Introduction
The two board system of directors theoretically presents a way for greater accountability and oversight in corporate governance. The system was developed in Germany with the idea being to have a supervisory board over the management board, the members of the former elected by shareholders. In functional terms, however, the supervisory board can be involved in long-term decisions that impact the corporation—so it is not entirely accurate to define this board as being focused on accountability and oversight (Proctor, 2002). This paper will discuss the structure and role of the two board system of directors, how the board has evolved and what the greatest challenges are facing it.

The Two Board System

The structure of the Board of Directors of the two-board system as used in Germany came about as result of that nation’s preference for a more inclusive form of governance that combined oversight with representation (Owen, 2003). The two-tiered board structure is comprised of one group of insiders who sit on the management board and another group of representatives of employees and shareholders making up the supervisory board. Thus, the two-tiered board system consists of one management board and one supervisory board that work together to oversee the company. The management board is filled with insiders, i.e., directors. The supervisory board is filled with shareholders and workers. The supervisory board oversees the management board. German banks play a major role in the boards of corporations in Germany, as Ewmi (2005) points out, since they are considered shareholders who have long-term stakes in these companies. For that reason, it is not uncommon to find German bank representatives sitting on the supervisory boards.

Another key aspect of the German board system is that voting rights are much more curtailed than in the US. Ewmi (2005) notes that “voting right restrictions are legal; these limit a shareholder to voting a certain percentage of the corporation’s total share capital, regardless of share ownership position” (p. 10). This is an important point because it indicates that there cannot be a monopoly of voting rights, held by a handful of people. Voting rights are meant to be more evenly distributed in the German two-tier system to prevent the kind of concentrated power one often sees in companies like Tesla, where the Board is essentially managed entirely by one man and his family (Cornell & Damodaran, 2014). However, as Siebert (2004) notes, the banks tend to have a dominating position in terms of voting rights and control over boards in Germany’s system. The reason the German system has not succeeded in avoiding monopolistic control over boards has to do with block holdings of shares: “block holding seems to dominate in Germany due to the fact that share owner representatives are more powerful in bargaining with employee representatives on the supervisory board than if they had dispersed votes” (Siebert, 2004, p. 43). The end result is that, although the two-tier system in Germany ostensibly was meant to democratize corporate boards, corporate control is still essentially in the hands of a small group of bankers.

The two tier structure is different than in the US where the separation of ownership of the corporation and control or management of the corporation is integral to the American idea of corporate governance (Zhao, 2010). This approach, however, has ushered in essentially a professional class of corporate board officers, whose career is characterized by sitting on various boards of corporations. It is the main reason one can look at publicly held companies from various sectors and find familiar names and faces throughout the respective boards. Overlapping boards of directorates prevail. The overlap facilitates the propagation of corporate governance throughout the wider corporate world (Bouwman, 2011). The situation in the US is aggravated, one could argue, by the concentration of wealth in the hands of a few large funds, such as Vanguard or BlackRock, which now controls over $7 trillion in assets and has significant holdings in major major corporations in the US and in Europe (Ahmed,...…set into motion can continue on. It has very little to do with corporate governance and everything to do with a macrocosmic way of life. That board members sit on the boards of all the same companies (i.e., that there is now a professional class of individuals whose career is defined by sitting on boards) shows the extent to which individual companies no longer exist: they are all one members of one big socio-economic system and must do as they are told by firms like BlackRock, who essentially can destroy any company that refuses to go along with the socio-economic scheme by dumping their entire position in a matter of minutes.

Thus, on the face of it, corporate governance is little more than lip service paid to the idea of democratization, oversight and regulation. The situation is not really any different in Germany than in the US. In Germany, the two-tier structure gives the impression of accountability, but when the bankers are the ones sitting in the supervisory role one can imagine that it is little different from the foxes watching the hen house. In the US, there is less actual lip service paid to the idea of oversight. Tesla’s CEO gets away with open stock market manipulation and the company’s stock is sent into the stratosphere for new fundamentally good reason at all—and regulators and analysts do nothing more than tacitly approve of all this by their complicit silence.

Conclusion

The board structure within the two-board system originating in Germany was developed to help ensure oversight of management by having shareholders install representatives who would sit on a supervisory board overseeing the management board. The supervisory board, however, tends to be dominated by banks, who are considered shareholders and block shares give the monopolistic control. In the US, similar control is wielded although the board structure is slightly different, with the two board system prevailing in the sense of an independent audit team existing.