Two-Tier Boards: Stability or Straitjacket?

Two-Tier Boards: Stability or Straitjacket?

It's interesting – in discussions over the past few weeks, some very different people said almost the exact same thing to me. A CEO from a traditional production company, a tech founder, the chair of a digital-native board, a corporate lawyer. All, independently, asked something along the lines of:

"Are we sure the two-tier system still works for the speed we need today?"

They described the two-tier system – separating management and oversight into distinct bodies - as thorough, but slow, formal, and not exactly built for rapid innovation.

The two-tier system – thorough, but slow, formal, and not exactly built for rapid innovation.

This is currently a major trend: governance is becoming a strategic conversation, not a legal footnote.

Governance is becoming a strategic conversation, not a legal footnote.

And right now, one debate is becoming louder than ever - whether to abandon the two-tier system, or at least how to modernize it to match the speed and agility of international best practices.

Austria: firmly two-tier - but no longer unquestioned

Austria is, by tradition and by law, a two-tier country. Most companies, including almost all listed ones, work with an executive board (Vorstand) and a supervisory board (Aufsichtsrat), separating management and oversight into two distinct bodies.

Only SEs (Societas Europea, the European Company legal form) can choose a one-tier "administrative board," and even then, it remains a minority choice and most still stick with what they know.

Internationally, particularly in Anglo-Saxon markets, the one-tier system is far more widespread.

Why does Austria hold on to two-tier?

Because it fits nicely with Austria's corporate culture (and laws): a clear separation between management and oversight, a governance model that feels predictable and safe, and strong employee participation through co-determination.

But what's changing is this: people are starting to ask whether that structure can be faster and more agile.

We hear this more often in board and CEO searches:

• "Our supervisory board meetings feel too far away from day-to-day reality."

• "We lose speed in decision-making."

• "We need a more unified strategic voice."

• "Our international investors are questioning whether our governance matches international best practices."

• "How do we convince international candidates to join our supervisory board?"

That's exactly why the one-tier conversation matters - not because companies will switch structures, but because it's forcing a healthy examination of how to make two-tier governance work better for modern business.

The Current Debate

The conversation goes something like this: Austria's traditional two-tier system brings stability, clear oversight, and strong worker representation.

But in an era of rapid digital transformation, global competition, and the need for entrepreneurial agility, does the formal separation create unnecessary friction?

In an era of rapid digital transformation, global competition, and the need for entrepreneurial agility, does the formal separation create unnecessary friction?

Some argue that the two-tier structure is simply too rigid for today's business environment. Decisions take longer. Information flows through formal channels. Supervisory boards meet quarterly to review what's already happened, rather than being in the room when strategic pivots need to happen in real-time. For startups, scale-ups, and companies trying to move with Silicon Valley speed, the structure can feel like a straitjacket.

Others counter that this stability is precisely what's needed – that fast doesn't always mean good, and that the separation between management and oversight has prevented countless bad decisions from being rubber-stamped by compliant boards.

The Austrian Code of Corporate Governance (ÖCGK) provides listed companies with a set of voluntary rules to help them establish good corporate governance and control systems. While acknowledging that the two-tier system is by far predominant in the Austrian market, the Code opens up to international best practices and discussion about good governance.

The comparison with one-tier systems isn't about wholesale structural change - it's about learning what makes governance effective in a fast-moving world.

What's the real difference - and what can we learn?

Understanding the practical implications means looking beyond legal structures to how boards actually function. Comparing systems isn't about choosing between them - it's about understanding what makes governance effective, and what Austrian companies can adapt within their two-tier framework.

Let's compare them across the dimensions that matter most:

Two-tier (dualistic) system

Structure: Two fully separate bodies

• Management board (Vorstand) runs the company

• Supervisory board (Aufsichtsrat) appoints, monitors, approves key decisions, guards shareholder interests

Board composition & qualifications: Supervisory boards typically include significant employee representation (one-third or more, depending on company size). In Austria, these boards are often less internationally diverse than in comparable markets – a point increasingly noted by global investors. Members need strong governance expertise, but not necessarily deep operational experience in the business.

