In view of joining the European Union on January 1st 2007, at the end of 2006 the Romanian Company Law was substantially reformed in order to introduce the principles of corporate governance.
This paper is aimed at providing a brief overview of the corporate system of the Romanian joint stock companies, substantially reorganized, in the light of the new applicable rules.

Currently, a joint stock company can be managed :

• by a single director (administrator in Romanian);
• by a Board of Directors (Consiliul de administratie in Romanian) when there are more members; their number must always be odd;
• by a Board of Directors composed by executive and non-executive directors (one-tier system);
• by a Directorate under the supervision of the Supervisory Board (two-tier system);

As a general rule, directors, irrespective of the system, can no longer be employees of the company, as before. In fact, the executive directors (from the one-tier system) and the members of the Directorate (from the two-tier system) are managers of the company. They should be professionals, providing services to the company under a written commercial mandate agreement. As a result, they be can be revoked at any time, at the discretion of the company. However, if the dismissal lacks a good cause, they are entitled to compensation.
Each company can choose the most suitable system, according to its needs. However, the companies which have the legal obligation of auditing their financial statements do not enjoy this freedom of choice. According to the law, they have to adopt the one-tier system or they can decide to choose the two-tier system.
Most of the companies use one of the first two systems, which have been in use since 1990 and do not separate the executive from the supervisory functions. The newly introduced two systems make clear separation between executive and supervisory functions and are better suited for large corporations.

I. Special provisions regarding the unitary (one-tier) system
In this model, the Board of Directors performs both functions, executive and supervisory, through two categories of members, namely executive and non-executive directors.
The Board of Directors must be made up of an odd number of members. The candidates for this position may be nominated by the Board or by the general meeting of the shareholders (hereinafter “GMS”). Only natural persons can be executive directors, whereas in the position of non-executive directors legal persons can be appointed as well. In such a case, the legal person must designate an individual as permanent representative in the Board.
The Board of Directors must perform all necessary acts in accordance with the company’s object of activity, within the limits of the law and Constitutive Act of the company.
The Board may decide to delegate the management of the company to one or more executive directors. If there are more executive directors, one of them must be appointed as General Manager (CEO). Such delegation is mandatory for companies which have the legal obligation of auditing their financial statements.
Legal limits of the delegation
According to the law, the following prerogatives of the Board cannot be delegated to the executive directors:
• to set the main direction of activity and development of the company;
• to set the accounting system and financial control of the company and to approve the financial planning;
• to appoint and revoke the executive directors and to set their remuneration
• to supervise the activity of the executive directors;
• to prepare the annual report, organize the general meetings of the shareholders and implement its decisions.

Independency criteria
One or more members of the Board can be independent. According to the legal definition, a person is considered independent towards the company if he/she does not fall under any of the following categories:
• is an executive director of the company or of a company controlled by it or has held such position in the last 5 years;
• has a labor contract with the company or a company controlled by it or has had such a contract in the last 5 years;
• is currently receiving or has received from the company or from a company controlled by it an additional remuneration or other benefits, others than those corresponding to his/her position of non-executive director;
• is or represents a significant shareholder;
• has or had in the last year business relationships with the company or with a company controlled by it, either personally or as a shareholder, executive or non-executive director or employee of a company which has such relationships with the company;
• is or has been in the last three years an associate or employee of the current financial auditor of the company or of a company controlled by it;
• is an executive director in another company where an executive director of the company is non-executive director;
• has been a non-executive director for more than three mandates
• is husband/wife or relative up to the 4th degree inclusive with an executive director of the company or with a person falling under any of the situations described hereinabove.

Convening the Board
The Board is convened by the Chairman, at his initiative, or at the request (i) of two Board members or (ii) of the General Manager. The Board meeting should be held at least once every three months. The minutes of the meeting must include the name of the participants, the agenda of discussions, the decisions which were adopted, the number of votes, the separate opinions. The minutes must be signed by the Chairman and at least another present Board member.

