Authors: Ondřej Florián, Pavlína Petráčková
Another substantial change introduced by the large amendment to the Companies Act (the “Amendment”) is the long-awaited new arrangement of the one-tier corporate governance system of a joint-stock company. In this third issue of our Guide to the Corporate World after the Amendment, we take a look at the one-tier system, which is to be profoundly changed.
Under the existing legal regulation, joint-stock companies with the one-tier system are obliged to establish two elected bodies, namely the governing director (statutární ředitel) and the management board (správní rada). It is further stipulated that the provisions of the Companies Act regarding the board of directors and the supervisory board shall be applied with necessary modification to the governing director and the management board, respectively.
As a result, the current form of the one-tier system composed of two elected bodies is not very much different from that of the two-tier governance system of a joint-stock company. Essentially, the two-tier and the one-tier systems are only different in name, the precisely defined powers of the board of directors and the supervisory board, as well as the fact that different offices may not be held by the same person, as opposed to the one-tier system (as the governing director may concurrently be a member of the management board). In addition, the aforesaid application with necessary modification in conjunction with the inexact definition of the one-tier system has continuously caused notable interpretation issues concerning the position and powers of the governing director and the management board, as it cannot be unambiguously determined which provisions regarding the two-tier system are to be applied to the one-tier system and to which specific bodies. This uncertainty may be very dangerous for (particularly different) persons holding the office of the governing director and that of a management board member.
The Amendment is about to introduce a substantial change by abolishing the office of governing director and fully replacing it with the management board. As a result, the management board will accumulate executive and supervisory powers; the board will be both a supervisory body, which will oversee the company’s activity, and a governing body, which will be vested with the company’s management.
Similar to the board of directors in the two-tier governance system of a joint-stock company or executive directors of a limited-liability company, the management board will be governed by the principles and instructions approved by the general meeting, provided that these are in accordance with legal regulations and the articles of association. However, no one will be entitled to instruct the management board as to the corporate management or the supervision of the company’s activity, except for cases of the management board expressly requesting the general meeting to do so, or if instructions are given within a concern. Instructions concerning the management or supervision of the company’s activity must be distinguished from strategic and systemic instructions, which may be given by the general meeting if they do not breach legal regulations or the company’s articles of association.
The Amendment further stipulates that persons different from management board members may not be authorised to perform the management board’s power to set out the fundamental direction of managing and supervising the company’s activity; likewise, this powermay not be distributed among management board members according to certain fields. However, as stated in the explanatory report of the Amendment, we must note that such prohibition of delegating powers only applies to the “fundamental” direction of management, which implies that the law does not prohibit the possibility to authorise a member of the management board or a person different from such a member to exercise “ordinary” management.
The management board is to have three members, unless otherwise stipulated by the company’s articles of association – fewer or more members may be provided in this way. The Amendment further removes the explicit regulation of the management board chair, which might imply that a chair of the management board of a one-tier governance joint-stock company is vested with certain powers independent of the management board. However, this does not mean that a management board composed of several members will not elect their chair; it only means that they are to proceed in accordance with the general provisions of the Companies Act.
The Amendment also expressly lays down a rule for electing and removing management board members – this is a power vested in the general meeting. It further allows for issuing shares of stock with the right to appoint one or several members of the management board or to remove the member appointed in such way. The overall number of management board members appointed in such manner must not exceed that of the management board members appointed by the general meeting. As the Amendment does not include a legal regulation similar to the divisibility of the number of members by three applying to a supervisory board, and the fact that the management board accumulates both executive and supervisory powers, it may be inferred that the provisions regarding employee participation, which have been frequently discussed under the current regulation of the management board,are unlikely to apply to the management board.
Finally, the Amendment clearly stipulates that with regard to the mixed nature of a management board member’s office, such person will be subject to the provisions concerning a supervisory body member’s conflict of interest. It further unifies the non-compete regulation, provisions regarding the termination of office and election of a new member, co-opting possibilities, elections of replacement candidates or rules for decision-making under the legal regulation of a board of directors.
All changes regarding the new concept of the one-tier governance system of a joint-stock company become effective as of 1 January 2021. However, the Amendment includes numerous transitional provisions in this respect, namely:
With regard to the changes outlined above, we recommend that all joint-stock companies with a one-tier governance system should gradually start making themselves familiar with the wording of the Amendment and making preparations to introduce the necessary steps required in this respect.
It will be inevitable that such companies’ articles of association will need to be reviewed and amended so that their new wording corresponds to the amended wording of the Companies Act, at least to the extent specified by its peremptory provisions. This change may also be made now with deferred effect or without undue delay after the Amendment becomes effective, but no later than within the time limits set forth by the transitional provisions addressed above.
Our corporate team is always ready to assist you in making the necessary preparations for the planned changes.
