Hiya,

Do the audit, nomination and remuneration committees exist in two tier board structure or only in unitary board structure?
If they don`t exist in two tier structure, then is supervisory board is responsible for their function?

Thanks.
Regards,
Ayesha Jabeen.

Hmmm they should and if they dont then i guess you have to give explanation why it is not there and it has to be reviewed at least anually to re-evaluate if it is required or not..

Dear Ayesha Jabeen,

There is no concept of Audit, Nomination and Remuneration committees in two-tier board.

Two-Tier Boards are common in Europe specially in Germany where the board consists of Executive Board (responsible for day to day tasks in running of a company) and Supervisory boards (responsible for overseeing the actions of the executive board). Supervisory board consists of representatives from Investors, Employees, Banks and other stakeholders for example Creditors and others.

In two-tier board supervisory board perform all tasks of non-executives for example setting the remuneration of Executive Directors, Appointment of Auditors and setting the remuneration and other tasks.

In UK,USA and some Asian countries supervisory boards are uncommon and therefore these boards remain as unitary boards, however these unitary boards consist of Executive Directors(responsible for day to day decisions of the company) and Non-Executive Directors(work as check on the executive directors) i.e. a single board consists of both directors. The function of Board is then further devised in to sub-committees like Audit Committee, Remuneration Committee, Nomination Committee, these committees contain both executive directors and non-executive directors, for example under the guidelines of Cadbury report at least 3 non-executive directors should be inducted in Audit Committee and for small listed companies the minimum requirement is two.

Regards,

Muhammad Amir.

Hiya,

Thanks alot Amir.
I was just looking for this line

Regards,
Ayesha Jabeen.

Still his explanation helped clear things.
Thanks!

Dear Ayesha Jabeen, I know you were only looking for that single line but the reason why two-tier board does not contain Sub committees has to be clarified and in my previous post i tried to clear this confusing thing.

Regards,

Muhammad Amir

and you did good..

Some times we become over concerned about what is written in theory. In Practice the things are different than how they look in theoretical prespectives. Its true that in two-tier board supervisory board perform all tasks of non-executives for example setting the remuneration of Executive Directors, Appointment of Auditors and setting the remuneration and other tasks. But you might well find a REMUNERATION COMMITTEE, AUDIT COMMITTEE and Possibly an EHICS COMMITTEE in a Two-Tier Board.

The idea is about doing beyond what is legally required. If a big Public Limited Listed Company is operating in a regime of two-tier boards, it can, and I beleieve will surely have, the sub-commitees reporting to either Executive Board or Supervisory board depending on the composition of boards.

Hi,

Thanks for your response.
So you mean to say that they do exist in real world with two- tier board structure as well.
But Amir said they don`t as all the work is done by supervisory board. Now I am confused :?

I have read somewhere that companies listed under UK Combined Code are required to have such committees (listing requirements). How would you relate this with two -tier board structure?

Regards,
Ayesha.

in theory dey dnt exist bt in real lyf u do
a lot of things tht arent in da theory exixt in real lyf
theory concentrates on an ideal situation which is difficult to find in real lyf
if u work u will see a lot of wht tht is taught is nt applied
so as in exam point of view u cn sey tht in a two-tier board structure all the work is done by supervisory board
hope tht will help n will nt leave u all da mre confusd

Dear All Members Especially Soul Hunter,

Corporate Governance is neither a subject of Environmental Chemistry nor it is a subject of Simulation Physics where we are discussing about aerodynamics or avionics, where assumptions are much different from theory and theory in turn having conflict with real time situation.

It is very simple subject and easy to understand and one thing that has to be understand is that this modern, dynamic world does not deal with exceptions.

The real and simple definition of Supervisory board is that the board that contains representatives from Employees, Investors and other stakeholders and these representatives have no interest in the direction or day to day running of the company, they only work as check on the decisions of directors, supervisory board contains not a single member from executives.

The unitary board is the board that contains Executive and Non-Executive Directors, they both work in close co-ordination. This unitary board sub divides the unit (Executive + Non-Executive Directors) in to further units, for example Audit Committee, Remuneration Committee, Nomination Committee and other similar committees. These committees then contain both Executive Directors and Non-Executive Directors, they both work in co-ordination, their decision is the representative of the opinion of both Executives and Non-Executives and this is the point where Unitary Board differs from Multi or Two Tier Board because in Two Tier board the decisions are the sole responsibility of Executive directors, Non-Executive directors only show their assent on the major decisions for example acquisition of a new company, making a joint venture or undertaking the major investments.

There might be a possibility that supervisory board has further divided its tasks in different sectors for example Audit, Nomination and Remuneration but it does not mean that supervisory board contains these committees separately and that the tasks taken by the two-tier board are similar to those of the unitary, because in unitary board the decision is the consensus decision of both Executives and Non-Executives but in Two Tier board a single supervisory board is responsible for all tasks and it only works as watchdog on executives.

Moreover, due to pressure on regulatory authorities in UK after the collapse of Enron the role of supervisory board has been converted in to the unitary board and the same was happened in USA.

I hope this clarifies my opinion.

Regards,

Muhammad Amir