Board Structures

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.