lecture 5 and six Flashcards
one tier board
executive directors
non executive directors (non executive and non executive independent directors)
shareholders –> board of directors (executive and non executive) –> managers
Two tier board
independent supervisory board membership
Trusteeship strategy: seeks to remove conflicts of interest ex ante. Do not profit from opportunistic behaviour. Not tied by financial incentives but motivated by ethical and reputational concerns
shareholders + employees –> supervisory board –> managing board –> managers
Which form is preferable
the one tier board structure results in a closer relation and better information flow between the supervisory and managerial directors
The two tier board structure encompasses a clearer, formal separation between the supervisory body and those being supervised
We can say that the boards roles are:
running the company
Monitoring (non-executives, supervisory board)
executing the strategy (executives, management board)
Executive duties are described by the (company) llaw and not doing what is forbidden by the law/jurisprudence
Representing the company
There are two board duties:
duty to care: take reasonable care, including risk management (internal controls)
Business judgement rule (BJR): usually very high standards in all jurisdictions
Hindsight bias experiments
Heuristics
Business decisions are risky by nature
Duty of loyalty:
not acting disloyal
Directors are considered fiduciaries
main conflicts of loyalty: a director has a personal interest in a transaction that the company enters into (self-dealing)
Director competes with a company (corporate opportunity) owning or managing competing business
Valuable opportunity for personal use
The duties are owed to the company
US: shareholders
UK: shareholder and a little bit to stakehodlers
Continental europe: institutional view of the company, including its vairous constituencies
