Deutsches Aktieninstitut

Deutsches Aktieninstitut e.V. Börsenplatz 5 60313 Frankfurt am Main

To the Commissioners of the
U.S. Securities and Exchange Commission (SEC)
450 Fifth Street, N.W.
Washingston, D.C. 20549 - 0609


Max Dietrich Kley (Präsident)
Dr. Paul Achleitner
Dr. Ferdinand Graf von Ballestrem
Dr. Bernd Balzereit
Dr. Burkhard Bamberger
Axel-Günter Benkner
Martin Blessing
Dr. Norbert E. Bräuer
Dr. Werner Brandt
Dr. Rolf-E. Breuer
Dr. Ulrich Brixner
Gerhard E. Bruckermann
Dieter Burgmer
Serge Demolière
Dr. Claus-Michael Dill
Dr. Karl-Gerhard Eick
Dr. Edgar Ernst
Dr. Dieter Falke
Dr. Manfred Gentz
Dr. Franz Wilhelm Hopp
Dr. Thomas Kabisch
Dr. A. Stefan Kirsten
Dr. Karl-Ludwig Kley
Robert J. Koehler
Jürgen Kösters
Klaus Kühn
Dr. Hermann Küllmer
Eric Martin
Friedrich von Metzler
Dr. Herbert Meyer
Karl-Heinz Moll
Heinz-Joachim Neubürger
Hans Peter Peters
Dieter Pfundt
Dr. Lutz Raettig
Dieter Rampl
Ulrich W. Reinholdt
Gerhard B. Roggemann
Kim Schindelhauer
Dr. Erhard Schipporeit
Prof. Dr. Reinhart Schmidt
Dr. Werner G. Seifert
Dr. Klaus Sturany
Detlef Thielgen
Thomas Unger
Dr. Ludolf von Wartenberg
Axel Weber
Ernst Welteke
Rainer Wunderlin
Prof. Dr. Rüdiger von Rosen

18 February 2003

Re: Comments on Proposed Rule Standards Relating to Listed Company Audit Committees Pursuant to Section 301 of the Sarbanes-Oxley Act of 2002 (File No. S7-02-03)

Dear Commissioners,

Further to the very fruitful discussions on various aspects of the Sarbanes-Oxley Act between Commissioner Paul S. Atkins and representatives of German corporations earlier this month at a meeting arranged by the Deutsches Aktieninstitut e.V. (DAI), we believe the Sarbanes-Oxley Act, its underlying principles and objectives and the corresponding SEC rules will restore and strengthen the confidence of investors in international capital markets and will promote the interests of investors.

While we support the spirit and the aim of the Sarbanes-Oxley Act, previous responses by German corporations as well as comments made at the meeting with Commissioner Atkins have identified various areas of potential conflict between specific provisions of the Sarbanes-Oxley Act and German Law. We appreciate very much the effort of the SEC to exempt foreign issuers from certain requirements of the Sarbanes-Oxley Act so that conflicts between U.S. law and the home country law of issuers are eliminated or at least mitigated. Thus, we welcome the proposed SEC rule dated January 8, 2003 regarding audit committee standards which, among others, reflect the German concept of co-determination, i.e. representation of employees on the Supervisory Board (Aufsichtsrat) and, as a consequence, the Supervisory Board's Audit Committee.

As discussed at the meeting with Commissioner Atkins, the German Co-determination Act of 1976 (Mitbestimmungsgesetz 1976, the "Co-determination Act") distinguishes between "normal" employees and certain senior employees (leitende Angestellte). Following these discussions, the SEC requested German corporations to elaborate upon the functions and the legal status of such senior employees. Due to time constraints, this aspect could not be dealt with in the joint and comprehensive comment letter prepared by German corporations and sent to you in parallel to this letter. However, the DAI (in its capacity as the association of the listed German corporations) is delighted to offer a response to the SEC's request including a number of individual comments from German corporations.

By virtue of German Labor Law, senior employees working for a company which is subject to the regime of the Co-determination Act have to be represented by a separate member of the Supervisory Board (§15(1) second sentence of the Co-determination Act). The Co-determination Act applies to all companies with more than 2,000 employees.

Senior employees are defined as a specific group of employees who to a certain extent perform a number of managerial duties which are limited to their specific area of responsibilities. Often, they may, together with the personnel department, employ and dismiss employees in their department. Some senior employees may act on behalf of the company due to a (registered) general power of attorney (Prokura and Generalvollmacht). The relevant representative on the Supervisory Board is elected by all employees on the basis of a proposal made by the group of senior employees (in companies with more than 8,000 employees, this election is carried out in accordance with a two-level voting procedure). The company may not exclude certain senior employees who, under German Labor Law, are eligible to serve as a representative of the group of senior employees.

