Final answer:
The European two-tier board system consists of a supervisory board with an independent chairperson and an executive board featuring the CEO and other internal members. The structure is designed to ensure company management aligns with shareholder interests through separation and balance of power between the supervisory and executive layers.
Step-by-step explanation:
The European two-tier board system typically comprises two separate bodies: the supervisory board and the executive board. The supervisory board is responsible for monitoring the executive board and includes an independent chairperson to help assure impartial oversight. It is comprised of non-executive members, often including shareholders and employees. Whereas the executive board is responsible for the day-to-day management of the company. This board consists of the company's chief executive officer (CEO) and other top executives, who are typically internal members of the company, like the Chief Financial Officer (CFO) or the Chief Operating Officer (COO).
Sharing similarities with the checks and balances seen in governmental systems, the supervisory board represents a form of oversight akin to a governmental judicial branch, which is meant to be independent and capable of holding the executive branch to account. Similarly, the executive board represents the functional daily government, executing policies and running the organization on a day-to-day basis. This separation of power intends to ensure that the company is managed in the interest of the shareholders, aligning with the principle that the board of directors serves to balance the interests of the firm's true owners — the shareholders — with the actions of the firm's executives.