Board Structure in the UK and Germany: Convergence or Continuing Divergence?

Abstract

This paper examines the extent to which there has occurred a functional convergence between the German two-tier board and the one-tier UK board as a result of the 'corporate governance' reforms which have occurred in the UK over the past decade. Those reforms, embodied in listing rules rather than traditional company law, emphasise the different roles of executive and non-executive directors and monitoring role of the latter. The paper analyses the development of the corporate governance reform movement in the UK from the report of the Cadbury Committe in 1992 and argues that these changes have moved the British one-tier board closer to the two-tier model at a functional level. However, it concludes that there are still significant differences between the German model of the board's functions and the British model. This arises because in the German model the so-called 'supervisory' board discharges an important function in providing linkages to stakeholder groups, notably employees, in addition to its monitoring role. Indeed, in German law and practice significant compromises on the effectivenss of the board's monitoring role have been accepted in order to accommodate the linkages to non-shareholder groups. Linkages to non-shareholder groups, by contrast, are not a significant function of the British board, even after the corporate governance reforms in that country. Finally, the paper concludes with some speculation as to the conditions under which German law might come under pressure to improve the monitory function of the board on behalf of shareholders.

Keywords: corporate governance, board structure and role, Anglo-German comparison, one-tier and two-tier boards, shareholders and stakeholders

JEL Classification: J50, K12, L2, M14