One of the key features of the amended Law of Ukraine “On Joint Stock Companies” (“Law”), which came into force on 1 January 2023, is the possibility of choosing a corporate governance structure. Joint stock companies (“JSCs”) may select a one-tier or two-tier governance structure.
Until 1 January 2023, JSCs could operate only with a two-tier governance structure consisting of a general shareholders’ meeting, a supervisory board, and an executive body.
In contrast, the Law allows shareholders to choose (with some exceptions) a more straightforward one-tier corporate governance structure, whereby the governing bodies of a JSC include a general shareholders’ meeting and a board of directors. In turn, a board of directors performs both control and management functions, as it consists of:
- executive directors managing the JSC’s operational activity; and
- non-executive directors managing risks and controlling the JSC’s activity, including the activity of executive directors.
By comparison, legislation of different European countries provides for various approaches to the corporate governance structure of joint stock companies: some jurisdictions provide for a mandatory two-tier system (Austria, Poland, Germany), while others provide for the opportunity to choose between a one-tier and two-tier structure (Denmark, Finland, France, Luxembourg, Romania, the Netherlands, Italy, Croatia, the Czech Republic). Listed companies in most European countries have a two-tier governance structure. In particular, in the Czech Republic, the Netherlands, Norway, Finland, and Hungary, more than 75% of listed companies have such a structure.
Although a one-tier governance structure is called Anglo-Saxon, it is widely spread in many European countries, such as Belgium, Greece, Ireland, Spain, Malta, and Sweden. This governance structure is typical among small or medium-sized companies. However, in some countries, listed companies tend to choose a one-tier governance structure: Belgium (approximately 95% of listed companies), Cyprus (about 80%), and France (about 70%).
A one-tier governance structure allows the board of directors to be more aware of the company’s operational activity. Executive directors communicate with non-executive directors and, as a result, may promptly adopt all necessary decisions. Therefore, such a structure is more flexible. At the same time, non-executive directors bear a higher risk of liability than members of the supervisory board due to their more active role in the company’s management. As a result, in some countries (e.g., the Netherlands), companies tend to choose a two-tier governance structure.
The possibility of choosing the corporate governance structure set out in the Law allows the shareholders to apply a mechanism that would reflect their enquiries, vision of the company’s governance system or ordinary way of conducting their business. In addition, a particular governance structure may be more familiar to potential foreign investors, increasing the Ukrainian market’s investment attractiveness.