On a regular basis, a company temporarily does not have a management board. This can happen, for instance, due to an unexpected dismissal or the unexpected death of a managing director. Obviously, one cannot wait too long to appoint a new managing director. The show must go on. Moreover, it is an unacceptable risk for a company to function too long without management.
However, appointing a managing director is generally not a quick job. A suitable internal candidate is often not immediately available. In that case, a managing director has to be recruited externally. This recruitment procedure easily takes several months and sometimes even six months. When it concerns a government body, it may even take longer. For in that case the government also has to seek advice from the Corporate Governance Consultant in the meantime. All this time, the company does not have a managing director.
The Supervisory Board has to take action in this case. Depending on how it has been provided for in the articles of incorporation, an interim director can be appointed, for instance. This is often someone from the organization. This person will then temporarily be charged with the management of the company. Sometimes, the articles of incorporation also allow the Supervisory Board to provide for the management itself in such situations. In that case, the articles of incorporation often also state that this is only possible temporarily. They then state that a vacancy has to be filled ’promptly’. Subsequently, the Supervisory Board assigns the management to a ’real’ managing director .
Now the question rises what ’promptly’ is. How long can the Supervisory Board provide for the management? And what does the supervisory director who fulfills the position of managing director have to earn? A managing director’s salary, a supervisory director’s remuneration, or something in between?
Promptly. Who uses this word, ever? Manuel, come home promptly! Nobody says that in everyday language. But silly lawyers do. The term ’promptly’ is nevertheless very interesting from a legal perspective. It literally means: without delay. So promptly is nothing but ’immediately’ or ’directly’. Promptly means ’no longer than necessary’. If the Supervisory Board temporarily takes over the management of the company, a final solution has to be found without delay. So this means that the period during which the Supervisory Board manages the company in the interim cannot be longer than necessary to select and appoint a new managing director. Consequently, the recruitment process has to start immediately. If the recruitment, selection, and appointment process takes eight months, it is quite possible that the vacancy has been filled promptly. But if it could also have been completed in three months, and the Supervisory Board has needlessly waited three months to start the recruitment process, there is no longer question of ’promptly’.
And what should the supervisory directors managing the company earn in the period that they conduct the management? Are they entitled to a supplement to their supervisory director’s remuneration? This seems reasonable at first. After all, they now have to spend much more time on the company. Moreover, they have other responsibilities. And yet, the supervisory directors are not entitled to extra remuneration in the period of their management. They can charge the extra expenses they have incurred to the company at best. Is this actually reasonable? Yes. If you become supervisory director, you know that there may be circumstances in which you have to help out as managing director. In that case, you have to make sure that the vacancy is filled quickly. Promptly!
Do you have a question about corporate governance yourself? Please e-mail it to firstname.lastname@example.org and perhaps your question will be discussed in the next blogpost!