One-tier and two-tier board

What it means

The one-tier and two-tier systems are two governance models for a joint-stock company. The two-tier model has two separate bodies: a management board that runs the company and a supervisory board that oversees it. The one-tier model has a single body combining management and supervision.

In Slovakia the two-tier system, governed for joint-stock companies by the Commercial Code, is the norm. The management board is the statutory body acting on the company's behalf, while the supervisory board monitors its work, reviews the financial statements and reports to the general meeting.

The one-tier model with a board of directors is typical of Anglo-Saxon countries. In Slovakia it is found mainly in the European company, which may choose between the two systems. The board appoints executive directors who run day-to-day operations.

How it works in practice

The choice of model determines who decides what and who bears responsibility. In the two-tier system the line is clear: management board members manage, supervisory board members supervise and are not liable for management decisions. Foreign owners often need to be told that a supervisory board is not an Anglo-Saxon board of directors.

Groups with foreign management used to a board of directors sometimes choose the European company precisely because of the one-tier model. In an ordinary Slovak joint-stock company, a similar effect is achieved by combining the management board, the supervisory board and internal rules on delegation of authority.

Large companies add committees to the supervisory board, for example for audit or remuneration, as well as independent members. In companies with more than 50 employees, the Commercial Code gives employees the right to elect some of the supervisory board members.

What to watch out for

The liability of board members differs by model, but both require acting with due professional care and in the company's interest. A supervisory board member who ignores obvious problems may be liable for damage if they failed to exercise the supervision required of them.

When changing systems, for example on conversion into a European company, the statutes, contracts with board members, signing authority and the commercial register entry must all be updated. Banks and partners need to know who is authorised to act for the company; otherwise disputes over the validity of acts may arise.