Comparative Board Structures Under Corporate Governance Framework

Abstract

Board structures are integral part of corporate governance. Board structures significantly influence corporate growth and are governed and regulated by legal and regulatory framework in order to protect shareholders rights and curb malpractices. The organisational framework categorise Board structures into two types: (a) Unitary or single tier board system where the governing body is comprised of a single board, is prevalent in Anglo Saxon countries such as UK, US, Canada and India, (b) Two tier board system where the governing body is comprised of two separate boards, a supervisory board and a management board and is found is countries such as Germany, Finland and Netherland. In the various reports such as Cadbury report (UK) , King report (South Africa) and Higgs report (UK) the unitary board structure was preferred to the two tier structure. According to Kings Report the unitary board structure provides greater interaction among all board members, when dealing with matter such as strategy, planning, performance, resources, standard of conduct and communication with stakeholders. The Higgs report concludes that it is important to establish a spirit of partnership and mutual respect on the unitary board. This requires the non-executive director to build recognition by executives of their contribution in order to promote openness and trust. The two-tier board institutionalizes a clear distinction and segregation between the supervisory and monitoring functions on the one hand, and the managerial functions on the other hand. The unitary board combines both functions although certain governance models through various mechanisms achieve a certain degree of segregation of these functions. It is however not easy now days to make an exact distinction between these two board structures, as most developed countries have moved away from traditional unitary board structures in the case of large public organizations. This paper analyses board structure of India and Germany to find out the similarities and difference between both types of boards and seeks to figure out best option.