Around the globe, different governance systems exist. In two-tier systems, separate supervisory boards control the firms‘ executives while in one-tier systems this task must be performed by the boards. One-tier boards are generally found among listed firms in the Anglo-saxon world, the USA, the UK and Canada, while continental European countries such as Germany, the Netherlands and Austria commonly prescribe two-tier systems. In Asian corporations, we see a more variegated picture as the one-tier board system is dominant amongst Singaporean companies, the two-tier board system is the prevailing model of governance for Chinese firms and Japanese companies have the possibility for a “hybrid”, i.e. to choose the structure that best matches their specific business situation. In two-tier boards, the roles of the chairman and the CEO are separated, although this so-called “CEO duality” also is in decline in one-tier systems, especially in the UK. To illustrate, the Dutch multinational beer brewer Heineken states on its website:
“Heineken N.V. is managed by the Executive Board who reports directly to the Supervisory Board. The Executive Board is advised by the Supervisory Board on an ongoing basis in accordance with law and the Articles of Association of Heineken N.V.” (Source: www.theheinekencompany.com)
For the Dutch producer of pleasure drinks, the CEO Jean-François van Boxmeer also chairs the meetings of the Executive Board, while the chairman of the supervisory board is currently being chaired by Hans Wijers. If we if we make the jump to the other side of the North Sea and look at the British retailer Tesco, the following describes its governing body:
“Our Board comprises the Chairman, our Group Chief Executive, our Chief Financial Officer and a number of Non-executive Directors. Our Executive Committee comprises the Tesco PLC Executive Directors and a number of senior executives.” (Source: www.tescoplc.com)
Thus, the company that operates a multitude of supermarkets and hypermarkets, even far beyond the boundaries of the British island, features a one-tier board system. In full accordance with the previously indicated trend of declining CEO-duality, Tesco’s Group Chief Executive and the Chairman of the board are different persons (Dave Lewis and John Allan, respectively).
Despite the different governance systems, most board responsibilities resemble each other across settings. A generally accepted outline of the board’s roles is the following:
- A decisive role in the selection of CEOs
- Assessment of decisions and performance of the company’s management
- Practicing control over the company in crisis circumstances
- Cope with outside impacts and handle external contacts (e.g. with shareholders)
- Promote the company to the outside world in order to better the organization’s image
- Advise the company’s management and act as a sparring-partner
Concisely, the board can be illustrated as a monitoring authority within the corporate organization that is supposed to act in the interests of shareholders. The board’s position within the boundaries of the corporate legal entity, allows for formal approval to evaluate the development and execution of business plans originating from the managerial group and therefore assessing the performance of the firm’s management. In this regard, Vafeas & Theodorou (1998) mention that both non-executives and executive board members are legally liable against shareholders, but point out the particular importance of the non-executive directors with regard to monitoring, since they align their interests with that of shareholders by committing their reputation to a firm.
Notwithstanding this general acceptance of what a board formally should do, delineations of the actual functions that the board carries out are not always unequivocal and especially its role in firm-strategy is being heavily debated. Views on control over firms’ strategies range from managers to dominate directors to the control of managers by directors. In the first view, referred to as the managerial hegemony perspective, the board is ultimately being illustrated as a ceremonial institution that lacks a clear strategic mandate, while studies obtaining an agency perspective, in which controlling the managerial group is regarded as the main responsibility that boards have, the board’s growing influence over strategic outcomes is being emphasized.
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