Worker representation: Legally mandated and built into the structure through co-determination. Employee representatives sit on the supervisory board with (nearly) the same rights and responsibilities as shareholder representatives. This ensures worker interests are directly represented at the highest governance level – a core principle of the Austrian (and German) system that enjoys strong social and political support.

Conflicts of interest: Structural separation provides clear independence. System is designed to prevent conflicts of interest. Management cannot sit on their own supervisory board, which creates strong oversight but can also create distance from strategic reality.

Decision authority: The supervisory board has specific approval rights (major investments, appointments, certain transactions) but limited ability to shape day-to-day strategy. This clear delineation protects against overreach but can slow strategic pivots.

Communication: Formal, scheduled interactions. Information flows primarily through written reports and quarterly meetings. Potential information lag. Internal communication is hierarchical; external communication typically comes from management alone.

Legal recourse & liability: Clear liability frameworks. If errors occur, responsibilities are well-defined between the two bodies. The formal structure provides legal clarity but can feel rigid.

Advisory structures: Many companies add a Beirat (advisory board) to bring in additional expertise or international perspectives without changing the formal governance structure.

Upsides: Clear roles, strong independence, excellent oversight, ideal fit where employee representation is essential.

Downsides: Can feel slow or rigid; supervision sometimes becomes too formal and not strategic enough; supervisory board members may lack the commercial depth to truly challenge management on strategy; difficult to understand for international investors.

One-tier (monistic) system

Structure: One board of directors with two types of members sitting around the same table

• Executive directors (with operational roles)

• Non-executive directors (responsible for oversight, strategy, governance)

Board composition & qualifications: Non-executive directors need deeper business understanding and more hands-on commercial experience. The profile is more entrepreneurial – these aren't just monitors, they're strategic sparring partners. Boards tend to be more internationally diverse from the start.

Worker representation: Typically not built into the board structure. In one-tier systems, employee interests are usually represented through other mechanisms (works councils, collective bargaining, stakeholder engagement) rather than direct board seats.

Conflicts of interest: This is the critical challenge. Without structural separation, the system relies heavily on: strong independent directors, clear majority of non-executives, and robust market oversight through regulators and investors. In one-tier systems, the market and stock exchange supervision play a more active role in ensuring proper checks and balances.

An important governance principle: the chairman of the board should not simultaneously serve as CEO to maintain proper oversight. However, in many US companies, this separation is not observed – something increasingly criticized as a governance weakness, even if counterbalanced by Senior NEDs.

Decision authority: The board has broader strategic authority and can move faster. Non-executives are involved in the same information flow and strategy creation, not just approval. This integration speeds decisions but requires real independence to avoid "group think."

Communication: More fluid and integrated. More regular (monthly) meetings. Strategy and execution discussions happen in real-time, around the same table. The board speaks with a more unified voice externally, which many investors value.

Legal recourse & liability: Director duties apply to all board members, with distinction between executive and non-executive roles. The framework is typically more flexible but requires strong corporate governance codes and active enforcement.

Advisory structures: Less common, as the board itself is meant to integrate diverse perspectives and expertise directly.

Upsides: More integrated, faster, and often more entrepreneurial. Strategy and execution sit closer together, which many investors and CEOs appreciate. Decisions can be made in days rather than quarters.

Downsides: Needs very strong independent voices to avoid conflicts of interest and to ensure oversight doesn't become "too cozy." Boundaries can blur - needs to make sure independence is still guaranteed. Relies more heavily on market supervision and active shareholders to maintain proper checks and balances.

Germany vs. Switzerland: two cousins, two models

Germany is Austria's closest cousin in governance terms: also overwhelmingly two-tier, with the same cultural and legal reasons - especially co-determination and employee representation.

Switzerland (as well as the UK and the US), in contrast, is strongly one-tier. The Board of Directors (Verwaltungsrat) is the central governing body, delegates operating work to the management team, but remains much closer to strategy and steering. Those boards tend to be more hands-on, more commercially involved, and often faster in their decision cycles, as the system is built for it.