In practice, senior employees belong to different levels within the hierarchy of a company. Specific functions naturally depend on the organizational structure of each individual company. In general, the relevant hierarchy levels include the first level below the Management Board down to the fifth level. The portion of senior employees usually ranges between approximately 1 % and 4 % of the total workforce of a German corporation. By its nature, the largest group of senior employees comes from the lower hierarchy levels of a company. Most of the senior employees who serve on the Supervisory Board belong to the second or third level below the Management Board of the parent company or one of its subsidiaries.

In this context, it is important to note that senior managerial employees to whom a general power of representation has been granted or who serve as a general manager and who directly report to a member of the Management Board (Vorstand) are excluded from serving on the Supervisory Board as a representative of the group of senior employees pursuant to §6(2) of the Co-determination Act. These provisions generally apply in the sense that employees who belong to the first level below the Management Board and exercise managing functions are not eligible to serve on the Supervisory Board.

To summarize, senior employees who serve on the Supervisory Board are not part of the Management Board and do in general not report to the Management Board. Due to the legal requirement of a clear separation between management functions and supervisory functions, all employees' representatives serving as members of the Supervisory Board are independent of and not bound by directions of the management of the company. Hence, the proposed exemption regarding the "independence" criterion for the Audit Committee should also apply to senior employees who qualify, and can therefore be elected, as a representative on the Supervisory Board. We believe however that it would be helpful if the SEC clarified the proposed rules to reflect the special regime for employees including senior employees serving on the Supervisory Board in a co-determination system.

We appreciate the SEC's consideration while proceeding with implementing the Sarbanes-Oxley Act through its rulemaking and interpretative authority. The parties to this letter are confident that we will come to a common understanding of how this issue and others raised by German corporations will apply to German issuers and once again thank the SEC for its consideration.


Prof. Dr. Rüdiger von Rosen
Managing Director to the Deutsches Aktieninstitut


Allianz Aktiengesellschaft, Munich

paper concerning "Leitende Angestellte"

1. Definition of the term "Leitende Angestellte"

The term "Leitende Angestellte", which we would like to translate with "senior employees", derives from German Labor Law. Based on § 5 (3) of the German Works Council Constitution Act (Betriebsverfassungsgesetz, BetrVG) "Leitende Angestellte" are employees who have authority to hire, employ or dismiss employees in their field of responsibility (e.g. their department) or whose activities do require specific knowledge and are not under "permanent supervision" but may decide with some discretion for their department. Some (but not all) senior employees have title to sign for the company.

Senior employees do not have policy making functions for the company as a whole. This right is reserved to the members of the Management Board. The German law draws a clear distinction between Leitende Angestellte and members of the management board.

2. Employees at Allianz Group who are "Leitende Angestellte"

Several hundreds of employees of Allianz Group companies in Germany are "Leitende Angestellte". They belong to different levels of hierarchy, basically from the first level below the management board down to the fourth level. Most of the employees who are "Leitende Angestellte" fill positions in the second or lower levels of hierarchy.

3. "Leitende Angestellte" as members of the Supervisory Board

As fundamental idea of the German Codetermination Law, the Group of "Leitende Angestellte" must be represented at the supervisory board. Therefore according to § 15 (1) sentence 2 of the German Co-determination Law it is mandatory that senior employees are also among those who can be elected into the supervisory board.

The supervisory board of Allianz AG consists of 20 members. Ten of whom are employee representatives. Eight of them are employed by Allianz Group companies. Only one of them is senior employee. This person has the function of a "Geschäftsstellenleiter" and belongs to a lower level among the group of senior employees.


Dr. Rudolf Pietzke
Legal Counsel

Deutsches Aktieninstitut e.V.
Herrn Prof. Dr. Rüdiger von Rosen
Börsenplatz 5

60313 Frankfurt am Main

P.O. Box 1244
61282 Bad Homburg v.d.H.
Am Pilgerrain 15
61352 Bad Homburg v.d.H.

phone +49 (0) 6172 1712-250
fax +49 (0) 6172 1712-270

February 17, 2003

,,Leitende Angestellte"

Dear Prof. Dr. von Rosen,

Reference is made to your letter of Februar 13, 2003 concerning the independence of ,,Leitende Angestellte". Below please find my comments.

