Roles of the Chairman and CEO

ACCA P3考试：Roles of the Chairman and CEO

1. Roles of the Chairman and CEO

Organisations should separate the roles of chairman and CEO to avoid unlimited power falling into the hands of a single individual.

The chairman leads the board by:

helping the board achieve its potential; 

setting the board's agenda; and

ensuring the board's effectiveness.

In order to effectively lead the board, the chairman must ensure that:

the board meets regularly;

all directors have access to relevant information; and

all directors have the opportunity to speak at board meetings.

The CEO runs the company's daily operations by:

setting objectives and developing the strategy; 

examining major investments;

executing risk management responsibility; and

recommending future directors' employment.

2. Separating the roles of chairman and CEO:

"frees up" the CEO to fully concentrate on operations management by insulating the position from shareholders. The chairman represents shareholders. Some governance codes also require the chairman to represent the interests of other stakeholders (e.g. employees).

removes the risk of "unfettered powers" being concentrated in a single individual. This is an important safeguard for investors concerned about excessive secrecy or lack of transparency and accountability. In the case of media mogul Robert Maxwell, a dominating executive chairman was unchallenged and was able to act illegally.

reduces the risk of the conflict of interest that arises when a single person who is responsible for company performance also reports on that performance to markets. allows the chairman to address concerns of NEDs who, in turn, provide an important representation of external concerns on boards of directors.

3. Separation of chairman and CEO roles can, in practice, be difficult to achieve because:

business practices in various parts of the world are different; 

it does not necessarily lead to better corporate governance or financial performance;

high-calibre managers may not agree to have the role split;

some companies just do not see the necessity to have the role split; and

excellent managers/leaders are not easily found and invariably come at a high price.