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The Chief Executive Officer (CEO) and company chair have historically served both positions at the same time. Evolution in corporate governance best practice now promotes separating the role of board chair and company 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 position. Doing so optimises effective decision-making within the company. This article explains the differences between the company chair and CEO, and how to balance decision-making between the two roles.
What is a 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 to act on behalf of 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. Their role is to oversee day-to-day commercial operations and logistics. Although typically one of the company’s founders and a director, CEOs do not necessarily hold either of these positions.
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.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
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Role Differences Between the CEO and Chairperson
Key differences in the duties and responsibilities between the CEO and company chair emerge from their positions in the company’s decision-making hierarchy.
The CEO performs a senior executive function over management, while the company chair is the head of the board of directors. Board directors are responsible for recruiting and reviewing the CEO’s 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 chair 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 chair can resultantly vary amid 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 bylaws 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 chair and CEO roles are 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 Between the 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 chair is the distinct separation between the board and management roles. It also allows the CEO and chair to devote reasonable resources to perform their duties optimally. The chair acts as the central liaison between the board and management, hence, an independent board chair 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 chair to represent the board’s best interests. Accountability and transparency between the CEO and individual company directors may be subsequently advanced. An independent chair 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 chair 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 board discussion quality, weakening the overall abilities of management.
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Frequently Asked Questions
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.
A CEO is the highest-ranking executive in a company and is the leading decision-maker for the company. Their role is to oversee day-to-day commercial operations and logistics.
Merging the chair and CEO roles are 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.
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