Europe overall: a mixed landscape

Across Europe, governance is not one-size-fits-all. A few markets prescribe two-tier, others default to one-tier, and many allow companies to choose. SE companies have the freedom to opt for either system - which is why you see national traditions blending with international investor expectations.

There isn't a single universally accepted number for "how many one-tier companies exist in Europe," but the important story is this: the mix is growing, especially among internationally oriented companies that want a faster, more unified board structure.

The trend isn't toward convergence on a single "best" system. It's toward recognizing that different companies in different situations might rationally choose different structures. The goal is optionality.

The trend isn't toward convergence on a single "best" system. It's toward recognizing that different companies in different situations might rationally choose different structures.

Why the discussion matters now

The ongoing one-tier discussion isn't driving a wave of structural conversions. Austrian companies will not be abandoning the two-tier model en masse. They cannot simply vote to become monistic.

What's happening instead is more subtle - and more important.

The one-tier debate is forcing Austrian boards to ask hard questions about how they operate within the two-tier framework:

• How do we become more agile without changing our legal structure?

• How can we make our supervisory boards more strategic, not just supervisory?

• How do we close the gap between oversight and execution without merging them?

• What can we learn from one-tier governance - and adapt to our system?

• How do we attract better and truly international board talent to a two-tier structure?

Boards today face higher complexity, shorter cycles, and more demanding investors. The question isn't whether to abandon the two-tier model - it's how to modernize it to match international governance best practices.

What it means for executive and non-executive hiring

If you recruit board members, you already see the effect of governance structures on the roles you are filling. The personality profile and skillset required differ significantly:

In a two-tier world, non-executive directors need:

• Independence and appropriate distance from management

• Strong control, governance, and committee experience

• Comfort dealing with employee representatives and co-determination

• The ability to challenge management constructively but within formal boundaries, and without having all the operational details at their fingertips

• Patience with structured, periodic oversight processes

In a one-tier world, non-executive directors need:

• Deeper business understanding and commercial instincts

• Real involvement in strategy creation, not just approval

• Faster decision-making reflexes

• Independence combined with genuine commercial sparring skills

• Comfort with ambiguous role boundaries and closer integration with management

• More time to invest

The "board personality profile" is different - more entrepreneurial, more hands-on, and often more diverse in background and international experience.

So what should Austrian companies do?

The answer isn't "switch to one-tier." For most Austrian companies, that's neither realistic nor necessary.

The real opportunity is this: use the one-tier discussion and the discussion on how governance is evolving as a mirror to improve how two-tier governance actually works.

Practical steps forward:

• Make supervisory boards more strategic, not just supervisory - bring them closer to the business reality

• Strengthen international diversity in board composition to match business scope

• Create more fluid communication channels between boards without blurring accountability

• Provide supervisory board members with modern board information systems and secure dashboard access with key metrics updating in real time

• Establish more frequent meeting rhythms

• Modernize und use committee structures to enable faster, more informed decision-making

• Recruit supervisory board members with genuine commercial depth, not just strong governance credentials

• Learn from one-tier best practices and adapt them to the two-tier framework

• Learn from international board agendas and add transparency, business model transformation, sustainability, cybersecurity and AI governance to the traditional Austrian board agendas - spending a lot of time on compliance and financial oversight

• Onboard board members more extensively

• Invest in relationship quality between management board and supervisory board

For the rare SE or internationally structured company where one-tier genuinely fits better - fine. But that's the exception.

For everyone else: the two-tier model can absolutely deliver world-class governance. It just needs to evolve with the same speed we're asking our businesses to evolve.

The one-tier debate isn't really about structure. It's about performance and about how boards can actually add more value.

The one-tier debate isn't really about structure. It's about performance and about how boards can actually add more value. And that's a conversation every Austrian board should be having - right now.

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 ABOUT THE AUTHOR

• Marion Heil is the founder and managing director of Board+CEO Advisors. She is based in Vienna.