does not change anything as the last sentence of the annex to the directive should be considered lex specialis. The latter prevents only regulations that make a distinction between the legal status of employees’ representatives and shareholder representatives, but not those that provide for other arrangements (for example, a double majority: a majority of supervisory board members and at the same time a majority of shareholder representatives). In light of this provision, there is therefore still significant scope for different regulations with regard to a quorum or decision-making in accordance with Art. 50(3).

Austrian implementation in §248 should therefore not be deemed in conformity with the directive within the meaning of this legal opinion.

However, even if one were to give priority to Art. 50(3) of the regulation, the concrete regulation would in any case not conform to European law with regard to the administrative body (Art. 50(3) concerns only the “supervisory body”) and regarding the right to a seat on the HR committee (Art. 50(3) para 3 only refers to a quorum and decision-making requirements).