The Diversity of board structures in Europe
(public companies)
· There is still huge diversity in the board structures of European companies.
· Differences in board structures are important to corporate governance as they affect the nature and extent of directors’ powers, influence and responsibilities. They may also affect the ability of boards to hold managers to account in the running of the company.
· Board structures are often classified in terms of one-tier and two-tier structures. One tier structures (or unitary boards) consist of both executive and non-executive directors. Two tier boards separate executives and non-executives into separate boards: a management board and a supervisory board.
· A number of Member States provide companies with a choice between the two systems. However, as yet, relatively few companies make use of the flexibility the law offers – one system tends to predominate in each country.
· As of 2012, thirteen Member States permit companies to choose between one- and two-tier boards. Seven Member States require a two tier board. Eight Member States provide for one-tier board structures.
· However, the board structures in a number of Member States cannot easily be classified according to this dualistic characterisation. For example, the Swedish structure incorporates elements of both the one-tier and the two tier system. There is a one tier board which has broad strategic responsibilities but executives do not typically sit on the board. Hence it is classified below in terms of the “Nordic Model”.
· Similarly, Italian law provides for a “traditional model” in which the board of directors is accompanied by a “statutory board of auditors”, which assumes some of the responsibilities that are typically associated with a supervisory board.
· Twelve EU countries grant employees some form of influence over the composition of the board. There exists a fair amount of variance among the systems of employee participation.
· The spectrum ranges from the German system, where employee representatives form 50% of the supervisory board in large companies, to the Dutch system of nomination and opposition rights, where employees are in effect restricted to make recommendations for the appointment of particular candidates, but shareholders can in turn oppose such nominations. In addition, the employee representatives must not themselves be employees of the company.
· The participation of employee representatives in the governance process tends to correlate with a less shareholder-centric understanding of the interests of the company.
Summary of board structures in Europe
Austria. Mandatory two-tier board structure.
Belgium. One-tier board or mixed structure (the board of directors may transfer some of its power to a “direction committee”, which consists of both directors and non-directors).
Bulgaria. Choice between one-tier and two-tier board structure. In practice, one tier boards predominate.
Croatia. Choice between one-tier and two-tier board structure. In practice, two tier boards predominate.
Cyprus. One-tier board structure (although company law does not contain mandatory rules as to a company’s board structure).
Czech Republic. Mandatory two-tier board structure.
Denmark. Choice between “Nordic model” and German-type two-tier board structure.
Estonia. Mandatory two-tier board structure.
Finland. Choice between “Nordic model” and German-type two-tier board structure.
France. Choice between one-tier and two-tier board structure. In addition, within the one-tier structure, the company may choose between the PDG (président-directeur general) model which combines the offices of the CEO and the chairman of the board. In practice, one tier boards predominate.
Germany. Mandatory two-tier board structure.
Greece. One-tier board structure.
Hungary. Choice between one-tier and two-tier board structure. In practice, two tier boards predominate.
Ireland. One-tier board structure (although company law does not contain mandatory rules as to a company’s board structure).
Italy. Choice between three different board structures: the “traditional” model with a board of directors and a board of statutory auditors, as well as a typical two-tier and a typical one-tier system.
Latvia. Mandatory two-tier board structure.
Lithuania. Both supervisory board and/or board of directors are optional under Lithuanian law. In practice, one tier boards predominate.
Luxembourg. Choice between one-tier and two-tier board structure. In practice, one tier boards predominate.
Malta. One-tier board structure.
Netherlands. Choice between one-tier and two-tier board structure. Although companies may generally adopt either structure, after exceeding certain size-related thresholds, companies are obliged to adopt a two-tier board. In practice, two tier boards predominate.
Poland. Mandatory two-tier board structure.
Portugal. Choice between three different board structures (a board of directors and an audit board, as well as a typical two-tier and a typical one-tier system).
Romania. Choice between one-tier and two-tier board structure. In practice, two tier boards predominate.
Slovakia. Mandatory two-tier board structure.
Slovenia. Choice between one-tier and two-tier board structure. In practice, two tier boards predominate.
Spain. One-tier board structure.
Sweden. “Nordic model”.
United Kingdom. One-tier board structure (although UK company law does not contain mandatory rules as to a company’s board structure).
Source: Gerner-Beuerle et al (2013).
Summary of board-level employee participation in Europe
Employee involvement on boards?
Austria Yes. Employees appoint one third of the members of the supervisory board.
Belgium No. Only applies in certain state-controlled companies.
Bulgaria No.
Croatia Yes. One member of the supervisory board.
Cyprus No.
Czech Republic Yes. In companies with at least 50 employees, employees appoint one third of the members of the supervisory board.
Denmark Yes. Two members of the board when adopting the “Nordic Model” of corporate governance Up to a third of the members of the supervisory board in companies adopting the two-tier model.
Estonia No.
Finland Yes. Employee participation subject to negotiation between company and employees.
France No. Only in state-owned or certain privatised companies For all other companies, employee participation is voluntary and depends on agreement with employees.
Germany Yes. Between one third and half of the supervisory board seats are allocated to employees (one third for companies with more than 500 and up to 2,000 employees; one half for companies with more than 2,000 employees). In companies with more than 2,000 employees, trade unions may also nominate representatives to the board.
Greece No. Only in state-owned companies.
Hungary. Yes. One third of members of supervisory board, provided that company has more than 200 employees.
Ireland. No.
Italy. No.
Latvia. No.
Lithuania. No.
Luxembourg. Yes. In companies with more than 1000 employees, one third of the board members are employee representatives.
Malta. No.
Netherlands. Nomination only. Works council has nomination rights for up to a third of the board seats, but may not nominate employees of the company. The board members nominated by the employees still have to be elected by the shareholders.
Poland. No. Only for (formerly) state-owned companies.
Portugal. No.
Romania. No.
Slovakia. Yes. One third of supervisory board members in companies with more than 50 employees.
Slovenia. Yes. One third of supervisory board members (two-tier structure). One to three members, depending on board size(one-tier structure).
Spain. No. Only in state-owned companies.
Sweden. Yes. Two to three members of the board.
United Kingdom. No.
Source: Gerner-Beuerle et al (2013).
Roger Barker
Director of Corporate Governance
IoD
4