2.2.1.1 Unitary board structure

Companies with a unitary board structure are governed by one board of directors (hereafter: board) in which a distribution of tasks exists between executive members (executive directors) and non-executive members (non-executive directors, NEDs) (Mallin 2007: 122). The executive directors, visualised by the lower triangle in the left figure, conduct the daily business and are employed by the company (Hopt and Leyens 2004: 150; Financial Reporting Council 2010: 10). Although the board is responsible for the company’s business, the company is run by individual managers or a group of executive directors and not by the board as a whole. As the entire board meets on average only once a month or less frequently, day-to-day business is managed by senior management for which the board bears responsibility (Jungmann 2006: 437). Since executive members of the board are part of management they are referred to as insiders or nonindependent directors (Pearce II and Zahra 1992: 412). Principal of the executive members is the Chief Executive Officer (CEO), who is responsible for the company’s business and is an employee of the company (Mallin 2007: 126). The CEO is visualised by the smaller triangle within the big triangle of the executive members in the figure.

Non-executive members of the board – the upper triangle in the figure – have the task of advising and monitoring the executive directors of the board and help develop the strategy of the company (Financial Reporting Council 2010: 11). They are, in contrast to executive members, not employed by the company and are split further into independent and non-independent directors. The definition of independence and independence criteria in corporate governance codes and legislation influence the split between independent and non-independent NEDs. Normally, independent NEDs have no other affiliation with the company than their position on the board and are therefore referred to as outsiders or non-affiliated directors. Non-independent NEDs are neither members of management nor employees of the company, but have close links with management, the board or the company. Due to their affiliation they cannot be qualified as insiders or outsiders and are therefore referred to as grey directors or affiliated directors (Coles et al. 2001: 37). Grey directors can be former directors, consultants or legal counsels. The categorisation of insiders, outsiders and grey directors is in keeping with the classification of a board by Baysinger and Butler (1985: 109-111). Baysinger and Butler have identified three key components that a board should be composed of: an executive component, a monitoring component and an instrumental component. In this case, the executive component is equal to the executive directors on the board, the monitoring component is equal to the independent NEDs, and nonindependent NEDs can be shared under the instrumental component. The instrumental component ‘may be viewed primarily as a source of managerial wisdom which may be drawn upon by management to improve decision making’ (Baysinger and Butler 1985: 110).

The principal of the non-executive members is the Chairman of the board; he is responsible for the board and has to enable the board to function well by providing the necessary information, making appointments for board meetings on a frequent basis and allowing everybody to speak during board meetings (Mallin 2007: 126-127; Financial Reporting Council 2010: 10). The smaller triangle within the larger upper triangle in the figure represents the chairman. The dashed line between the triangle of CEO and chairman reflects the possible situation of CEO duality that is characterised by a combined CEO/Chairman position. In that case the principal of the executive directors is also the principal of the NEDs.

Board independence in a unitary board structure is measured as the ratio between the number of independent NEDs and the total number of directors (executive and non-executive directors together).

Unitary board structures are widely applied in Anglo-Saxon countries such as the United States, United Kingdom, Ireland and Canada. In Europe unitary board structures can be found in Belgium, Finland, France, Greece, Italy, Luxembourg, Portugal, Spain and Sweden (Mallin 2007: 161). However, the exact characteristics between the unitary boards may differ among these countries. The above-described unitary board with a balance between executive directors and NEDs is typical of the United Kingdom. In the United States it is common to have a board with only one CEO as executive member of the board; the other members are (independent) NEDs (Calkoen 2011: 406-407). The general characteristics of a unitary board structure are given in Table 2-1, which offers a comparison with a dual board structure.