2.2.3 Convergence between unitary and dual board structures

Although the differences between unitary and dual board structures appear to be significant in the previous subsection and in Table 2-1, the differences are less pronounced in practice than in theory. Actually, there is considerable convergence between unitary and dual board structures (Hopt 2006b: 454; Calkoen 2011: 403-405). Both structures have their advantages and disadvantages. Cherry picking the good elements of the other structure causes this convergence.

The two separated bodies for management and supervision are considered to be an important benefit of the dual board structure with respect to independence (Jungmann 2006: 449). At the same time, this distance between management and supervision is a disadvantage. Due to separation between the management board and the supervisory board, members of the supervisory board are not involved in the decision-making (strategic) process. As a result, supervision is conducted after a (strategic) management decision has already been taken by the management board (Jungmann 2006: 452). This formal structure makes supervision in a dual board structure theoretically ex post instead of ex ante, which restricts supervisors to commenting on decisions with hindsight. A unitary board can execute supervision ex ante and therefore has an advantage. The close position of the NEDs to the executive directors is not only an advantage, but is the source of the colleague-monitor-dilemma as well (Jungmann 2006: 461). This dilemma comprises the dilemma NEDs face when having the duty to monitor people who are also their colleagues.

Hooghiemstra and Van Manen add to this discussion that supervision in a dual board structure is also hampered by information asymmetries (2004: 321). The management board receives information from employees and other individuals in the company, but the supervisory board has to rely on the management board for their information. Hooghiemstra and Van Manen (2004) call this the independence paradox: the supervisory board has the duty to monitor the management board independently, but is unable to perform this duty as the supervisory board is dependent on the management board for its information.

However, these theoretical advantages and disadvantages are smaller in practice. Supervision by the supervisory board is not a process that takes place after the final decision of the management board, but should happen in an open discussion between the two bodies and requires close and trustful cooperation (Jungmann 2006: 449-451). There is a tendency in dual board structures towards collegial decision-making by both the management board and the supervisory board (Hopt and Leyens 2004: 163-164; Calkoen 2011: 404). This close and trustful cooperation might mitigate the independence of the supervisory board with respect to the management board and sheds a different light on the ex post character of supervision. Besides the tendency of the management board and supervisory board to cooperate together in (strategic) decision-making, a tendency in the United Kingdom and United States can be observed of (independent) NEDs meeting without the CEO and other executive directors. Calkoen speaks of a one-and-a-half-tier board structure, because the dual board structure incorporates elements of unitary board structures and vice versa (Calkoen 2011).

In addition, both board structures have board committees, which implies that boards do not always meet with all the members together. They can have separate meetings with only a limited number of board members or supervisory board members. In the United Kingdom and the United States it is good practice to staff board committees with solely (independent) NEDs; in the Netherlands board committees are comprised of only SDs. However, board committees in the United Kingdom do occasionally invite executive directors; in the Netherlands members of the management board are sometimes invited to these board committee meetings as well (Calkoen 2011: 404). Furthermore, there is evidence that managerial tasks are carried out by a subgroup of executive directors in the British unitary board (Davies 2000: 447).

The brief description above about the convergence between both board structures shows that theoretical differences are less pronounced in practice. This is caused by the use of board committees in both structures, the combined meetings between management board and supervisory board in dual board structures, and the separate meetings of (independent) NEDs in unitary board structures. This convergence means that the advantage and disadvantages – more distance in dual board structure, better cooperation and information flows in unitary board structures – are mitigated by the fact that both board structures move towards a one-and-a-half-tier board structure.