Corporate / M&A
Austria: Second Stability Act 2012 Improves Corporate Governance
→ Stephan Frotz
→ Paul Schörghofer
The Second Stability Act 2012 (2. Stabilitätsgesetz 2012) improved corporate governance. It also amended the Austrian Stock Corporation Act (Aktiengesetz) and the Austrian Commercial Code (Unternehmensgesetzbuch). The changes entered into force on 1 July 2012. The most important amendments follow.
Remuneration of managing directors
According to the old version of Art 78 para 1 of the Austrian Stock Corporation Act, the supervisory board must ensure that the benefits provided to the members of the management board are proportionate to the tasks of the individual board member and the company’s situation.
The Second Stability Act 2012 introduced further criteria for the appropriateness of managing directors’ remuneration. First, supervisory board must also consider the performance of the managing directors. Second, the supervisory board must look at the practice in comparable companies, as well as the pay structure in the company itself. Finally, the supervisory board must provide incentives to managing directors to foster the long-term well-being of the firm.
All these aspects had to be observed by a diligent member of the supervisory board even before the act, so the mentioned amendments are not expected to significantly change the current practice on managing directors’ remuneration.
Another change in this field has caused some stir in the business community. Under the new law, remuneration of each management board member, and the remuneration policy, must be featured in the company’s corporate governance report that must be issued by listed and capital market-oriented stock corporations. Previously, such provision to indicate the remuneration of each member of the management board separately could only be found in the optional section of the Austrian Corporate Governance Code (ÖCGK). So companies had the choice to decide whether they wanted to comply with this obligation or explain why they refrained from doing so.
Cooling off period
The Second Stability Act 2012 also introduced a cooling off period for the management board members of listed companies. Former members of a listed company’s management board must wait at least two years after their departure from the management board before they can be elected as members of the company’s supervisory board. This rule does not, however, apply if they are nominated by shareholders holding more than 25% of the voting rights. The supervisory board may only have one member whose cooling off period has not yet expired. In any case, the cooling off period is mandatory for the supervisory board’s chairperson.
Composition of the supervisory board
The amendments also addressed the composition of the supervisory board. Shareholders must pay attention to the professional and personal qualifications of the members of the supervisory board. The supervisory board should be well balanced with regard to the professions of its members and diversified in terms of its members’ gender and age. For listed companies, the make-up of the supervisory board should be international. Finally, persons who have been convicted for crimes that call into question their professional honesty cannot be elected.
The new provisions basically reproduce the former C‑rule 52 of the Austrian Corporate Governance Code and reflect the current discussion about diversity on corporate boards. However, the legal consequences of infringing the provisions governing the composition of the supervisory board remain unclear.
The Second Stability Act 2012 has brought some improvements to the corporate governance of (public) stock corporations. But its benefits should not be overstated given that most of the amendments are consistent with established business practice.