A two-tiered board structure, also known as a dualistic governance model, separates the company’s supervisory and management functions. This corporate governance model is adopted by many jurisdictions across the world. It contains a supervisory board that represents the company shareholders and focuses on strategy, and a management board that oversees daily operations.
Where are two-tiered board structures most commonly used?
A two-tiered board structure is the standard corporate arrangement most commonly used in European countries, including Germany, Finland, Denmark, Austria, Switzerland and the Netherlands. It is also popular in some parts of Asia, including China and Indonesia.
Benefits of a two-tiered board structure
There are several benefits to adopting a two-tiered board system. This structure separates the responsibilities and duties of the management and supervisory roles, enhancing board engagement and efficiency.
A dual board system also promotes unbiased, informed decision-making with the help of a separate supervisory board that analyses and assesses all decisions. It also promotes board diversity, delivering a wide range of outside viewpoints from a separate board of non-executives —the supervisory board.
Most importantly, a two-tiered board system prevents directors from being overwhelmed with the management and daily functions of a business. It defines each member’s duties more clearly, improving board accountability and transparency in the long run.
Components of the structure
The two components of this board structure include:
Supervisory board
Roles and responsibilities: The supervisory board is responsible for overseeing long-term company issues regarding growth, profitability and reputation. It primarily comprises independent directors and is not concerned with the company’s daily operations.
Duties: The primary duties of this board include ensuring that shareholder expectations are met and that all company operations are legally and ethically compliant. The supervisory board is also responsible for conducting regular reviews of the management board and overseeing long-term company strategy and direction.
Management board
Roles and responsibilities: The management board comprises executive directors. It is responsible for overseeing the company’s day-to-day operations and workplace culture.
Duties: This board manages the daily functions of the business and financials. It oversees the employees, manages resources and executes the strategic decisions of the supervisory board. It also provides feedback to the supervisory board on which issues need their attention and which aspects of the strategy work well.
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