Difference Between One-Tier and Two-Tier Board of Directors (With Table)

Board of Directors is a group of well qualified and top-ranked officials, managing as well as executive, who governs and looks after the well being of any company or organization. Well being, profit-making, legalised execution of ideas, smooth running of the organization, harmonious work environment and best recruitment for the company

One-Tier Board of Directors acts as a single governing body for the organization. . They make unified and mostly strategic settlements for the company. The Two-Tier Board of Directors, as the name suggests has two separate boards for the organization’s decisions and executions.

One-Tier vs Two-Tier Board of Directors

The difference between a One-Tier Structure of Board of Directors and a Two-Tier Structure of Board of Directors is that there is a single committee that makes all the important managerial decisions for the organisation in a One-Tier system, whereas there are two separate committees for the organization’s policymaking in the Two-tier system.

In a One-Tier Structure of the Board of Directors, the single committee makes all management decisions. It comprises the executive as well as non-executive directors from the organization. One-tier Board of Directors is also called the Unitary Board of Directors.

A Two-Tier System, on the other hand, is responsible for the supervision of the policy executions. The two separate boards, Management and Supervisory Boards have separate departments to look after and are headed by two different people. Management Board is headed by the Chief Executive Officer of the Company whilst the Supervisory Board is headed by the Chairman of the Organization.

Comparison Table Between One-Tier Board of Directors and Two-Tier Board of Directors

Parameters of ComparisonOne-Tier Board of DirectorsTwo-Tier Board of Directors
CompositionOne-Tier Board includes both the executive directors from the company and the non-executive directors of the company. Both stand at the same level and have similar authorityTwo-Tier Board has a separate management board and supervisory board. The supervisory board is superior in authority and can hire and fire members of the management board
Distribution of RolesOne-Tier board has no segregation of authority. Therefore, there is no distribution of authority. Everybody stands at the same level and have the authority to make decisions in unity.Since in a Two-Tier board, there are two separate boards. Namely, management and supervisory. They have different departments to look after. Management looks after the management of the organization whereas the Supervisory board takes care of the policy-making of the company
Involvement of StakeholderIn a One-Tier Board of Directors, there is not much involvement of the shareholders, since in a board there cannot be many external people involvedSince Two-Tier Board has two boards, and there are different departments there is provision to include members from amongst the shareholders.
Chairman and CEOIn One-Tier Board, is lead by the chairman of the board. He supervises the entire board.In the Two-Tier Board system, where there are two boards, the Management Board is lead by the Chief Executive Officer of the Company, and the Supervisory Board is presided by the Chairman of the organization.
Making of DecisionsThe decisions made by the One-tier board is quicker than Two-tier boards. The reason being that, it is a single and small board, and if all agree, it is final.In a two-tier board, since there are two segregated boards, they both have to agree for a decision to be made. It takes time. and since the making of decisions and executing are governed by two different boards, it takes much longer

What is One Tier Board of Directors?

At the topmost level of any organization, whether it is a profit-making company or non-profit making company, there is a committee that makes all the important administrative, managerial, operational as well as financial decisions. Apart from a head for each department, there is also the Board of Directors who govern each the entire institution with mutual discussion and decision which pertain only to the sole benefit of the organization as a whole. And the execution of its policies are closely followed by the committee.

One-Tier Board of Directors pertain to a single committee that presides at the top level of the company’s hierarchy. They make prompt and unanimous decisions and policies which contribute to the betterment of the company. The Chairman of the Board of Directors supervises the One-Tier Board of Directors

What is Two-Tier Board of Directors?

Two-Tier Board of directors, as stated above, topmost level in heirarchy of any organization, with the only difference of having two committees or two boards. Unlike the One-tier Board of Directors, Two-tier Board of Directors have two separate committees, supervisory and management. They separately have their tasks and contruibutions to the company.

Managerial Board makes decisions in terms of management for the company, whereas the supervisory board is takes care of the policy execution and hiring and firing members of the managerial board. It can be said that Supervisory Board has more authority than the Managerial Board

Main Difference Between One-Tier and Two-Tier Board of Directors

  1. The main difference between the two is the number of committees. In a One-Tier Board of Directors, there is only one committee, The Board of Directors, who make all decisions and policies for the company. In a Two-tier Board of Directors, there are two committees that have separate authority and roles for the company
  2. One-tier Board of Directors is supervised by the Chairman of Board of Directors, whereas in the Two-tier Board of Directors the managerial committee is headed by the CEO of the organization and the Supervisory Committee is headed by the chairman of the organisation.
  3. Decisions are made faster by the One-tier Board of Directors whereas, in Two-tier Board of Directors since more people are involved and two committees are involved to give assent for a decision, it usually takes time.
  4. Shareholders do not play a very significant role in the One-tier Board of Directors, whereas there is provision for shareholders involvement and inclusion in the Two-tier Board of Directors.
  5. In the One-tier Board of Directors, everybody stands at the same level and there is no segregation of authority, whereas in the Two-tier Board of Directors the supervisory committee has higher authority than the Managerial committee.

Conclusion

The difference between One-tier and Two-tier basically stands with the number of committees they hold. One tier has one committee whereas Two-tier has two committees. Each committee has a separate role to play and each committee whether one-tier or two-tier are all headed by a different person.
They also have different authority over each other as well as the company. The policy-making and its execution is a tad more complicated in the two-tier board of directors system as it is in the One-tier Board of directors system.

References

  1. https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?referer=https://scholar.google.com/&httpsredir=1&article=1001&context=fisch_2016
  2. https://www.degruyter.com/document/doi/10.1515/ECFR.2006.019/html

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