The relationship between the chairman and CEO in corporate governance is a hotly debated topic among public companies, board chairs, and shareholders. SEC rules mandate disclosing the board leadership structure, adding significance to separating these high-profile roles.
Lately, there’s a growing trend toward separating the chair and CEO roles for independent leadership on the board, as advocated by academic papers, best practice codes, and guidelines. However, some corporate leaders and associations resist a one-size-fits-all approach, preferring combined roles.
Advocates of separation argue it enhances board independence and oversight. On the other hand, unity of command theory proponents believe combining the roles leads to more effective management and more apparent authority.
What is a Chairman?
In the corporate world, chairman vs. CEO roles hold significant importance. An executive chairman heads the board of directors, while a chief executive officer oversees day-to-day operations. The chairman’s position is technically higher, managing the CEO and providing strategic direction to the board.
When big companies face financial crises, the debate often turns to whether the chair and CEO roles should be separate or combined. It’s a hot topic, with shareholders, investors, advisors, and regulators chiming in. Some favor separation, others prefer unity, leading to a tug-of-war situation.
Agency theory says separation brings board independence and minimizes conflict. Stewardship theory supports one person in charge for smoother management.
The board chair’s behavior influences committee functions, like a conductor leading an orchestra. No specific board structure guarantees financial success.
Roles and Responsibilities
The chairman holds significant power at an organization, as the person in that role appoints, evaluates, and could even fire the CEO. Additionally, chairs have formal responsibilities like leading board meetings, representing the board in dealings with stakeholders, and bridging communication among the board, CEO, and top management. They also ensure legal duties and corporate governance compliance.
Pay and Notoriety
In the U.S., the chairman of the board of directors earns an average of $138,683 annually, ranging from $48,000 to $393,000. Location, education, and experience all play a role, with the top-paying states being New York, New Jersey, Massachusetts, Hawaii, and Connecticut.
What is a CEO?
The CEO holds the highest executive rank and is accountable for overseeing the company’s overall operations. The CEO typically delegates various responsibilities to mid-level and lower-level managers within an organization. Here’s how the CEO differs from other senior leaders.
CEO vs. President: The CEO, if appointed, is the top executive, while the president would hold the second-highest executive position. The CEO may serve as the company’s president, making them an inside director on the board, perhaps even the chair.
CEO vs. Owner: An owner is a financial stakeholder of a business or company, usually with an equity position in the organization. They may be entitled to the profits of a business based on their weight ownership since a business may have multiple owners.
CEO vs. COO: A chief operating officer (COO) supervises a company’s operations and is more involved in the day-to-day activities than the CEO. The COO oversees human resources, business production, marketing, and sales.
Corporate governance best practices typically encourage separating the board chair and CEO roles to ensure distinct duties.
Roles and Responsibilities
The CEO holds the highest operational position, making strategic decisions and overseeing executives. In larger companies, they focus on strategy, organization, and capital allocation, while in smaller organizations, CEOs are more hands-on with day-to-day functions.
Research reveals CEOs spend 72% of their time in meetings, with the rest on relationships, business unit and functional reviews, strategy, and organizational aspects.
Additionally, CEOs influence the organization’s vision and culture. Some successful CEOs become dual board chairs, impacting board independence.
Pay and Notoriety
CEOs of the 350 largest U.S. companies earn an average of $24 million annually, or 351 times more than the average worker’s salary. CEO pay has surged over 1,300% since the 1970s, while worker compensation grew 18%.
Unlock Board Excellence With OnBoard
The discussion surrounding CEO and chairman roles in corporate governance remains ongoing. Separating these roles with independent leadership and improved board independence is a growing trend.
To better carry out their duties, boards rely on board meeting software to streamline board operations. Board management software serves as a central hub for board-related communications and gives board directors a secure source of truth for everything they need to be effective in their roles.
Some of the top-line benefits of using OnBoard for your meetings include:
- Streamlined agenda management and distribution
- Secure and centralized document storage
- Real-time collaboration and note-taking capabilities
- Task management and follow-up capabilities
- Support for regulatory compliance
To get started with OnBoard, download our Board Meeting Agenda Template.
About The Author
- Josh Palmer serves as OnBoard's Head of Content. An experienced content creator, his previous roles have spanned numerous industries including B2C and B2B home improvement, healthcare, and software-as-a-service (SaaS). An Indianapolis native and graduate of Indiana University, Palmer currently resides in Fishers, Ind.
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