Proper management is an important undertaking in a given firm. Generally, good management practices in the organization lead to better prospects for the firm. Goal achievement for the respective firm is made easier. Therefore, it is vital that companies adopt the best managerial practices available. In this paper, the one-tier management system is compared with the two-tier management system. The two systems of governance have both positive and negative attributes in regard to the benefits accrued or realized by the respective firm adopting either of them. In this paper, the two management systems will be analyzed critically. Their attributes and virtues will be discussed so that an informed decision as to which is the best system can be made.
The governing body under the two-tier management system comprises of a management board and a supervisory one. On the other hand, the one-tier system basically comprises of an administrative board (Muchemu, 2008, p. 39). The members of the given boards, in the two-tier management system, have the duty of representing the company in numerous dealings especially with third parties. Legal proceedings for the company are also tackled by the respective boards. The supervisory board is responsible for appointing or dismissing members of the board (Loos, 2010, p. 300). Further, a person can only be a member of one board. Therefore, no member is in the supervisory board as well as the management board of the same company in the same period of time. However, the supervisory board has the choice of appointing one of its members to carry out the duties a member of the management board in case of absence. During such an event, the duties of such a member in regard to the supervisory board are suspended. In a one tier management system, the supervisory board is entirely replaced with the management board.
They vital novelty brought about by the amendment of the Company’s Act regards the introduction of the chance to choose between the two existing governing systems. Specifically, domestic limited companies are the ones affected by the choice. The novelty of this action cannot be missed considering that the current legislation and provisions of the law do not avail this opportunity to them (Kluge, 2009, p. 100). However, in some limited cases, the law gives the exemption to some companies to operate without a supervisory board, which should not be solely considered as the one-tier management system known in local Anglo-Saxon law structures.
In both practice and theory, the two different governance systems have been introduced. The Anglo-Saxon one tier-system and the European continental two-tier system are the two entities. Breaking down the two systems of governance individually will help determine their effectiveness in their consequent adoption. With critical structure breakdown of the entities differently, their respective comprehension and relative composition is enhanced. This is one of the factors that will help, to a large extent, the possibility of reaching the best decision in regard to which is the best mode of management in the public companies.
In the two tier management system, there are three bodies for governing of the public companies. They include the general meeting of shareholders, the management board, and the general meeting of shareholders. The law clearly limits the competencies of the entities. The general meeting of the shareholders is basically competent to effect alterations to the status of the company. It is also competent enough to effect proper policies in regard to profit-sharing activities. The supervisory board mainly supervises the undertakings of the management board (Gerven, 2008, p. 234). It also appoints or dismisses the management board. The supervisory board is also charged with the responsibility of ensuring constant motivation of the management board. Annual reports are derived and adopted by the supervisory board. The bottom line is that the management board of the given public company primarily conducts the general business operations of the given company.
The law has provisions that strictly ensure that members do not mix priorities. With this in mind, no member can simply transfer membership into the other board according to the current provisions of the law (Loos, 2010, p. 78). Transfer of the general decision stand on the annual report from the supervisory board to the general meeting of the shareholders is one such example of an illegal conduct.
The one-tier system of management recognizes two bodies of governance. These two entities are the general meeting of shareholders and the board of directors. In regard to the competency and composition of the system, the general meeting of shareholders does not vary largely from the general meeting experienced in the two-tier management system. Therefore, the general meeting also has the power to appoint the directors of the company. However, there are bigger differences in the board of directors. Its respective members are the directors that are divided by law into executives and the non-executives.
In theory, the competence of managing a company is held by the board of directors as the general body of governance. However, this competency is transferred to the power and scope of the executive directors. Therefore, it remains with the supervising authority of the work done by the executives. It is vital to note that a company may have executive directors who are not members of the board of directors. In numerous aspects, the role of the executive directors resembles that of the management board in the two-tier governance system. This is so mainly because the executive directors conduct the business operations of the company.
Definitely, there is no universal answer to the question of which system of governance is best for adoption by companies in Europe. The main reason for this factor is that corporate governance in the sense of arranging the consultations between the boards and the shareholders should not be analyzed as a simple legal category. It is vital that we are aware that different structures of governance have been formed and adopted in different social systems and economies. A two-tier system has been developed and adopted by numerous German companies. This system is characterized by the majority shareholders of the given companies. Further, it entails strong and willful participation of the concerned employees, a much less liquid capital market, and even an elaborate voting system.
On the other hand, the one-tier system has been created by the Anglo-Saxons. It is characterized by dispersed structures of the shareholders. It also entails an active capital or security market and also the system of a majority voting mechanism, where the winner has the larger authority and obligation regarding critical decisions in the company.