Consultative committees
The Board can create consultative committees (composed of at least two Board members) to perform investigations and make recommendations for the Board in areas like:
• audit;
• remuneration of executive and non-executive directors;
• nomination of candidates for management positions.
At least one member of each committee must be a non-executive independent director. The audit and remuneration committees must be composed only of non-executive directors. At least one member of the audit committee must have experience in applying the accounting principles or in financial audit.

Executive Director(s)
Executive directors can be appointed also among the Board members and its Chairman can be appointed as General Manager. The rules regarding the activity of the executive directors shall be set by the Constitutive Act of the company or by Board decision. According to the law, executive directors are only those persons who are delegated with the power to manage the company. Only natural persons can be executive directors of a company. They should conclude a mandate agreement with the company and not a labor contract, which is no longer allowed.
Executive directors are responsible for taking all necessary measures regarding the management of the company, except those which are reserved to the Board of Directors or general meeting of the shareholders. They must timely and duly inform the Board about the past and future activity of the company. Besides this, executive directors must also submit information on company’s operations at the request of a Board member. Executive directors can be dismissed by the Board at any time. If dismissal occurs without a good cause, they are entitled to compensation.
The company is represented to third parties by the General Manager. In relation with the executive directors, the company is represented by the Board.

II. Special provisions regarding the dualist (two-tier) system
In this model, the two functions, executive and supervisory, belong to different bodies.

The Directorate
The Directorate is the executive body of the company, with management and representation powers. The company is managed exclusively by the Directorate which may do any act in the best interest of the company, except for those reserved to the Supervisory Board or the GMS.
The Directorate can have one or several members, only natural persons. If there is only one member, this shall have the title of General Manager. If there are several members, their number must always be odd. The members of the Directorate cannot be members of the Supervisory Board at the same time. The companies which are under legal obligation of auditing their financial statements must have minimum three members in the Directorate. Members of the Directorate are appointed and revoked by the Supervisory Board, which also supervises their activity. If provided so in the Constitutive Act, they can be revoked also by the GMS.
The Directorate represents the company toward third parties. Unless otherwise provided in the Constitutive Act of the company, the members of the Directorate represent the company only by acting together. In such a situation, by unanimous vote, they can authorize one of them to perform certain operations or types of operations.
The Directorate shall report at least every three months to the Supervisory Board about the company status and its future evolution. The Directorate shall also report in due time any information/event which can influence the activity of the company.

The Supervisory Board
The Supervisory Board appoints the members and supervises the activity of the Directorate. The candidates are appointed by the current members or by the general meeting of the shareholders. First members must be appointed by Constitutive Act of the company. Number of the members should range between 3 and 11. They can be natural or legal persons, similarly with the Board of Directors from the one tier system. Members cannot be employees of the company or members of the Directorate. The members of the Directorate must elect a Chairman.
Members can be revoked at any time by decision of the GMS with 2/3 of the votes present in the meeting.
Supervisory Board prerogatives
The main prerogatives of the Supervisory Board are:
• “permanently controls” how the company is managed by the Directorate
• appoints and revokes the members of the Directorate
• checks the compliance of the company’s operations with the law, Constitutive Act and GMS’ decisions
• reports to the GMS at least once per year regarding the supervisory activity it performed
The Supervisory Board can ask the Directorate to provide any information regarding its activity. The Supervisory Board can also check and investigate such activity. In exceptional cases, if required by the company’s interest, the Board can convene the GMS. Normally, this must be done by the Directorate. The Supervisory Board cannot have management powers. However, the Constitutive Act of the company can state that certain operations cannot be performed by the Directorate without the prior approval of the Supervisory Board. In case the Board does not consent to such an operation, the Directorate can ask for the approval of the GMS, which can be granted only with a majority of ¾ of the present votes. The Constitutive Act of the company cannot derogate from these rules.

