Horizon Board: The new committee in stock cooperations? Part II

The decision to establish a Horizon Board can be made either in the articles of association, adopted by a resolution of the general meeting, or made by the management. However, under stock corporation law, there are a number of points to consider when setting up a Horizon Board due to the principle of strict interpretation of the articles of association (Grundsatz der Satzungsstrenge). For example, neither the statutory allocation of powers to the management board nor that of the supervisory board or the general meeting may be altered. The members of a Horizon Board in a stock corporation can therefore only be granted the role of an advisory body.

The specific composition, powers, and involvement of the Horizon Board in the decisions of the management board must be tailored to the individual company and the purpose of the Horizon Board within the limits of the law. When determining the composition, questions arise as to how many members should belong to the Horizon Board and whether the Horizon Board should consist solely of internal employees or also include external advisors. It is important to ensure that the members are free from conflicts of interest and have the necessary expertise and experience. In addition, clear and specific objectives and purposes for the Horizon Board must be defined and rules established for the exchange of information between the Horizon Board and the management. This includes, for example, the question of whether a member of management should be allowed to attend Horizon Board meetings.

Last but not least, the members of a Horizon Board should also be aware of the issue of potential liability. To the extent legally possible, consideration should be given to a contractual exclusion of liability in order to keep the psychological barrier for interested parties as low as possible.

There are various legal aspects to consider when implementing a Horizon Board. These include, in particular, regulatory considerations and the question of compatibility with existing governance structures as well as the question of how and to what extent information is made available to the Horizon Board.

To ensure compatibility with existing governance structures, it is particularly important to clearly separate the tasks of the Horizon Board from those of the supervisory board and the management board. In addition, the establishment of Horizon Boards must be in accordance with German stock corporation law, in particular with regard to the rights and obligations of shareholders and the company's executive bodies. It must also be ensured that any reporting obligations of the Horizon Board are consistent with the legal requirements applicable to the supervisory board and the management board. 

In addition, the recommendations of the German Corporate Governance Code should be considered when implementing Horizon Boards to ensure transparency and accountability. In order to secure shareholder trust, it may be advisable to set higher transparency requirements, such as the obligation to publish the activities and decisions of the Horizon Board in the company's annual reports.

It must also be determined what documentation requirements a Horizon Board should have and how communication between the Horizon Board and the management board and supervisory board should be structured in detail.

One of the core areas that every company considering setting up a Horizon Board should address is how members of the Horizon Board will be provided with information, the extent to which information can be made available to the Horizon Board, and what measures should be taken to ensure that sensitive data and information are treated confidentially.

 

There is no general, comprehensive right to information for members of a Horizon Board. Nevertheless, for practical reasons, a regulation is needed to determine how and to what extent members of the Horizon Board should have access to information so to enable the Horizon Board to work effectively. There are various ways in which this can be structured. One possibility is that the information is provided directly by management or by subordinate levels. Another or additional option would be to grant the Horizon Board a right to information and disclosure or a right to search for information in company databases itself. 

This need for rules on the provision of information can be particularly challenging when shareholder representatives sit on the Horizon Board and the issue of equal treatment of shareholders arises.​

Under stock corporation law, the principle applies that no shareholder may be granted preferential access to information or access to more information than is disclosed to other shareholders. If shareholder representatives are appointed to a Horizon Board, shareholders could gain a knowledge advantage over other shareholders through access to information. The principle of equal treatment may be restricted in this context on the basis of objective reasons in the context of a proportionality test.

Although the law does not distinguish between specific groups of shareholders, in legal literature it is argued that there should be an objective reason for granting privileged access to information if the shareholder is an institutional investor. This is explained by the fact that the Shareholder Rights Directive 2007/36/EC, as amended (Directive [EU] 2017/828), assigns institutional investors specific tasks in the area of corporate governance (so-called stewardship duties). According to this, institutional investors are granted their own participation policy and are required to publish a participation report. It is argued that it is in the interest of the company to provide institutional investors with improved access to information as a means of enabling them to perform the tasks assigned to them by this directive for the benefit of the company.

Therefore, if a Horizon Board performs a task for the benefit of the company and is provided with information for this task, an information advantage for an institutional investor may be permissible. However, it is not possible to provide a general answer as to when a task is for the benefit of the company; rather, each individual case must always be examined and assessed by an expert.

Whether the establishment of a Horizon Board actually brings the desired success ultimately depends on a variety of factors, not least the respective industry and the purpose of establishing a Horizon Board.

The establishment of a Horizon Board can be particularly interesting for stock corporations that have previously placed little focus on issues such as social media, digitalization, or diversity, but also for companies that want to become more attractive to institutional investors.

In summary, it can be said that the establishment and organization of a Horizon Board is uncharted territory for many stock corporations. In order to be well positioned here, sound legal advice is essential in order to assess the multitude of legal aspects appropriately and implement them in a practical manner. As examples from other countries show, the establishment of a Horizon Board can create measurable added value for a company in a variety of ways.