What is the continental governance model?

Experts often highlight this model’s two-tier board system as its defining feature. They also draw attention to the heavy role that banks play in investment. 

It is sometimes called the German model and exists alongside other examples like the Anglo-American and Japanese models. 

Let’s dive in.

It’s a model of corporate governance that defines the board’s relationship with executives, investors and other stakeholders. It is most prevalent in continental Europe and is sometimes called the German model – a nod to its origins.

Don’t forget though: not every European company will use this model.

Structures vary widely.

This guide is more about giving you the characteristics of the continental model so you can compare it with your own business.

Generally, continental companies divide governance powers between executive and supervisory boards. 

This might be surprising if you’re reading this in the English-speaking world. Boards, there tend to be single units, a mix of executive and non-executive directors, and debate over where the balance lies. 

The continental model cleanly separates the two. 

Generally, the shareholders appoint the supervisory board, which in turn appoints the executive board.

It’s expected, given that there are two boards. Directors in the English-speaking worlds often toss numbers from 8-13 as ideal for governance; in the continental model, there could easily be 20 directors.

Bank involvement is expected, given that there are two boards.

Boards in the English-speaking worlds often suggest numbers from 9-13 directors as ideal for a board; in the continental model, there could easily be 20 directors.

Continental companies often feature a large labour voice on one, if not both, of their boards. 

Labour and union interests might get less than five minutes’ attention in other governance systems, but the continental model has developed a culture of listening to this group of stakeholders and involving them in decisions. 

Ultimately, it’s a policy based on shared interests and co-determination.

• The two-tier system separates executive and non-executive directors. Many see this as a positive – an additional layer of security in which one branch of governance can check the other. 
• The co-determination feature of this model means companies are more likely to think long-term, as there as so many different stakeholders with a voice. Because of this, ideas in keeping with ESG principles – which have come to dominate the modern boardroom – receive a warmer reception.

• It starkly contrasts the Anglo-American model – very common worldwide but whose sole focus is shareholder return. Directors may find it had to transition between the two.
• There are extra layers of bureaucracy: a two-tier board system, combined with many shareholder and employee interests while trying to please banks – themselves guided by many government and popular priorities. It all spells “red tape” to businesspeople looking to achieve high growth fast.

The continental (sometimes called the German) governance model is typical in mainland Europe.

Its defining feature is a two-tier board system with input from multiple stakeholders and banks.