One-tier or two-tier board

One-tier or two-tier board

Options for management structure

Part of the introduction of the so-called “Flex-wet” (Act to simplify of company law), was the introduction of the one-tier board. This Anglo-Saxon management model (also called one-tier model) has mainly been used in the US and the UK but is slowly becoming common place in The Netherlands as well. For companies whose ambitions cross the border of The Netherlands the possibility to opt for this management model is interesting and valuable. Multinationals such as Unilever and KLM have already adopted the one-tier board model.

The currently used two-tier model

Before the new company Act the only choice available in The Netherlands was a two-tier model. This standardised structure consists of two separate bodies, namely the board of directors (management) and the supervisory board. In this model the management only focuses on managing the company, while the supervisory board merely remotely supervises the business and if required advises the board of directors.

The benefits of a one-tier model

An one-tier model has only one body instead of two separate ones. This body consists of executive directors and non-executive directors. The executive directors are in charge of the daily management, but will be supported intensively by the non-executive directors. It is even possible to assign certain board’s duties to a non-executive. This will mean that the non-executive directors have a greater responsibility compared to the supervisory board. The non-executives are expected to step in when needed. The decision making process in this system is expected to be less as decisions only have to pass one body now. It is therefore believed that a one-tier system has more clout than a two-tier system and is able to switch quicker when needed. Also the synergy within this single body should be stronger as the distance between the executive and the controlling body has diminished.

Concerns regarding the one-tier system

The disadvantage, however, is that a more active interference of the non-executive directors could lead to an increased risk of liability. The non-executive board is as a whole liable. There is a collective directors’ liability. There will be fewer reasons for exculpation when the interference increases.

Corporate lawyer in The Netherlands

Although the one-tier model has not often been adopted yet, it is definitely a model worth taking a closer look at and considering for your business structure. It provides many benefits and is internationally recognised. For companies with global ambitions, it might be wise to anticipate cross-border business by adopting this model.