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29/09/2006

Role of Chairman / CEO

There is often confusion around the roles and responsibilities of company leaders. In particular, one very critical relationship can suffer from the lack of clarity regarding duties and responsibilities and create friction and impaired productivity - or worse - at the highest levels: Chairman and CEO.

 

Overall, the CEO leads internally, with the Chairman adding value in strategy and structure and ensuring that the company is represented with integrity and influence to institutions, analysts and other stakeholders.  The Chairman is there to support the CEO, and both need regular and structured access to the Executive and management team.  Clearly, the Chairman must also be prepared to step in if deemed appropriate.

 

It is absolutely critical that this Chairman / CEO interface is working and is seen to work  (this is why there is a danger in the chairman and CEO being one and the same). Otherwise this dysfunctionality will affect the Board performance and the wider relationships between the Executive and Non-Executive Directors.  Some of the more common reasons for the relationship going wrong can include:

 

  • An imbalance in power

     

  • Critical issue of external representation

     

  • Critical issue of internal access

     

  • Lack of mature judgement and flexibility

     

  • Lack of ability to conflict and confront

     


A meeting of minds

 

Ideally, the CEO/Chairman relationship is complementary and dynamic, and both parties have clarity on their involvement, accountability and remit.

 

Where there is a well developed relationship of mutual respect, there will be regular contact between the Chairman and Chief Executive that allows for much greater reciprocal understanding and clarity of communication. The role of the Chief Executive is often isolated and a strong relationship with the Chairman also provides a “sounding board” to test and debate new thinking and to air concerns and worries that cannot be shared with others in the Executive team.

 

For this to work effectively there must be a high degree of trust and confidence that the Chairman is not seeking to be a surrogate Chief Executive. Other attributes of a good Chairman include:

 

  • Mature, internal compass of values, integrity and judgements

     

  • Long-term strategic perspective

     

  • Unconditional positive regard for others

     

  • Creative, curious and challenging

     

  • Ability to master the brief

     

  • Ability to weather crises

     

  • Leader for different seasons

     


Mastering the role

 

CEO, Chairman and Non-Executive Director roles each have a commonly-accepted set of duties and responsibilities. Whilst there will be differences as a result of size, listing status and investor mix, these are the normal guidelines in the UK.

 

Role of CEO

 

  • Runs the company’s business

     

  • Responsible for operations and financial performance

     

  • Provides clear leadership

     

  • Executive Directors report to CEO

     

  • Prepares strategy, plans, objectives etc. and implements

     

  • Submits acquisition / investment proposals and implements

     

  • Develops organisation structures, succession planning

     

  • Together with Chairman, communicates to investors etc.

     

  • Submits proposals on Non-Executive fees to the Board

     

 

 

Role of Chairman

 

  • Runs the Board - organises, with Company Secretary, the Board committees etc.

     

  • Maintains consistent strategic input and scrutiny

     

  • Enhances the standing of the company with the outside world. Communicates with investors the strategic content and architecture of accountability.

     

  • Recommends to the Board the appointment / dismissal of the Chief Executive and Non-Executives

     

  • Reviews the performance of Non-Executives and keeps them informed

     

  • Assists and guides the CEO (acts as mentor / coach)

     

  • Reviews the performance of the Directors

     

  • Ensures the Board annually reviews its performance and is balanced
     

     


Role of Non-Executive Director

 

Independent (or Non-Executive) Directors are primarily valued for their objective judgement of corporate affairs.  They need knowledge of the technical and legal aspects of directorship and may have a specific skill that can be exercised from time to time. But for the most part, their contribution will be rated by their overall knowledge and wisdom.

 

Judgement cannot be learned from reading a book or attending a course - neither can wisdom.  The best course for anyone wishing to become an independent Director is to build on their own business experience and develop judgement by exposing and testing this knowledge and experience in many different situations and learning from a wide cross-section of individuals.

 

An independent Director legally bears the same responsibilities as the Executive Directors, but achieves effectiveness by influencing decisions rather than controlling operations.

 

The field of independent directorship is in no way risk free; it should not be entered lightly.  It carries significant exposures, of financial liability, possible disqualification, and consequential damage to future careers.

 

 

 

Ian Jenkins, Mercuri Urval UK

 

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