  1. General Comments

    The SEC proposed an exemption from the strict independence requirement for Audit Committee members for countries where employee representatives have to be elected to the Supervisory Board. This exemption refers to employee representatives who are not ,,Executive Officers". Since at least one ,,Leitender Angestellter" is elected to a Co-determined Supervisory Board as employee representative in Germany, the following two questions need to be answered:

    1. Are ,,Leitende Angestellte" (or some of them) Executive Officers as this term is understood in U.S. Law?

    2. If ,,Leitende Angestellte" are not Executive Officers, should they (or some of them) nevertheless be excluded from the employee representative exemption for the Audit Committee?

    Apparently there is a definition of the term ,,Executive Officer" in Rule 3 b - 7 of the Exchange Act. These are the President, any Vice President in charge of a principal business unit or function (such as sales, administration or finance) and any Officer or person who performs a policy making function.

    The basic test is the performance of a policy making function. It is questionable whether ,,Leitende Angestellte" meet this test. They are key employees, usually one or two levels below the Management Board (,,Vorstand"). They may have significant responsibilities such as the General Counsel, the Head of the Finance Department, Marketing or R&D or the Head of a factory, but all of them report to one or more members of the Management Board (Vorstand) who have the final decision.

    Without being able to give a specific answer it appears that generally ,,Leitende Angestellte" are not Executive Officers.

    Concerning question b. it should be first noted who is not eligible as employee representative to the Supervisory Board. These are

    • Members of the Management Board of a company and of any of its subsidiaries

    • Persons who directly report to the Management Board of the company and have full signing power (single or jointly) for all business activities of the company.

    It seems that there is some correspondence between these persons and the persons defined as ,,Executive Officers" in U.S. Law. Usually the General Counsel, the Head of Finance, Communications or Business Development of a company are not eligible to the Supervisory Board. They are ,,Leitende Angestellte" directly reporting to a member of the Management Board and they usually have full signing power.

    Most of the other ,,Leitende Angestellte" are not more and not less ,,independent" than any other employee who may be elected to the Supervisory Board. This certainly applies to ,,Leitende Angestellte" in the second or third level below the Management Board. In my view only two categories of eligible ,,Leitende Angestellte" could justify a closer look. These are persons directly reporting to the Management Board of the company but who have only limited signing power and persons directly reporting to the Management Board of a subsidiary with full or limited signing power.

    I would think that the second category is not a real issue since they usually are too far away from the Management Board of the company which is taking the major decisions for the whole group. For the first category the answer is more difficult because the full sigining power could be seen as a formal criteria. However, normally the ,,Leitende Angestellte" directly reporting to the Management Board and having significant responsibilities also have full signing power and are therefore not eligible.

    It should be finally noted that according to German Law a discrimination between different employee representatives on the Supervisory Board might be a problem. It would not be favourable if ,,Leitende Angestellte" were excluded from the Audit Committee and only union representatives or other employee representatives could sit on this Committee.

  2. ALTANA Situation

    The ALTANA Group has a holding structure. The listed holding company ALTANA AG has a strategic management function, the operative business is done by the two divisions ALTANA Chemie and ALTANA Pharma. The Management Board of ALTANA AG has four members, the CEO, the CFO, the Head of ALTANA Chemie and the Head of ALTANA Pharma. The Head of ALTANA Chemie is also Chairman of the Management Board of the subsidiary leading the operative chemical business. The Head of ALTANA Pharma is also Chairman of the Management Board of the subsidiary leading the operative pharmaceutical business.

    In the Holding Company we have ,,Leitende Angestellte" in the first and in the second level below the Management Board. The larger subsidiaries have ,,Leitende Angestellte" in the first and second level below their Management Board, one subsidiary also in the third level.

    The current representative of the ,,Leitende Angestellte" works in the second level of our leading pharmaceutical subsidiary. Former ,,Leitende Angestellte" on the Supervisory Board were always working in the first or second level of a subsidiary.

I hope these comments are helpful.

With kind regards,

Dr. Rudolf Pietzke


  1. Definition of Senior Managers at Bayer AG

  2. Professional position of the elected representative of the Managerial Staff serving on the Supervisory Board of Bayer AG.

  1. The basis for the definition of Senior Managers at Bayer AG is an agreement with the Central Works Council from 1978.

    This agreement refers to the Contract Level System on the basis of the internationally known Hay-Evaluating-System. The Contract Level System at Bayer covers six contract levels, beginning with level 1 as the lowest.

    It is established in the 1978 agreement with the Central Works Council that beginning with contract level 2, an employee at Bayer is considered a Senior Manager - which is also in accordance with the regulation in Section 5 Para 3 of the German Works Constitution Act.

