Board Structures – Two Tier Board:
Lower tier: management (operating) board:
– Responsible for day-to-day running of the enterprise
– Generally only includes executives
– The CEO co-ordinates activity.
Upper tier: supervisory (corporate) board:
– Appoints, supervises and advises members of the management board
– Strategic oversight of the organisation
– Includes employee representatives, environmental groups and other stakeholders’ management representatives (these NEDs are not considered to be ‘independent NEDs’)
– The chairman co-ordinates the work
– Members are elected by shareholders at the annual general meeting (AGM)
Organizational theorists generally agree that the duties of a board can be divided into three categories: control, strategy, and service. Under the governance of a one-tiered board (Unitary), directors are expected to perform all three roles. In a two-tiered system, strategy and service are executed by the management board while the supervisory board while the control is handled by the supervisory board.
Advantages:
– Clear separation between those that manage the company and those that own it or must control
– Wider stakeholder involvement implicit through the use of worker representation.
Disadvantages:
– Dilution of power
– Isolation of supervisory board through non-participation in management meetings.
– Increased bureaucracy which may result in slower decisions being made.
– Lack of transparency over appointment of supervisory board members leading to inefficient monitoring and governance.
Board Structures – One Tier Board/Unitary Board:
One-tier board of directors (also known as unitary board of directors) is a single body of directors that makes strategic decisions of a company. It includes both executive directors and non-executive directors.
The unitary board of directors is composed of executive directors (employees of the company) and non-executive directors (independent external directors). Both these directors sit on a single board and so that’s why there is no clear separation of duties among those ED & NEDs.
As all directors sit on a single board, the decision-making in a unitary board gets faster.
In Unitary Board, Chairman is appointed by board of directors to manage the Board meetings.
Advantages:
– Benefit of expertise of NEDs as they are also be involved in the board meetings.
– NED is independent but they are also as responsible as Executive directors.
– Half of the board are executive directors who are associated with actual management of the company and so it will give better decision making.