The introduction of the one-tier board in a public limited liability company or private limited company was part of the Simplification and Flexibility of Private Limited Companies Act. With the entry into force of the Act on Management and Supervision of Legal Entities, there is also a legal basis for associations and foundations to establish a one-tier or two-tier board. This article explains the differences between a one-tier board and a two-tier board.
Two-tier board: an explanation
With a two-tier board (dualistic board model) there is a separation between the executive board and the supervisory board. The board is responsible for the day-to-day management of the company. A separate supervisory board supervises the management board. The Supervisory Board acts as a separate body with its own responsibilities. Most companies in the Netherlands originally have a two-tier board.
One-tier board: an explanation
In a one-tier board (monistic board model), there is a single administrative body, which includes both executive directors and non-executive directors (the supervisors). The non-executive directors must be natural persons, who are in any case responsible for:
- the task of supervising the performance of duties by the directors;
- the chairmanship of the board;
- making nominations for the appointment of a director;
- determining the remuneration of executive directors.
A one-tier board therefore makes a separate supervisory board in addition to the management board unnecessary.
One tier board vs. two-tier board: the pros and cons
The advantage of a one-tier board is that the supply of information between executive and non-executive directors is more direct and faster. In addition, the involvement of the non-executive directors in the general course of business at the company is greater than that of the supervisory directors. Non-executive directors can thus intervene directly in the direction and strategy of the company. Finally, the monistic governance model is more internationally known than the dualistic governance model. This makes companies that use a one-tier board interesting merger and acquisition parties.
The non-executive directors have a supervisory and advisory role, but given their collective responsibility, they are also (jointly) responsible for the general course of business. The management duties are divided between one or more non-executive directors and executive directors. The big difference is that the non-executive directors are not supervisory directors, but directors. The decisions are taken by a single body, in which the vote of the executive and non-executive directors has equal weight. In the monistic model, the legislator envisions that the executive directors are mainly concerned with the day-to-day management, but in this model all directors participate in decision-making on topics that concern the general course of business.
Do you have questions about (choosing) a one-tier or two-tier board? VIOTTA is happy to help
It is important to thoroughly investigate which governance model suits your company best. In addition, it is also crucial that the chosen governance model is properly implemented. VIOTTA’s lawyers are experienced with both management models and are happy to help you.