Board of Directors, Supervisory Board: what are the major differences between these two bodies?

board services and

Four major elements differentiate the Board of Directors and the Supervisory Board

  • broader missions for the board of directors
  • incompatibility of functions between the Management Board and the Supervisory Board
  • the absence of a disclosure requirement for the chairman of the supervisory board
  • greater civil and criminal liability for members of the board of directors

1) First difference: the mission of the board of directors and supervisory board

The Board of Directors has broader missions than the Supervisory Board.

The Board of Directors is in charge of administering the company. As such, it is entitled to deal with any subject affecting the proper operation of the company, in particular :

  • It contributes to the definition of strategy
  • It determines the main orientations of the activity
  • It approves the annual accounts of the company
  • It presents a management report to the General Meeting of Shareholders

More than just a controlling power, the Board of Directors is truly a partner of the Branch, with which it shares jointly the strategic direction and management decisions. This is why, unlike the Supervisory Board, the Board of Directors is collectively responsible.

The Supervisory Board’s exclusive mission is to monitor the regularity and appropriateness of the company’s management on a regular and retrospective basis, with a power of co-decision and a prior control in the form of prior authorization of certain transactions provided for by law or by the bylaws.

Unlike the board of directors, which by law is responsible for preparing the annual financial statements, the supervisory board does not have the power to approve the corporate financial statements. On the other hand, its mission leads it to ensure the regularity of the said accounts and to exercise constant control over the management of the company by the management board.

The Board of Directors determines the orientations of the company’s activity and ensures their implementation. Its members therefore participate in the development of the company’s general policy, which the Management Board will be responsible for implementing. As a result, unlike the supervisory board, the board of directors plays an important role in the management of the company’s business and has the power of self-referral with regard to the “proper conduct” of business. As such, it reports on the management of the company at the annual shareholders’ meeting. In addition to this active role in the day-to-day management of the company, he also exercises control over general management by ensuring that its strategic choices are properly implemented.

However, in practice, there is convergence between the two forms of public limited companies, with the determination of the orientations of the company’s activity being adopted by the board of directors or the supervisory board on the proposal of the chief executive officer or the management board.

2) Second difference: Cumulation of functions

The Chief Executive Officer may be a member of the Board of Directors, or even combine the functions of Chairman of the Board of Directors and Chief Executive Officer.

The functions of member of the management board and member of the supervisory board within the same company are legally incompatible.

3) Third difference: the President’s disclosure obligation

Within the Board of Directors or the Supervisory Board, the exercise of the mandate requires that each member has a duty to provide information to enable them to carry out the mission assigned to the body to which they belong.

However, unlike companies with a board of directors, the law does not impose on the chairman of the management board the obligation to communicate all documents and information necessary for the exercise of the mission of the members of the supervisory board. The information is always available to each of the latter.

4) Fourth difference: civil and criminal liability

Due to the incompatibility between the functions of member of the supervisory board and member of the management board, the civil and criminal liability of the members of the supervisory board is less extensive than that of the members of the management board.

Moreover, the members of the supervisory board do not have the status of “executive” by law. Thus, in principle, they do not incur any liability for their management actions and the results thereof, unless they are qualified as factual “managers”, in which case they are subject to the sanctions applicable to a legal manager. Only the failure or negligence in the execution of their mandate and their duty of control are likely to bring their liability into play. In addition, members of the supervisory board must disclose to the shareholders’ meeting any offence of which they are aware that is attributable to a member of the management board, failing which they may be held civilly liable.

The members of the Board of Directors are liable for any act of management contrary to the interests of the company as well as for any negligence committed in the exercise of their mandate to manage or supervise the general management. This applies both to acts as such and to lack of involvement. Under no circumstances should the board of directors be content to be a mere registration chamber. Directors may be ordered to compensate the company for the damage suffered by it or even, in the specific case of collective proceedings, to bear all or part of the corporate liabilities incurred through their fault.

Do members of the board of directors run more risks than members of the supervisory board?

Directors are executives by right, which is not the case for members of the supervisory board, who are therefore less exposed and enjoy a more protective status than directors vis-a-vis shareholders or third parties.

The main task of the supervisory board is to control the company’s management bodies.

Published by Dave John

Decade of work experience in leadership consulting with strong focus on talent acquisition & assessment across different industries and geographies.

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