Online Reporter
Dr Newton Demba
OVER a couple of years, I have noticed a governance concern which is emerging, and it’s going unnoticed by many institutional investors, governance committees and even board chairs.
It’s the chief executive officer (CEO) who reports to both the board and the shareholders, but with dotted lines.
At first glance, this dual reporting structure may seem harmless — even efficient.
After all, shareholders are the owners of the business, and the CEO is the operational leader.
But when these dotted lines become blurred or, worse, informal, power lines can compromise the entire governance framework, threaten board authority and create an unmanageable conflict of accountability.
Role of the board: Not optional
Corporate governance is built on a simple principle: the board governs and management executes.
The CEO is appointed by the board and reports directly to it — not to shareholders, not to major funders and not to influential personalities with stake-holdings.
This is what anchors integrity, fairness and proper oversight in a business.
However, when a CEO begins to “report” even informally to shareholders outside the formal board structure, it introduces a host of risks.
These include power distortions, selective reporting and shadow governance, where major decisions are influenced outside the official oversight processes.
What are dotted reporting lines?
Dotted lines are often symbolic, representing secondary, advisory or informal relationships in an organisational structure.
But in practice, they can evolve into parallel chains of influence.
A CEO with dotted reporting lines to dominant shareholders can bypass board processes, curry favour with select power brokers and undercut the board’s ability to hold them to account. This often results in:
• Unfiltered access to strategy by shareholders who should be kept at arm’s length
• Political boardroom dynamics, where directors fear acting against a CEO backed by shareholders
• Ineffective board evaluations, as feedback loops are contaminated by external pressure
Key risks of a CEO serving two masters
1. Undermining board authority
When a CEO treats shareholders as an alternative power base, the board loses its edge. Directors may hesitate to challenge or discipline the CEO, fearing political fallout or shareholder backlash.
2. Shadow governance
Critical decisions, including hiring, strategy pivots or capital allocation, may be shaped in backrooms and not in boardrooms. This bypasses accountability, transparency and the deliberative rigour boards are meant to provide.
3. Erosion of independent judgment
When directors know the CEO has a direct line to powerful shareholders, independence becomes performative. Dissenting voices are silenced. Rubber-stamping becomes the norm.
4. Disempowered minority shareholders
Shareholder democracy collapses when only a few powerful investors are engaged in influencing leadership through informal channels. Smaller shareholders are effectively locked out of strategic influence, violating the principles of fairness and equity.
5. Compromised reporting and assurance
If the CEO selectively shares information with certain shareholders or prioritises their expectations, reporting to the board becomes fragmented, biased or distorted. This undermines internal controls and the integrity of disclosures.
How this problem arises
In many organisations, particularly family-owned businesses, founder-led companies or state-linked enterprises, the CEO may have historical, political or personal ties to major shareholders.
These relationships often persist without formal boundaries. In some cases, it’s the board that is weak, fragmented or politically appointed, leaving the CEO to operate with a high degree of autonomy and external influence.
And in some cases, shareholders themselves encourage this duality, demanding regular briefings, influencing decisions or directly engaging with the CEO without involving the board chair.
What strong governance requires
The solution is not to cut off CEO access to shareholders but to ensure the right protocols, boundaries and governance structures are in place. To protect the integrity of board governance, the board should:
• Clarify reporting lines in the CEO’s contract and board charter.
• Reinforce the board as the primary oversight body, with exclusive authority to appoint, review and, if necessary, dismiss the CEO.
• Educate shareholders on proper engagement channels
• Ensure all material communications between the CEO and shareholders are disclosed to the board.
• Strengthen the role of the board chair, as the only channel for formal communication between shareholders and the CEO.
• Conduct annual reviews of governance practice, focusing on power dynamics and communication protocols
Final Thought: One line of accountability
A CEO cannot and must not serve two masters. The line of accountability must be clear, direct and unbroken.
When dotted lines become blurred, the result is not strategic flexibility; it’s a governance breakdown. Boards must reassert their role. Shareholders must respect governance boundaries.
And CEOs must choose: govern through the proper channels or risk becoming the single point of failure in the entire corporate system.
*Dr Newton Demba is a corporate governance and management consultant, non-executive director and adjunct lecturer at the University of Zimbabwe in the Faculty of Business Management Sciences and Economics. He writes in his personal capacity. For feedback, please contact: [email protected] or +263784166296.
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