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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Conceptual Framework of Corporate Governance

A listed Indian company's board is considering how to structure leadership. Its directors note that in the Anglo-American unitary board model, executive and non-executive directors sit together on one board, whereas in the continental European two-tier model there is a separate supervisory board. Which statement correctly describes the two-tier model?

In the two-tier model, a supervisory board oversees the company and appoints a separate management board that runs daily operations. This differs from the unitary board model, used in India, where executive and non-executive directors sit on a single board that both manages and supervises.

  1. AA single board manages and supervises, with independent directors in the majority
  2. BA supervisory board oversees and appoints a separate management board that runs day-to-day affairsCorrect
  3. CShareholders directly manage the company without any board
  4. DThe management board supervises the supervisory board, which handles operations

Explanation

In the two-tier model, a supervisory board monitors and typically appoints the management board, which handles day-to-day operations. Option A describes the unitary model. Option D reverses the relationship between the two boards. Indian companies follow the unitary model under the Companies Act, 2013.

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