Czech Republic: As of 1 January 2014, joint-stock companies may elect to use the one-tier governance model
The new private law has arrived, and with it a new option for joint-stock companies to opt for the one-tier system of corporate governance under which a corporate executive officer and an administrative board are being installed instead of the board of directors and the supervisory board known from the two-tier system. The general meeting retains its role as the supreme body of the company.
Until 31 December 2013, it was obligatory for all joint-stock companies to install a board of directors and a supervisory board (under the so-called two-tier system). Only European Public Companies (SE) had the choice to follow the one-tier system instead.
While the competencies of the general meeting remain the same, irrespective of whether the given joint-stock company has opted for a one-tier or two-tier system of corporate governance, the distribution of powers and responsibilities between the executive body and the supervisory body is quite different from system to system.
The corporate executive officer (or, in Czech parlance, „statutory director“) represents the company vis-a-vis third parties, and is in charge of managing the company’s business affairs. In so doing, he or she must respect the boundaries drawn by the company’s basic business policy, which is preordained by the administrative board.
The administrative board not only determines the basic business policy guiding the management of the company’s operations, but also appoints the CEO and monitors his or her activities; any additional matters other than those with which the law entrusts the general meeting also fall within the purview of the administrative board, which in this sense enjoys much broader powers than the supervisory board under the two-tier system.
In practice, the one-tier system may become the preferred choice of those joint-stock companies for which it is difficult to fill all mandatory corporate posts with suitable candidates – according to prevailing opinion, one and the same individual may lawfully hold the position of CEO and of the chairman (and sole member) of the administrative board.
But the choice in favor of the one-tier system also has drawbacks: the legal framework is rather fragmentary, and ripe for interpretational ambiguities. Because of this, it makes sense to devote extra care to proper drafting of the articles of association, especially as regards the distribution of powers and responsibilities between the CEO and the board of directors.
Tomáš Volejník, Senior Legal Asistent