Chairman of the Board vs CEO: what’s the difference?
The chairman of the board and CEO (Chief Executive Officer) are two of the most influential roles in an organization. The CEO is the company figurehead, while the chairperson oversees the board of directors. In some companies the CEO also serves as the chair; however, many boards are increasingly separating the two roles to avoid the unsustainable conflict of interest it can bring about.
Greater separation between the two roles brings about a chairman of the board vs CEO debate, regarding each leader’s responsibilities. For boards to govern effectively members should fully understand the duties of the CEO and chair, and how they differ; you can find out more below.
What is a chairman?
The chairman of the board is the head of the board of directors and oversees board meetings. The chairman will have a close working relationship with the CEO and, along with the rest of the board, work to ensure company-wide objectives are met and shareholder needs are satisfied.
As chairman, this individual wields significant control within an organization; for this reason, the chairperson in public companies is elected by shareholders at the AGM (Annual General Meeting), while a chairman may be elected by the board itself in smaller organizations.
What does a chairman of the board do?
The board of directors’ responsibilities vary by position. Due to the nature of the chairman’s role, this individual has a lot of prominent responsibilities, including the following:
Overseeing general corporate governance.
Leading board of director meetings and ensuring discussions follow the set agenda and reach a consensus.
Preparing annual reports for stakeholders and the general public if representing a publicly listed company.
Making sure the company is compliant with regulatory requirements.
Overseeing company finances and setting financial strategies.
What is a CEO?
The CEO is the organization’s chief and is tasked with leading the company. The CEO works with senior executives and the COO (Chief Operating Officer) to ensure operations run smoothly. Depending on the organization’s size, the CEO may be less involved in day-to-day happenings and instead focus more on executing the strategies set by the board of directors.
What does a CEO do?
The CEO's responsibilities vary depending on the company. In smaller businesses or nonprofits, CEOs can be extremely hands-on with daily activities; however, in larger organizations, the CEO will have a high-level focus on the following:
Developing business strategies that support company objectives such as growth goals.
Reporting to the board of directors and proposing new strategies.
Hiring senior executives.
Evaluating the current company performance.
Acting as the company representative both internally and externally.
Overseeing daily operations and creating the operational structure.
Is chairman higher than CEO?
As the company leader, there is often some confusion about what’s above CEO in terms of the reporting structure. The board of directors, including the chairperson, sits above the CEO, meaning the CEO reports to the chairperson.
The CEO reports to the board but also acts as an intermediary between the board of directors and the rest of the company. It is the CEO’s responsibility to convey board decisions to senior leaders and ensure that board-approved strategies are implemented in the company.
Can the Chairman of the Board and CEO be the same?
In some companies, the board chairman and CEO are the same individual. A notable example is Elon Musk, who was Tesla CEO and chairman for 14 years until his resignation in 2018 (source). While there are benefits to holding both positions, in larger companies it can lead to a conflict of interest; for example, in most organizations, the board of directors sets the CEO’s pay. If the CEO is also chairman, it could potentially lead to salary decisions based on bias.
Moreover, the board chairman and CEO have different responsibilities. By having a CEO focused more on the company’s day-to-day operations, and a chairman dedicated to the board and its members, companies may be more likely to thrive than if one person is spread too thin and working in both roles. Therefore, in most companies today, the CEO will serve as a board member but not as the chair.
Overall, there are more arguments for separating the chairman and CEO, than against doing so. It reduces the risk of bias and an imbalance of power. More importantly, it ensures that there is a chairman who will challenge the CEO’s decisions when necessary, and vice versa.
Chairman vs CEO: an overview
The chair and the CEO both hold positions of power within a company, but their responsibilities differ.
The chairman is the head of the board of directors, while the CEO is the head of the company.
The CEO focuses on daily operations and driving the business forward while the chairman focuses on overall business strategy and governance and ensuring that business objectives are met.
While most CEOs have a seat on the board, it can create a conflict of interest if the CEO serves as the chairman. Therefore, these two roles are often held by different individuals.
Govern with excellence with BoardWorks
Understanding the difference between the chairman vs CEO roles is integral to board success. Ensuring both leaders are equipped with the necessary tools to succeed, is even more important.
Computershare’s BoardWorks is board management software designed to help board members stay connected to the boardroom, wherever they are. With BoardWorks, chairs can govern more effectively with 24/7 access to all board-related documents, and the ability to virtually sign off policies all within the encrypted app. To discover how BoardWorks can help your chairman flourish in their role, contact our team today.