  2. The current elected representative of the Managerial Staff serving on the Supervisory Board of Bayer is employed as an engineer at Bayer CropScience AG in the Department "Quality, Health, Security, Environment & Site Services". He is responsible for the organisation and implementation of the Site Service Network. His employment contract is level 3 and from reporting view is working at the third level under the Board of Management.

Leverkusen, 2002-02-17

Prof. Dr. Marsch-Barner
c/o Deutsche Bank AG
February17, 2003

Deutsches Aktieninstitut
Att. Prof. Dr. von Rosen

Re: Comments on Proposed Regulations Pursuant to Section 301 of the Sarbanes-Oxley Act of 2002 (File No. S7-02-03)

During the recent visit of Mr. Atkins in Frankfurt/Main and Cologne, Germany, we spoke about the "leitende Angestellte", i.e. the representative of the senior staff on the supervisory board of a German Aktiengesellschaft. According to the Co-determination Act (Mitbestimmungsgesetz) of 1976 there has to be one representative of the senior staff on each supervisory board irrespective of whether the board consists of 12, 16 or 20 members.

The "leitende Angestellte" is an employee with certain rights such as being empowered, independently, to hire or dismiss employees, or he is an employee with a certain prominent position in the hierarchy of the company. This position may be expressed by a general power of attorney or by a power of representation (Prokura) registered in the Commercial Register. The law describes the "leitende Angestellte" in § 5 subpara 3 of the Labor Management Relations Act (Betriebsverfassungsgesetz) of 1972. The Co-determination Act refers to this definition, however with the exception that the holder of a "Prokura" is not eligible if his position is immediately below the Board of Managing Directors and he is endowed with a general power of attorney. These provisions are generally applied in the sense that employees who belong to the first level below the Board of Managing Directors (Vorstand) and exercise managing functions are not eligible for the supervisory board.

The representative of the "Leitende Angestellte" is elected by all employees either directly or by delegates. All "leitende Angestellte" in the company prepare this vote by making at least two proposals for the election.

Within the Deutsche Bank Group the elections of the labor representatives for the new Supervisory Board are currently being prepared and will be carried out at the beginning of May. The new term of the Supervisory Board begins with the end of next shareholders` meeting on June 9, 2003. About 39.600 employees are entitiled to participate in these elections. Among these are about 2.100 "leitende Angestellte", which corresponds to 5,3 %. Compared with the industry this is a rather high percentage, it is however normal within the banking industry.

For the election of the "leitende Angestellte" to the Supervisory Board of Deutsche Bank AG the employees may choose from two proposals. One candidate is member of the management of CIB (Corporate and Investment Bank) in the Region of Frankfurt/Main. The other candidate is member of the management of PWM (Private Wealth Management) in Hamburg. One of the two substitutes members is Head of Corporate Security, the other one is member of the management of PBC (Private and Business Clients) in Frankfurt/Main. With the exception of the Head of Corporate Security all candidates belong to the second level in the hierarchy, below the Board of Managing Directors (Vorstand). The first level below the Vorstand are in Deutsche Bank the members of the Group Executive Committee who are not at the same time board members. None of these executives are candidates for the supervisory board. In our understanding this level is already excluded by law. The substitute member, being Head of Corporate Security, reports to the Vorstand but has a staff function and does not belong to the management. We therefore see no problem with his candidacy.

We think that there will be no conflict with the proposed regulation if one of the candidates should be elected on the Supervisory Board and then - by decision of the whole Board - should become member of the Audit Committee. One of the candidates described is already serving on the Supervisory Board of Deutsche Bank AG and is also member of the Audit Committee.

Employees in the second level below the Vorstand are normally not involved in the management of the whole company. They may have a Staff function - as one of the substitutes in our case - or may have managing responsibility on a limited local level. Both roles however should not prevent these employees from serving on the Audit Committee. Therefore the "leitende Angestellte" should not be treated differently from the other in-house labor representatives on the Supervisory Board.

Regarding the aspect of independence it may perhaps pose a problem if the "leitende Angestellte" is working in a leading position in one of those departments which are preparing the financial statements of the company. Only in this respect it may be appropriate to exclude such an employee from sitting on the Audit Committee.

In addition to this it should however be stated that the "leitende Angestellte" is not normally an "executive officer" in the sense of Rule 3b-7 under the Exchange Act to which footnote 87 of the Section 301 release refers. As mentioned above, employees eligible under German law to serve as the "leitende Angestellte" member of the supervisory board are not engaged in policy making functions.

Prof. Dr. R. Marsch-Barner
- Senior Counsel -