Corporate Governance: One-tier versus Two-tier Boards

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Jaap de Jonge
Editor, Netherlands

Corporate Governance: One-tier versus Two-tier Boards

Somebody asked me the other day for the differences between the two main corporate governance systems (1-tier and 2-tier boards) existing today as well as the way they're heading. I couldn't find a reasonably concise overview anywhere, so I created the summary below.
Please note that the precise characteristics of any of these governance models depend on the jurisdiction of the company concerned, and the implementation in the company concerned. Also corporate governance systems are changing constantly to reflect changes in the way society sees corporations.

Source: 12manage.com

CharacteristicsOne-tier Boards (also "Unitary model")Two-tier Boards (also: "Dual model")
OrganizationOne-layered board structureTwo-layered board structure
CompositionThere is only one single Board of Directors, composed out of both executive directors as well as non-executive directors. In the classic form, the executive directors used to form the majority; nowadays increasingly the majority is formed by non-executive directors.- The Supervisory Board consists fully our of non-executive (supervisory) directors.
- The Board of Directors (also called: Management Board) consists fully out of executive, managing directors.
CommitteesThere are (compulsory) supervisory committees, such as an Audit Committee and a Compensation Committee, and sometimes also a Nominating Committee and a Governance Committee, who are typically composed out of a majority of non-executive directors. The CEO and other executive directors may be members or even chairman of the various committees. Recently, the focus on the independence of committee members has increased.Supervisory committees were historically not compulsory (because the Supervisory Board was handling these issues), but due to increasing complexity there recently is an increase of the (influence of) committees in the two-tier model as well.
CEO and Chairman positionIn the classic model, the CEO and Chairman role can be held by one and the same person (CEO duality). Increasingly, the CEO is no longer chairman of the Board of Directors, but an independent, non-executive director is.No CEO-duality, although the CEO can be a regular attendee or even a member of the Supervisory Board in certain modern forms.
Executive DirectorsAppointed by the general meeting (of shareholders), based on a nomination by the Nominating Committee or by the Board as a whole or by the general meeting.
Some jurisdictions also permit the board of directors to appoint directors, either to fill a vacancy which arises on resignation or death, or as an addition to the existing directors.
Appointed by the general meeting (of shareholders), based on a nomination by the Supervisory Board, the Nominating Committee (if there is one), or by the general meeting.
Non-executive (Supervisory) DirectorsAppointed by the general meeting, based on a nomination by the Nominating Committee or by the Board as a whole or by the general meeting.
Some jurisdictions also permit the board of directors to appoint directors, either to fill a vacancy which arises on resignation or death, or as an addition to the existing directors.
Appointed by the general meeting, based on a nomination by the Supervisory Board, the Nominating Committee (if there is one), or by the general meeting.
Sometimes a part of the Supervisory Directors can be appointed by third parties, such as the public government, a bank or the employees.
Notes: the above is a general overview of the current two main corporate governance systems. The precise characteristics of both governance models depends on the jurisdiction of the company concerned and on the implementation in the company concerned.
Besides that, the exact characteristics of both models are changing. Over the past 10 years they have been converging.

Hopefully you find this overview useful... I'm looking forward to your builds, improvements and reactions...

  Jan Riven
 

One-tier versus Two-tier Boards

This is a great compilation of the key characteris (...)

  Jaap de Jonge
Editor, Netherlands
 

One-tier versus Two-tier Boards

Thanks Jan for your good question about the role o (...)

  E Benshetler
Project Manager, United States
 

CEO Duality in One-tier Boards

Excellent summary! Two-tier boards seem to be pre (...)

  Volker Potthoff
Director, Germany
 

One Tier versus Two Tier Boards - Functions

I would like to add that there is an important dif (...)

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