Major Problems Associated With Optional Two-Tier Corporate Board Structure Under The Ethiopian Share Company Law: Towards Mandatory Two-Tier Corporate Board Structure

Abstract

The Corporate Board structure is an indispensable constituent of the corporate governance of entities, and the appropriateness of the various models is one of the most contested issues in the corporate governance arena today. The corporate board structure is an integral part of corporate governance. It also significantly influences corporate growth and is governed and regulated by the legal and regulatory framework in order to protect shareholders' rights and curb malpractices. Three types of Board Structure, one-tier board, two-tier board and optional model, are widely adopted in various jurisdictions to enhance a firm’s corporate governance in the contemporary world. It has been argued that strong corporate governance should function as a mechanism designed to achieve this objective. However, having strong corporate governance depends on a couple of institutional factors and among these corporate board structures, due to the nature of having effective and efficient corporate governance, a mandatory two-tier board structure has been usually the preferred model for ensuring good corporate governance.. One of them is the firm’s board structure. Ethiopia has been using optional two-tier board structure for its corporate governance. The studies conducted proved-out that corporate governance practice in Ethiopian share company law considered as inadequate. Other study even stated that existing corporate board structure is one of the reasons for weak corporate governance and prevailing agency problems in the Ethiopian Share Company Laws. the This study explores the importance of a mandatory two-tier corporate board structure for effective and efficient corporate governance in the Ethiopian corporate governed system. It finally recommends the adoption of a mandatory two-tier corporate board structure as a suitable and appropriate board structure