Daniel Graewe - Advisory Boards in Medium-Sized Companies: An International Comparison

ISBN 9783110665512

e-ISBN (PDF) 9783110666182

e-ISBN (EPUB) 9783110665710

Bibliographic information published by the Deutsche Nationalbibliothek

The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available on the Internet at http://dnb.dnb.de.

2021 Walter de Gruyter GmbH, Berlin/Boston

To Carlotta and Antonia

The initiative for this book came from an enquiry by the German Lawyers Institute (Deutsches Anwalts Institut, DAI) to the publisher. The DAI was looking for a summary of the economic and legal framework for advisory boards in medium-sized companies. This presentation was to be used in the further education of lawyers specialising in commercial and corporate law and therefore required a more detailed study of the legal matter. In the course of the preparation of the document at the Institute of Applied Business Law in Hamburg, it quickly became clear that a brief presentation of legal matters in other countries was not possible due to the fundamentally different regulations and legal traditions for the document to be prepared. Nevertheless, a comparison of the regulations on advisory boards on an international level was identified as equally interesting and quite uncharted territory. At the end of this rather coincidental process of development you will find, dear reader, the present work. It is dedicated to the basics of the legal framework of advisory boards in medium-sized companies and provides an overview of their situation in the economically most important national economies with regard to the GDP. We hope that in this way we will be able to make an additional contribution to the further mutual understanding of corporate law at the international level.

The editor thanks the international authors of this work for their efforts and their contribution to the international understanding of this not always easy to grasp corporate law subject matter.

Last but not least, the untiring work of Johanna Tensi, research associate at the Institute for Applied Business Law, should be mentioned as an important factor in the success of this book. Without her organisational talent, her empathetic approach to the international colleagues and her great patience with the editor, this work would not have been possible. Thank you very much, Johanna.

Daniel Graewe

Hamburg, Germany, Autumn 2020

This is a useful and timely book.

Cross-border mergers, acquisitions and joint ventures and generally businesses expanding into new jurisdictions are an ever-prevalent phenomenon. There is plenty of literature on the mechanics of setting up, or taking over, a foreign company. There is rather less on how to run companies across different countries to ensure that integration is successful once the merger has happened. There is even less literature specifically geared towards small and medium-sized enterprises (SMEs) operating internationally.

This is a significant issue in light of the widely diverging, and constantly changing, array of governance and participation rules internationally for companies to be aware of. Such factors are far too rarely given full consideration at the outset of a deal. It is well-documented that many a venture fails because of this. This risk is particularly critical for SMEs, where the success of international expansion often determines the long-term viability of the business.

This book on the role of corporate advisory boards in key jurisdictions around the world, with a particular focus on SMEs, therefore helps to fill a gap. These consultative bodies are perhaps the most frequently overlooked aspect of international corporate governance. They can be a vital instrument both for driving innovation and for maintaining stability within a corporation. They can also, especially for SMEs, be a handy channel for the influx of external talent. In some jurisdictions they are enshrined in law (mainly in the civil law world). In other countries especially those following the common law tradition as France or Germany but also, for instance, China they are much less regulated.

Familiarising oneself at the outset with the requirements for advisory boards as important tools of corporate governance is bound to help prevent the clash of cultures that all too often follows in the wake of cross-border mergers, acquisitions and joint ventures.

This being the first work of its kind, Professor Daniel Graewe and his globe-spanning team of authors have also made a seminal contribution to the academic study of comparative corporate governance law. They have produced a clear and easy-to-handle reference guide for practitioners and scholars alike. I for one am sure that I, my clients and my colleagues will make regular use of it.

Hendrik Puschmann

London, UK, Autumn 2020

Small and medium-sized companies (SMEs) differ from large corporations in their independent business models, leaner structures and special culture. Many strategic questions must be answered differently than with blue chip companies. Although medium-sized companies often occupy niches, at the same time they can be world market leaders or operate in the top group worldwide. Given such a background, internationality is not a vision of the future; it is part of everyday life. Especially medium-sized companies know their customers personally and are extraordinarily flexible. Flat hierarchies are their shortest path to success. Private ownership and visionary leaders establish a direct link between future orientation and risk balancing.

However, a (medium-sized) company cannot be successful in the long term if it is not also constantly able to adapt to new internal and external circumstances. An important factor for this is the quality of the governance structures and processes within the company. A well thought out and well-functioning management and control structure is not only an important instrument for realising the interests and will of the shareholders and stakeholders, but also an essential prerequisite for recruiting and retaining capable managers and employees.

However, the aftermath of the financial and economic crisis, globalisation, COVID-19 and increased complexity due to growth and increasing density of regulation also pose major challenges for owner-managed companies, especially in the coming post-corona period. In addition, numerous medium-sized companies are confronted with a growing circle of shareholders, the increasing unequal distribution of the shares of different shareholders and the resulting diverging interests, also between the various stakeholders. These are central hurdles for the future viability of medium-sized businesses. In this situation, a properly staffed, competent and responsible advisory board in the sense of good governance contributes significantly to the success of the company and its sustainable development.

In the economic literature, there are essentially three approaches for explaining the existence and benefits of such bodies.

The principalagent theory attributes the existence of advisory boards to the conflicting goals and information asymmetries between the owner of the company (the principal) and its management (the agent). Accordingly, the principal and the agent pursue different goals and interests, which can lead to a threat to the success of the company. In this context, the agent has an information advantage due to his For this reason, the principal can and must take measures to limit such benefit-maximising management behaviour, in particular an internal control and incentive system. For this task, principals set up a (voluntary) advisory board to reduce conflicts between such parties.