Convening the Supervisory Board
The Supervisory Board must meet at least once every three months. The Supervisory Board is convened by its Chairman, at his initiative or following a motivated request of at least two of its members or at request of the Directorate. The meeting must be held within 15 days from convocation. If the Chairman does not convene the Supervisory Board, the persons who requested it can do it directly and can also set the agenda of the meeting.
The minutes of the meeting must include the name of the participants, the agenda of discussions, the decisions which were adopted, the number of votes, the separate opinions. The minutes must be signed by the chairman of the meeting and by at least another present member of the Supervisory Board.

Consultative Committee
Similarly with the Board of Directors from the one tier system, the Supervisory Board can create consultative committees to perform investigations and recommendations in areas like:
• audit;
• remuneration of members of Supervisory Board, Directorate and staff, in general;
• nomination of candidates for management positions.
The audit committee is obligatory for companies with audited financial statements and it must be composed of at least two members of the Board. At least one member of each committee must be independent. At least one member of the audit committee must have experience in applying the accounting principles or in financial audit.

III. Common provision for members of the Board of Directors, Supervisory Board and Directorate, applicable to both systems

Citizenship of the members
Romanian as well as foreign citizens can be members of such corporate bodies without any restriction and without any differentiation in terms of applicable legal regime under the corporate law.
Acceptance and duration of the mandate
A member is duly appointed only if he/she expressly accepted the mandate, which cannot exceed four years. The mandate of the first members cannot exceed two years. Members can be re-elected for new mandates, unless the Constitutive Act of the company provides otherwise.

Disclosure obligations
Before being appointed, each member must disclose to the company if he/she:
• is a member of the Board of Directors /Supervisory Board, executive directors, censors, internal auditors or an associate with unlimited responsibility in a competing company or in a company with a similar scope of work;
• is engaged in the same trade as the company or a similar one on his/her account or on the account of a third party.

Fiduciary and professional obligations
Members have to act with loyalty and in the best interest of the company. They are not allowed to disclose confidential information and business secrets of the company (such obligations must be detailed in their contract with the company). They must have a professional insurance. The parties, member and company, shall decide the amount and other terms of the insurance, as well as who should cover the related costs to the insurance company.

Remuneration
Remuneration of the members of the Board of Directors and Supervisory Board is set by the Constitutive Act or by decision of the GMS. Remuneration of executive directors is set by the Board of Directors. Remuneration of Directorate members is set by the Supervisory Board.
The Constitutive Act or the GMS sets the general limits of all such remunerations and of any other benefits. Such limits must take into account the duties and responsibilities of the respective persons as well as the economic status of the company.

Meetings
At least half of the members must be present for a meeting to be valid, unless the Constitutive Act stipulates a higher quorum. Valid decisions are taken with the vote of the majority of the present members. Decisions regarding the appointment/revocation of members are taken with the votes of the majority of the members of the respective body.
The meetings can be held via long-distance communication means subject to the fulfillment of the following conditions: (i) this possibility to be expressly stipulated by the Constitutive Act of the company, (ii) to mention which are the permitted means of communications, such as web/phone/video conference and (iii) such means of communication technically allow participants to be identified and properly participate in the meeting.

The Chairman
The chairman is elected and revoked by the members of the respective body or by the GMS,
The chairman of the Board of Directors / Supervisory Board can have a prevailing vote in case of parity, unless provided otherwise in the Constitutive Act of the company. The prevailing vote does not apply to the Chairman of the Board of Directors who is also an executive director of the company.
If the Chairman of the Board of Directors, Supervisory Board or Directorate cannot attend the meeting or cannot vote, the present members can elect a chairman for that meeting, who shall have the same prerogatives as the chairman in office.

GMS requirements
Members of Board of Directors, Supervisory Board and Directorate have the legal obligation to attend the general meetings of the shareholders.

It should be noted that, despite the lack of legal framework before this reform, many companies, especially those with foreign shareholding, had special internal rules aimed at separating the executive and supervisory functions. Therefore, for such companies, the new regime was not such a dramatic conceptual change but a mere formalization and development of existing practices.