The question of a better or poorer management system was not experienced in the past. These considerations have cropped up in the last few years due to various reasons. The serious globalization trends experienced in the economies of the world recently are a factor that leads the corporations into deliberating on the best managerial system to be adopted in their operations (Nikolopoulos & Kluge, 2009, p. 53). This issue was brought about the process of linking companies not located in the same jurisdiction in terms of the country’s borderline. The continued trend of shareholders in following up advanced corporate standards is also a factor that led to this position. Considering the importance of shareholders to a given company, it is vital that the standards set be in line with their respective preferences. With this in mind, the respective companies have engaged into the debate of which system of governance is best if adopted. The interest of the shareholders is very vital in this case (Mantysaari, 2005, p. 102). Further, the companies need to address the factor of performance since it is what matters in the long run. Reducing the risk exposure of the shareholders of the company is vital in numerous ways. The success or failure of the company to a large extent depends on the system of governance adopted by the respective company.
Which system of management is therefore best for adoption by European countries? As stated earlier, there is no clear cut answer for this question since the factors upon which this decision is to be made are numerous. However, from the structural and activity details of the two systems, it is possible able to assess the better option on weight of performance and results especially. The activity of governing and managing a given company in regard to past experiences has been inclined to the one-tier system (Pernazza, 2010, p. 66). The one-tier system has in the past proved to be the system where efficiency and effectiveness was at its maximum. This factor is especially true in cases where the respective companies in question have prevailing or majority shareholders. In this case, the joining of the supervisory and the managerial bodies presents in it some advantages. Perhaps the most important advantage raised in connection to this aspect is the reduction in cases of conflict. Considering that the two entities are joined, they will definitely work together and reach meaningful consensus and conclusions. This is a vital corporate input. The cases of conflict that arise due to the separation of these two institutions may be harmful in the long run to the performance of the corporate. Time wastage should therefore be kept at the lowest possible rates. Further, the efficiency, through the collaboration of the wisdom of the two entities in one setting is realized.
Some important cases regarding the operations of the firm may require fast address. In this case, the bureaucracy connected with the process of the two-tier management system is avoided. The incorporated system in the case of a one-tier management system provides a central authoritative influence. The decision making process, especially in critical or urgent cases is avoided by the board. Evidently, the two-tier system does not have this provision considering that the process has to be collaborated in a different setting. The two entities may also have differences in terms of perception or interest to the company. In such a situation, the general performance of the given company is put at risk. The one-tier management system therefore provides the appropriate solution by cutting down on the intricacy of structure presented in the two-tier system.
The two-tier system is not as cost effective as the one-tier management system (Eck, 2010, p. 13). This is so because of the application in terms of the number of individual workforce concerned. The adoption of the two-tier system comes with the appointment of new posts in the firm. This is so because the management and the supervisory entities have to run differently. The cost incurred by the company in financing the separate activities of the supervisory entity amount to revenue reduction. This is so because as stated earlier, the activities of the two entities in the two-tier management system can be merged. This process would not interfere at all negatively with the normal running of the business. In this case therefore, the concerned companies should merge them to cut the extra costs that come with the process.
The fact that the one-tier system has been widely accepted and adopted throughout the world makes it the better option. Public companies have in the past adopted this mode of management and realized good prospects and revenues in the long run. This is evident considering that numerous public firms have successfully satisfied the wants and expectations of their shareholders with the one-tier management system in place. The two-tier system of management has not been overly unsuccessful though. The implication is that the widely accepted, cheaper, and more effective mode of operation in regard to system management has proved to be better than the other opposite system. Therefore, the adoption of the one-tier system is highly recommended for adoption by firms.
The two-tier system also has its advantages. It is evident that there is a difference in situation regarding the relations of interests in companies and the obviously dispersed share structure. The supervisory board plays an important role in some instances especially when it is separated from the management board. Apart from supervising the management board, the supervisory board can also importantly establish the aims and expectations of the company on behalf of its respective shareholders. The supervisory board can search the common interest of the shareholders, a factor which is evidently vital considering that the shareholders are the capital owners of the given company. The process of separating the managerial body and the supervisory body therefore plays a vital role in ensuring better handling methods of given situations. The key interest of shareholders is the quality and transparency of cases in regard to operations especially concerning them. With this in mind, the supervisory board being separated from the management board is able to disseminate the services in a better and professional manner. This is one of the biggest positive aspects of the adoption of the two-tier systems management.
Considering that the biggest positive influence on the two-tier system can be easily countered by the one-tier systems of management, it is evident that the latter provides the best mode of public companies management. If the management board can see to it that they provide quality on the services that would otherwise have been disseminated by the supervisory board, the system will prove to be a better option of the two. The one-tier system has better prospects not only in terms of structure but also performance and cost effectiveness of the system. With this in mind therefore, it would be wise if public companies in Europe adopted the one-tier system of governance.
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