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Clarifications au sujet des deux principaux systèmes de gouvernance | One Tier vs Two Tier

23 septembre 2014

Ici, en Amérique du Nord, on entend quelquefois parler des distinctions entre le modèle de gouvernance européen et le modèle de gouvernance à l’américaine. Vous trouverez, ci-dessous, une brève synthèse des particularités des modèles de gouvernance européens eu égard à la distinction one tier/two tier systèmes de gouvernance.

Cette conclusions est basée sur une recherche de type « Benchmarking » conduite par ecoDa* (The European Confederation of Directors Associations) auprès de ses membres des Instituts de gouvernance européens ainsi qu’auprès d’autres membres non-européens, tel que le Collège des administrateurs de sociétés (CAS).

À la suite de l’extrait présentant les grandes lignes de ces modèles de gouvernance, vous trouverez un portrait plus précis des principales différences entre les deux systèmes, dont les deux plus représentatifs (UK, One Tier; Allemagne, Two Tier).

Bonne lecture !

 

Although the European Union tries to undermine the differences, the corporate law and corporate governance is highly diversified throughout Europe, embedded in a long history of specific societal and economic approaches towards the organisation of the business world, aligning governance with these quite different societal priorities.IMG_20140520_212116

In the two tier system, supervisory board members control the strategy but don’t define it. In the two tier system, there is also a clear cut between management and control responsibilities. In the one tier system, the board governs the company e. g. controls the direction, defines the strategic options and can address any issues related to the performance of the company.

People advocating for the two tier model always point out that having distance between management and oversight creates independence that makes sense. People defending the one-tier system consider that having executives and non-executives on the same board provides a better flow of information and helps to overcome problems that boards can face in understanding what is going on in the company. The one-tier system would also enable the non-executive to see how executive operate together as a team. The non-executive would be more involved in forward-looking of the strategy. As a downside effect of the one tier system, it is difficult for non-executives to draw distinction between monitoring and oversight.

The one tier system is often seen as an English model while the two-tier system is more of a German style. But the reality is more complex than that over the different countries in the European Union. The Nordic Corporate Governance (CG) model is quite unique with a strictly hierarchical governance structure and a direct chain of command among the general meeting, the board and the CEO. The Italian CG model is also special with the distinction between the managing body (sole administrator or, in the collective form of a board of directors) and the controlling organ (so called “board of statutory auditors”)

 

One-tier board system Two-tier board system 
Organisation
A single board. A supervisory body and a management body.
Composition
Mixed, executive and non-executive directors may serve on the board. Separate, executive and non-executive directors serve on separate boards (i.e., a supervisory board composed exclusively of non-executive directors and a management board composed exclusively of executive directors).
Organisation
Unitary Binary
Committees
Mandatory or recommended Supervisory and advisory committees(Mandatory) oversight and advisory committees such as the audit committee, the remuneration committee and the nomination (appointments) committee, composed of a majority of non-executive directors, one or more of whom must be independent.Supervisory committee

Optional committee entrusted with supervising the company, composed of both executive and non-executive directors.

Usually differs slightly from a true supervisory board (as found in the two-tier system) in terms of powers, composition and role.

 

Mostly found in countries which present characteristics of a one-tier system while incorporating certain features of a two-tier system.

 

OptionalHistorically not required but oversight and advisory committees are increasingly important in the two-tier system as well.
Roles
Board of directors Managerial roleDirection and executive actsDecision-taking, management and oversightPerformance enhancement

Supervisory role

Accountability

Strategic and financial oversight

 

Management board Managerial roleDirection and executive actsDecision-taking and managementPerformance enhancement

Service and strategic role

 

Supervisory board

 

Supervisory role

Accountability

Decision-taking and oversight

Monitoring role

Strategic and financial oversight

 

 

CEO duality
Allowed.The same person can serve as both CEO and chair of the board of directors (although this is generally not recommended by corporate governance practices). 

 

Restricted.No CEO duality (although the CEO can sometimes be a member or attend meetings of the supervisory board.)
Executive directors
Appointed by the general meeting of shareholders, based on a proposal by the board or appointments committee (if any).A director may be appointed by the board of directors when the term of office of another director comes to an end, in order to prevent the board from being paralyzed, for example if the board no longer has a sufficient number of members as required by law or the articles (co-optation procedure).The appointment of a co-opted director must be confirmed at the first general meeting of shareholders following his or her appointment.  Appointed by the supervisory board or the general meeting of shareholders, based on a proposal by the board or the appointments committee (if there is one).
Non-Executive (supervisory directors)
Idem. Appointed by the general meeting of shareholders or, based on a proposal by the supervisory board or the appointments committee (if there is one).
Conflicts perspective
Negatively associated with the separation of decision-management and decision-oversight roles due to its composition (a majority of executive directors) and unitary structure.Diffusion of tasks and responsibilities weakens the non-executive directors’ ability to oversee the implementation of decisions, especially where executive and non-executive directors face the same potential legal liability.Higher risk of conflicts of interest between management and shareholders. 

To avoid conflicts of interest, it is often recommended that the one-tier board be composed of a majority of non-executive directors, due to   (i)

their experience and knowledge, (ii) their contacts, which may enhance management’s ability to secure external resources, and (iii) their independence from the CEO.

 

In companies which have achieved a certain level of development, risks of conflicts of interest are often reduced through the creation of committees allowing these functions to be segregated. In addition, legal provisions aimed at preventing and resolving conflict of interest exist in most jurisdictions.

  • Positively associated with the separation of decision-management and decision-oversight roles, due to the composition of the supervisory board (independent directors) which ensures independence and its binary structure.No diffusion of tasks and responsibilities. 

    Lower risk of conflicts of interest between management and shareholders.

     

     

     

     

     

     

     

     

     

     

     

     

    (Dis)advantages
    AdvantagesSpirit of partnership and mutual respect between directors, which allows greater interaction amongst all board members.Non-executive directors have more contact with the company itself and are more involved in the decision-making process. Non-executive directors have direct access to information.

     

    Decision-making process is faster.

     

    A lighter administrative burden as only a single management body needs to hold meetings and only a single set of minutes need be drawn up.

     

    Board meetings take place more regularly.

     

    Disadvantages

    A single body is entrusted with both managing and supervising the company’s operations.

     

    More difficult to guarantee the independence of board members and there is a greater risk of non-executive directors aligning too much with executive directors.

     

    More liability for non-executive directors.

     

     

    Advantages Clear distinction between the supervisory and management functions within the company.Clear distinctions of liabilities between the members of the supervisory and management bodies.Supervisory board members are more independent.

     

    Clear separation of the roles of chairman and CEO.

     

     

     

     

     

     

     

    Disadvantages

    It is more difficult for directors to build relationships of trust, thereby potentially undermining communication between the two boards.

     

    Supervisory board members only receive limited information (from the management board) and at a later stage (decreased involvement). There is a heightened risk of the supervisory board not discovering shortcomings or discovering them too late.

     

    Decision-making process is delayed due to less frequent supervisory board meetings.

     

    Non-executive directors face several challenges which appear to be typical of the two-tier board model, such as difficulties (i) building relationships of trust, thereby potentially undermining communication and flows of information between the two boards, and (ii) fully understanding and ratifying strategic initiatives by the management board, thereby frustrating the decision-making processes.

     

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    ecoDa (The European Confederation of Directors Associations) is a not-for-profit association based in Brussels, which acts as the « European voice of directors » and represents around 60,000 board directors from across the European Union (EU) member states. The organisation acts as a forum for debate and public advocacy by influencing the public policy debate at EU level and by promoting appropriate director training, professional development and boardroom best practice.

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