United Kingdom Company Law – Corporate Governance [Part 3]

Structure of board

The board structure may be of following forms in different companies.

Board is entirely composed of directors so it is called board of directors in which directors have following duties.

  • Act in the best interest of companies
  • Develop strategies and plans to achieve the objectives of the business.
  • Direct and supervise the all management.
  • Propose the resolutions of the company.
  • Develop and monitor the control systems.

The board structure may be of two types

  • Unitary board
  • Two-tier board

Unitary board of directors

Unitary board is made up of single board of directors in which all the directors have responsibility to manage the operations of the company. This board consist of mixture of executive and non-executive directors and usually there no distinction between the roles of executive and non-executive directors.

In this board all the directors have dual responsibility to manage the operations as well as to supervise them.

Benefits of unitary board system

  • It increases consensus as all directors mutually involved to develop strategies and plans.
  • Faster decision making as the single board presents to approve the proposals.
  • It may create close relationship between the directors and enhance the information system.
  • It may reduce knowledge gap between directors and managers.
  • Executive and non executive directors have equal power and responsibility so it avoids conflicts.

 Two-tier board structure

Two-tier board system is composed of two board systems;

  • Supervisory board
  • Management board

Supervisory board is composed of independent non-executive directors and they have responsibility to oversight the functions of executive directors and all other functions of the business.

The members of supervisory board are elected by the shareholders on the basis of their knowledge and experience.

Management board is usually made up of executive directors and they involved in day to day management of functions directed by the supervisory board. So the board members are accountable towards the supervisory board against their actions.

Advantages of two-tier board structure

There may be following advantages;

  • It may enhance independence as the roles of executive and non executive directors are distinct from each another.
  • Clear line of responsibility and accountability exist between the supervisory and management board.
  • Management board is more competent as they are accountable for every act.
  • It increases transparency.