A 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.
One-Tier Board of Directors acts as a single governing body for the organization. They make unified and mostly strategic settlements for the company.
Key Takeaways
- A one-Tier Board of Directors is a single board structure that combines executive and non-executive functions.
- A Two-Tier Board of Directors is a dual structure separating executive and non-executive functions.
- One-Tier Board is used in the United States, while Two-Tier Board is used in Europe.
One-Tier vs Two-Tier Board of Directors
The management and board of directors are combined into a single group in a one-tier board of directors. In contrast, a two-tier board of directors separates the management and board of directors into two groups, providing a clearer separation of powers between the management team and the board.
In a One-Tier Structure of the Board of Directors, a single committee makes all management decisions. It comprises the executive as well as non-executive directors from the organization.
The two separate boards, Management, and Supervisory Boards, have separate departments to look after and are headed by two different people.
Comparison Table
| Parameters of Comparison | One-Tier Board of Directors | Two-Tier Board of Directors |
|---|---|---|
| Composition | One-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 authority | Two-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 Roles | One-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 Stakeholder | In a One-Tier Board of Directors, there is not much involvement of the shareholders, since in a board there cannot be many external people involved | Since Two-Tier Board has two boards, and there are different departments there is provision to include members from amongst the shareholders. |
| Chairman and CEO | In 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 Decisions | The 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.
One-Tier Board of Directors pertains 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.
What is Two-Tier Board of Directors?
Two-Tier Board of Directors, as stated above, is the topmost level in the hierarchy of any organization, with the only difference of having two committees or two boards.
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 of members of the managerial board.
Main Difference Between One-Tier and Two-Tier Board of Directors
- 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.
- 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.
- https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?referer=https://scholar.google.com/&httpsredir=1&article=1001&context=fisch_2016
- https://www.degruyter.com/document/doi/10.1515/ECFR.2006.019/html
Last Updated : 20 July, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
This article provides a very detailed explanation of the difference between One-Tier and Two-Tier Boards of Directors. I appreciate the clarity and would love to read more about the benefits of each system.
The article provides a clear view of the main differences between the One-Tier and Two-Tier Boards of Directors. I’d love to see more examples of companies using each system.
The Board of Directors is such an important part of any organization. I didn’t know about these different structures, this article is really informative.
The contrast between a One-Tier Board and a Two-Tier Board is fascinating. I’d love to know more about the requirements to establish a Two-Tier Board.
The decision-making process in the One-Tier Board is highlighted very well in the article. I would love to see more about the challenges faced in each structure.
The reference links provided have added scholarly value to the article. It’s great to see such detailed sources used.
The involvement of stakeholders and shareholders in the Two-Tier Board is an interesting point. The article has raised some important considerations about representation and authority.
This is an insightful article. It’s impressive to learn about the different structures and how they are used in different regions.
The role of the Chairman and CEO in each board is explained well. It really highlights the differences in authority and leadership.
This article provides a comprehensive comparison of the One-Tier Board and the Two-Tier Board of Directors. The involvement of stakeholders is particularly interesting.