Dismissal of a supervisory board member for serious grounds related to conduct

The conduct of a supervisory board member can form serious grounds for dismissal, even when that conduct is not directly related to their position on the supervisory board.

Supervisory board members can be removed for good cause even when they are accused of misconduct not directly connected to their activities on the supervisory board. In its judgment of 1 March 2022, the Higher Regional Court (OLG) in Karlsruhe clearly confirmed this principle and established practical standards for the dismissal of supervisory board members for good cause, which go beyond those in the case in question.

Facts of the case

In the case before the OLG Karlsruhe, the supervisory board of a large SE requested that the court remove one of its members for good cause. The supervisory board member in question was also an employee of the company and had served as the union representative on the supervisory board since 2019. At the same time, he was chairman of the works council.

A whistleblower report contained a suspicion that a colleague of the supervisory board member, who was also a member of the works council, often cut work without applying for leave over several years. As part of the internal investigation into these suspicions, the supervisory board member manipulated emails and documents in which the accused colleague (supposedly) sent his apology for not being at works council meetings because he was on “leave”. The supervisory board member later admitted this conduct to the supervisory board and justified his manipulation with the argument that he wanted to help his colleague.

The company terminated the employment relationship of the supervisory board member extraordinarily. In addition, the supervisory board applied to the registry court to have the supervisory board member removed from office for good cause under Art. 9 (1) (c) ii) of the SE Regulation (SE-Verordnung) and § 103 (3) first sentence of the Stock Corporation Act (AktG). The register court granted the application and removed the supervisory board member from office for good cause. The supervisory board member appealed to the OLG Karlsruhe.

The judgment

The Higher Regional Court in Karlsruhe confirmed the judgment of the register court and affirmed that there was good cause on the part of the supervisory board member.

There will be good cause on the part of the supervisory board member when, based on the circumstances of the case and upon the carrying out of a balancing of interests, it would be unreasonable for the supervisory board member to remain on the board until the end of his term of office. This will be the case especially when the functioning of the supervisory board would be considerably impaired, or it could be expected to cause other damage to the company. Above all, the question is what significance the reasons used in this specific case for the dismissal have for the interests of the company in a functioning supervisory board. It should be noted that the supervisory board exercises its mandate in the interests of the company, and the interests of supervisory board members must, therefore, take a back seat to company interests.

In addition, there will not only be good cause when the supervisory board member breaches his duties on the board. It is sufficient for dismissal for good cause – regardless of whether the conduct was in the exercise of his board duties or otherwise – if and to the extent that the conduct of the supervisory board member has specific adverse effects

(i) for the course of business or
(ii) on the reputation of the company or
(iii) that would jeopardise the trust and cooperation within the supervisory board.

This would also apply to purely private misconduct. For good cause based on conduct, there must only be an apparent connection to the work of the supervisory board. The connection between the work of the supervisory board and the conduct constituting good cause will suffice if the conduct affects the company. This will be the case, for example, when the conduct threatens to damage the reputation of the company. It is also sufficient if one could conclude from the misconduct that the supervisory board member is not suited to serve on the board and/or there is at least an actual connection between the misconduct and the activities of the supervisory board.

Even a conflict of duties (the supervisory board member was also the chairman of the works council) neither eliminates the breach of duty as such nor means the conduct is less serious and no longer constitutes good cause. It is not possible to split the conduct of a person.

Measured against this standard, the supervisory board member destroyed the company's trust in his personal integrity and reliability and proved that he is unsuited to exercise the company’s interests in the functioning supervision of the board as a supervisory board member. Consequently, there was good cause in this case.

Comments

In its judgment, the OLG Karlsruhe provided clear standards for the dismissal from office as a supervisory board member for good cause by the register court. The judgment provides an important guide for practice. In particular, the Court determined with welcome clarity that misconduct outside of the actions of the board and even purely private misconduct can constitute good cause for the dismissal of a supervisory board member. At the same time, the OLG Karlsruhe made it clear that not just any misstep outside of the activities of the board would suffice for good cause. Misconduct must affect the company, which can hold true in particular where the misconduct would damage the reputation of the company. This includes the interests of the company in the personal integrity of the members of the supervisory board.

Supervisory board members should be aware that, in their exposed position, they primarily serve the interests of the company. In this respect, there is no clear split between the sphere of their activities for the supervisory board and other activities for the company (such as a member of the works council) and, in some cases, even conduct in the private sphere. Accordingly, misconduct outside of the activities of the supervisory board can constitute good cause for dismissal.
Dr Moritz Jenne
Jennifer Wulf