Visual representation of a Dual Board system

A Dual Board or Two Tier system is a corporate structure system that consists of two bodies i.e. the Council of Delegates to govern the Board of Directors and the Board of Directors to manage a corporation. The roles and relationships between the two bodies vary across countries. The structure is composed of two bodies, the "Management Body", and the "Governance Body" each of these have different roles.[1]

In Germany, the Dual Board system is prescribed for corporations that are listed on the stock market (e.g., Lufthansa, and Adidas). It is argued that this approach results in and better serves the objectives of a social market system.[2]

Using a two tier system might also result in "more monitoring" and "less aggressive performance targets". It might also be "less efficient" from a financial market perspective.[3] It has been suggested that financial efficiency may be impeded by reduced communication, and the higher costs of running a Dual Board.[4]

History

The two tier system was first adopted in German companies in the 19th century, and it became compulsory after the Second World War.[5][6] Other countries that adopted a two tier approach include Finland, China, and the Netherlands. The Singapore Manufacturing Federation, recently introduced a governance body as well.[7] In the European Union, 10 countries require the two-tier approach, 8 countries require the single tier board approach, and 9 countries allow the use of either.[8]

Management Body

The Management Body meets frequently (often weekly) to deal with operational issues. Some contracting decisions and strategic planning decisions may have to be approved by the Governance Body.[2] members of the Management Body are appointed by the members of the Governance Body (see below).

Composition of "Management Body"

Head of Board of Directors

  • Chairperson cum Managing Director cum Chief Executive Officer shall be selected and appointed by the Council of Delegates
  • Vice Chairperson cum Deputy Managing Director cum Co-Chief Executive Officer shall be selected and appointed by the Council of Delegates


Members of Board of Directors

  • The number of Executive Director cum Chief [Specialisation] Officer shall be decided and appointed by the Council of Delegates

Note :- Specialisation implies finance, technology, marketing etc.

Governance Body

The governance body is usually elected by the Shareholders. Composition varies across jurisdictions; its members are usually independent of the executive but it can include employee representatives in some countries. Generally, the governance body guides and monitors the management body.

Composition of "Governance Body"

Head of Council of Delegates

  • Active Delegate shall be elected by the equity shareholders
  • Co-Active Delegate shall be elected by the equity shareholders

Members of Council of Delegates

  • Executive Delegates shall be elected by the equity shareholders
  • Non Executive Delegates shall be elected by equity shareholders and nominated by the national government, provincial government, officers union of that corporate establishment and employees union of that corporate establishment

Types of Delegates

  • Residential Delegate
  • Whole time Delegate
  • Independent Delegate
  • Alternate Delegate
  • Women Delegate
  • Additional Delegate
  • Nominee Delegate
  • Small Shareholder Delegate
  • Shadow Delegate
  • Casual Vaccancy Delegate
  • Any other type of "Delegate" to be included

[5] The governance body is involved in long term strategic planning. Another task that the Governance Body is in charge of is the selection, dismissal, and designation of the members in the Management Body, to "ensure a long term succession planning".[9]

Cooperation Between bodies

The Management Body has to closely cooperate with the Governance Body to develop the business strategy, this is done by creating a steady flow of information between the two.[2] The information flow would include risk management, business development and any differences of the development of the business compared to the initial plan.[2] Open discussions between members of the boards are also key to the functionality of the business under a Two Tier System, because these must exchange information frequently.

Country systems

Countries with two-tier boards include:

  • Germany
  • Austria
  • Poland
  • Indonesia[10]
  • China

Countries where the option of a two-tier board is provided by law include:

  • Belgium
  • Italy
  • France
  • Romania

See also

References

  1. ↑ James (19 October 2012). "What is a dual board system". The Law Dictionary. Retrieved 26 October 2014.
  2. 1 2 3 4 Government Commission. "German corporate governance code" (PDF). Archived from the original (PDF) on 28 May 2015. Retrieved 26 November 2014.
  3. ↑ Carrasco, Vinicius. "Corporate Board Structure, Managerial Self-Dealing, and Common Agency" (PDF). Retrieved 26 October 2014.
  4. ↑ Aras, Crowther, Güler, David. "A Handbook of Corporate Governance and Social Responsibility" (PDF). Retrieved 26 October 2014.{{cite web}}: CS1 maint: multiple names: authors list (link)
  5. 1 2 Proctor, Miles (2002). Corporate Governance. Cavendish publishing. ISBN 1859416519
  6. ↑ WÜRDINGER, H. and PENNIGTON, R., R., German company law, London, Oyez publishing, 1975, 37-38 Xiii + 249.
  7. ↑ Cheng, Willie. "One and Two-tier Governance Systems". BT invest. Retrieved 26 October 2014.
  8. ↑ European Commission. "Gender Balance in Boards" (PDF). European Commission. Retrieved 26 October 2014.
  9. ↑ Mallin.A (2013). Corporate Governance. Oxford University Press. ISBN 9780199644667
  10. ↑ "KKR's Noodle Snafu Shows Indonesia is Still Risky Business - Bloomberg". www.bloomberg.com. Archived from the original on 5 August 2019. Retrieved 13 January 2022.
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