Czech Republic: From 1 January 2014, joint-stock companies may elect to use the one-tier governance model
As of 1 January 2014, Czech joint-stock companies may choose which model of corporate governance they wish to follow: either the so-called two-tier system or the one-tier system. The two-tier system (which was the only available option before 31 December 2013) entails that the company, aside from having a general meeting, install a board of directors (as its executive body) and a supervisory board (as its “body of control”). Under the one-tier system, executive and control/supervisory duties are distributed between what is known as the “administrative board” and a “statutory director” (or CEO). The general meeting also remains the supreme body of the company within the one-tier system.
In other words, the main difference in terms of corporate governance is the way in which the powers and responsibilities are distributed among the executive body and the supervisory body. Within the two-tier system, the board of directors is clearly and unambiguously the executive body, while the supervisory board is clearly confined to its eponymous role. Within the one-tier system, the administrative board – aside from its supervisory powers – has many opportunities to influence the way in which the company is managed. For instance, it appoints the CEO and determines the company’s basic business policy. The competencies of the general meeting remain the same, irrespective of whether the given joint-stock company has opted for the one-tier or two-tier system of corporate governance.
The choice of one system of corporate governance or the other may be made at the time when the company is being founded or during its existence as a going concern.
The huge advantage of the one-tier system lies in the option to fill the position of CEO and of (sole) member of the administrative board with one and the same individual. On the other hand, the fragmentary legal framework is a definite drawback, as it gives rise to interpretational ambiguities.