Sundaymail Editor
BoardroomTalk
Dr Proctor Nyemba
Corporate governance best practices promote the separation of the role of board chairperson and company chief executive officer (CEO) due to their distinct duties.
When deliberating whether to separate these positions, it is critical for board directors to thoroughly acknowledge the specialised duties of each designation.
Doing so optimises effective decision-making within the company.
This article explains the differences between a company chairperson and CEO, and how to balance decision-making between the two roles.
What is a company chairperson?
The company’s board of directors elects a chairperson to oversee and preside over board meetings.
Shareholders will nominate the initial board of directors, who will serve their best interests.
Subsequent board members may be nominated either by shareholders or directors.
This process will depend on the company’s constituent documents. Additionally, the company’s chairperson leads meetings of the board of directors.This position ensures that inter-company meetings run efficiently and in an orderly fashion. Some companies may have decided that if there is a deadlock (i.e. the board cannot reach a decision on a particular matter), the chairperson will have the deciding vote.
Boards tend to meet at agreed times during the year for a range of matters, including:
* Commercial planning;
* Financial reporting;
* Voting on key corporate governance decisions; and
* Broad monitoring of the company’s performance.
This collectively promotes stability and profitability in a company.
What is a CEO?
A CEO is the highest-ranking executive in a company and is the leading decision-maker for the company. The role of CEOs is to oversee day-to-day commercial operations and logistics of a company.
Primary responsibilities include developing strategies, managing operations and communicating with the board.
Depending on the company’s size, the CEO may delegate many responsibilities to other senior and mid-level managers. Likewise, the CEO reports directly to the board of directors.
They are the body ultimately responsible for matters that include the company’s commercial strategy and corporate social responsibility.
Differences between CEO and chairperson
Key differences in duties and responsibilities between the CEO and the company chairperson emerge from their positions in the company’s decision-making hierarchy.
The CEO performs a senior executive function over management, while the company chairperson is the head of the board of directors. Board directors are responsible for recruiting the CEO and reviewing his or her performance.
The appointed board chairperson establishes the board’s agenda and facilitates board meetings, and, therefore, often retains a close working relationship with the CEO.
The company chairperson distinctly does not perform an active role in the management of a company’s daily operations.
Balancing decision-making
Companies have the discretion to adjust the balance of responsibility and authority between the CEO and the board chairperson.
The balance of power between the CEO and company chairperson can resultantly vary among diverse companies.
While the board chairperson has more authority within a company than the CEO, the two typically confer on a majority of matters and co-lead the corporate entity.
Likewise, certain companies prefer a governance style that enables the CEO to have broader flexibility when leading operations.
The CEO may select the company’s senior executives and the company’s by-laws may secure certain retiring executives a board seat.
As a result, the CEO may effectively influence board composition.
The question arises as to whether the chairperson and the CEO of a company can be the same person and have a combined role.
Merging the chairperson and CEO roles is arguably beneficial to create clear lines of command throughout the entire company.
However, in an age of increased emphasis on good governance principles, the view is that a combined role of the CEO and chairperson may place disproportionate authority in the hands of one person.
Separation of CEO and chairperson
The board’s key responsibilities include strategic planning, oversight and corporate governance compliance. It is now more common for boards to elect independent board directors.
This is because the main benefit of separating the CEO and chairperson is the distinct separation of the board and management roles. It also allows the CEO and chairperson to devote reasonable resources to perform their duties optimally.
The chairperson acts as the central liaison between the board and management, hence an independent board chairperson supports the necessary balance with the CEO position.
Since the board of directors is tasked with evaluating the CEO and senior executives, and setting salaries, separating the CEO and the chairperson eliminates potential conflicts of interest.
Separation promotes the credibility and authority of the chairperson to represent the board’s best interests.
Accountability and transparency between the CEO and individual company directors may be subsequently advanced.
An independent chairperson further encourages diversity of opinion to refine decision-making and constructively challenge the CEO in the company’s best interests.
Key takeaways
It is critical to run your company responsibly by considering good governance and sustainable prosperity, which helps create longer-term value for shareholders and board members.
Separating the company chairperson and CEO positions strengthens the overall integrity of the company, as it bolsters broader transparency and accountability throughout decision-making, while minimising potential conflicts of interest.
Combining these roles may ultimately compromise the quality of board discussion, weakening the overall abilities of management.
Frequently asked questions
What is a chairperson?
The company’s chairperson leads meetings of the board of directors. This position ensures that inter-company meetings run efficiently and in an orderly fashion.
What is a CEO?
A CEO is the highest-ranking executive in a company and is the leading decision-maker for the organisation. Their role is to oversee day-to-day commercial operations and logistics.
Can the company chairperson and CEO be the same person?
Merging the chairperson and CEO roles is arguably beneficial to create clear lines of command throughout the entire company.
However, to promote good governance principles, the view is that a combined role of the CEO and chairperson may place disproportionate authority in the hands of one person.
Dr Proctor Nyemba is a certified professional director specialising in governance and strategy, governance and risk, governance and people, governance and board effectiveness, governance and resources, governance culture and behaviour. For comments and feedback, send to [email protected] Call 0772469893, 0719469893
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