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Legal Regulation Of Corporate Management In Companies With State Participation Under The Legislation Of The Federal Republic Of Germany
 
PIIS231243500022330-1-1
DOI10.18572/2410-4396-2020-1-64-68
Publication type Article
Status Published
Authors
Franz Jürgen Säcker 
Affiliation:
Journal nameEnergy law forum
EditionIssue 1
Pages64-68
Abstract

The state is prohibited from pursuing activities aimed solely at profit-making. First of all, the activities of a state or municipal company should be aimed at meeting public interests of the population. Therefore, services of companies with state participation should serve a public purpose. When there is no public purpose, there is no legal framework for the state's involvement in a company’s activities. Corporate management principles ensuring that public companies’ objectives are met are only applied when it is mandatory for the company. Constituent documents of public jointstock companies have to specify the company’s objectives and establish management principles to be followed by the company’s employees. According to the fiscal legislation regulations, public companies’ activities should produce revenue for the budget to the extent it does not contradict the public purposes. Management bodies shall act on behalf of the company. The corporate principle of fiduciary duty prohibits all members of a corporate management body from pursuing activities that would contradict the public interests established in the articles of association. The public interest does not extend special competitive privilege to such companies. Companies authorized to act in the public interest, regardless of their form of incorporation, should comply with the German and European competition laws. A departure from the competition laws by the European Union member states is only allowed when competition has to be limited for the public purpose (Article 106, para. 2 of the Treaty on the Functioning of the European Union).

Keywordslegal support of activities of companies with state participation, corporate management, public purpose, social responsibility
Received06.02.2020
Publication date29.03.2020
Number of characters13080
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1 Government involvement in corporations in a market-based economy as implemented in Germany and the European Union (Article 3, para. 3 of the Treaty on European Union) is only justified when it meets the public interests. Fiscal regulations at the federal, local, and municipal levels establish requirements for legitimation of the state’s economic activities via the public interest (public weal). [1] The public interest does not extend special competitive privilege to such companies. Companies authorized to act in the public interest, regardless of their form of incorporation, should comply with the German and European competition laws. A deviation from the competition laws by the European Union member states is only allowed when competition has to be limited for the public purpose (Article 106, para. 2 of the Treaty on the Functioning of the European Union). The corresponding deviations shall be controlled additionally in accordance with a specific directive (the transparency directive and tendering directive) to confirm that the provisions of the European Union Treaty in terms of a competitive, genuine market-based economy (Article 3, para. 3 of the Treaty on European Union) will not be violated by public corporations. [2] When interacting with companies with state participation, the European Union member states should act so that the effect of competition regulations of the Treaty on European Union (Article 101 of the Treaty on European Union) in practice would not be called into question. This includes prohibition of subsidizing public corporations that could cause damage to private companies. Competition conditions for private and public companies should be the same. [3]
2 The prohibition also applies to companies with state participation, if the government is involved in activities of other business entities via companies controlled by it. The public economic law allows the state, federal lands, and municipalities to decide on incorporation of a public or private company while pursuing public purposes.
3 [4] If the public form of incorporation is selected for business, the government is obliged to comply with the competition laws. [5] The regulations of constitutional law and other German legal acts do not stipulate benefits in the area of competition law for public companies. Articles 101 and 102 of the Treaty on the Functioning of the European Union do not distinguish between public and private organizations and guarantee equal treatment of public and private companies when implementing a genuine competition system. [6]
4 As described above, business entities are incorporated to achieve the public purposes. Therefore, state is prohibited from pursuing activities aimed solely at profit-making. First of all, the activities of a state or municipal company should be aimed at meeting public interests of the population. Therefore, services of companies with state participation should serve a public purpose. Due to this scale, an agreement is put in place, for example, stating that local power supply, waste recycling, or transport communication should serve public interests. [7] These also include multiple cultural institutions (theaters, museums, etc.). Requirements imposed on public purposes distinguish public companies (regardless of their form of incorporation) from private ones. The state’s economic activity is an integral part of administrative activities on public service delivery associated with provision of amenities. When there is no public purpose, there is no legal framework for government involvement in a company’s activities.
5 Companies existing in a market economy based on demand and supply are oriented at economic success and do not focus on answering ethical questions of a value-oriented society. Never failing protection of human rights, social labor conditions and the environment are not the problems that can be solved with a market mechanism. The goal of competition is to improve the consumers’ well-being by maintaining an efficient business process of managerial decisionmaking. Therefore, competition processes require standard provisions approved at the federal level establishing environmental, social, and cultural objectives for companies based on legislative enactments. The current market economy system is notable for presence rather than absence of the corresponding social, environmental, and ethical regulations establishing mandatory boundaries for business decisions. Regulations restricting the scope of environment-damaging, unilateral, mercenary decisions rather than the market have an ethical component. This is why the economic concept of corporate management principles is supplemented by the concept of good company management, corporate social responsibility. The corporate social responsibility concept creates additional behavior models aimed at consideration of social and environmental aspects in the course of business decision-making. Thus, the supplemented concept of corporate management principles should encourage companies to depart from a strictly commercial focus and set their sights on social responsibility for their decisions.

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