Ghana’s model of corporate governance is based on the UK model, which is a single, or unitary board. The unitary board is made up of a mix of executive and non-executive directors. All directors have the right to participate in board decision making. Other countries operate dual board model (for example, Germany, which has a management board and a supervisory board) or even a three-board model, which operates in Japan. All participants in the single board have legal responsibility for management of the company and strategic performance.
Required:
Compare and contrast unitary board structure and dual board structure. (12 marks)
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Differences between unitary and two-tier board structures
- Under a unitary board structure there is a single board of directors, comprising executive and non-executive directors (NEDs). There are two separate boards under the two-tier structure: the management (operating) board which is responsible for the day-today running of the business, consisting of executives only and led by the chief executive. The supervisory (corporate) board with a wider membership, responsible for the strategic oversight of the organisation and led by the chairman.
- Concentrating the role of CEO and chairman in the hands of one person (so called CEO duality) is admitted in a one-tier board in the one-tier board. In the two-tier board, the CEO cannot chair the supervisory board under any circumstances.
- One-tier boards are organized in a unitary way; control and supervision of management are integrated and exercised by one group of directors while the two-tier board adopts a binary approach; the supervisory board exercises the control role, while the formally separated management board exercises the strategy role.
- The two-tier model allows for more stakeholder inclusivity than the one-tier model.
- The non-executive directors (NEDs) on a unitary board will be, largely, classified as independent NEDs, stressing the fact that they will act in the best interests of the wider shareholder population. The supervisory board under a two-tier structure will include representatives of major shareholders, environmental groups, employees (possibly from trade unions) and providers of finance. These individuals, although not holding executive positions within the business, are definitely not considered to be ‘independent’ and will be acting in the interest of their own group.
- Under a two-tier board structure the two boards meet separately, so executive discussion around running the business will not be heard by the higher board members, and vice versa. This is unlike the single board meeting that will be held for a unitary board.