The Role of a Board Chairman and a CEO - Coursework Example

THE ROLE OF A BOARD CHAIRMAN AND A CEO by Student’s name Code+ course name Professor’s name University name City, State Date The role of a board chairman and a CEO Introduction Corporate governance is a regulatory mechanism that outlines the roles and relationship between an organization’s management. A company’s board encompasses the board of director’s shareholders, management and other key stakeholders involved. Over the years, corporate governance transformation is evident through the forms of business leadership. Corporate governance seeks to mitigate any agency risk emanating from the respective corporations officers. In the contemporary forms of business, corporate governance seeks to provide policies that will negate conflicts among the corporation’s stakeholders (Tricker 2012). Currently, there exists a wide disparity in the practices observed by corporations all over the world. For instance, in the United Kingdom, the chief executive officer is different from the board of directors. On the other hand, in the United States of America, the chief executive officer also happens to be the chairman of the board of directors. In some countries, this is acceptable while, in others, this practice contravenes the policies governing corporations. According to some law makers, combining the duties of a chief executive officer and those of a chairman of the board of directors is detrimental (Kelly 2008). This is because; at some point, there arises perceived conflict of interest which fundamentally undermines performance of the individual. It is necessary to define the roles and duties of a person in either capacity. Once this is achievable, it will be visible as to whether combining the two positions is a good idea. The intention of this discussion is to demonstrate the roles of a chairman of the board of directors and those of the chief executive officer. In some countries for instance, the United Kingdom, the chief executive officer has separate duties with the board of director’s chair. For instance, Andy Washington the managing director of Expedia clearly depicts the need for a serration of authority. The duties and responsibilities conferred to the chief executive officer include the following; A chief executive officer is usually the highest ranking officer in a corporation setting. The chief executive officer is usually in charge of total management of an organization. In the contemporary business framework, the chief executive officer of an organization reports to the board of directors (Rutter 1999). The chief executive officer is commonly known as the managing director or the chief executive. The board of directors has the responsibility to appoint the chief executive officer depending on a corporation’s legal framework. The chief executive officer in any organization has the authority to coordinate, make decisions, lead as well as executes various duties. In addition, the chief executive officer acts as the organizations communicator. This implies that the chief executive officer has the authority to disseminate relevant information to the concern quarters. Unless appropriate delegation is in place, the chief executive officer has the responsibility to involve the press or the entire outside world together with other organizational stakeholders. The decision making capacity enshrines policy and strategy formulation to spearhead the organization’s well being. As a leader or a front runner, the chief executive officer has the authority to inform the board directors, foster organizational change as well as stimulate the employees. The managing director has the authority to preside over the recurring operations as well as formulating the strategic plans covering a longer time frame. In essence, the managing director has the authority to oversee the day to day operations of the organization. The chief executive officer more often than not reports to the board of directors which is also the appointing authority (Maassen 1999). In several European countries including the United Kingdom, the chief executive officer leads the executive board. On the other hand, there exists a supervisory board or the board of directors led by a chairman (Dornseifer 2005). The shareholders of a corporation have the authority to choose a supervisory board while the executive board comprises of organizations management. In addition, the executive board headed by the managing director has the authority to manage the day to day organizations operations. The supervisory board oversees the executive board’s decisions and operations indirectly. The board of directors has a chairman who undertakes the following duties; Role of the chairman of the board of directors A board of directors is a collection of individuals collectively appointed or selected by the shareholders of an organization. The power or duties of a board of directors solely rely on the powers conferred to the board by the appointing authority. The appointing authority expressly relays the powers and duties of the board of members through specified by laws (Garoyan & Mohn 2005). The functions of a board include the following; establishing broad policies and strategies to govern the organization. The board of directors has the authority to select, appoint, support, or review the conduct and performance of the managing director. In addition, the board of directors ensures that the organization has adequate financial resources to ratify and implement all requisite policies. The board of directors approves the annual budget in the organization and also has the authority to explain the organization’s performance to the shareholders. Since the board of directors is the overseeing responsibility, the board sets up the salary scale of the organization’s management (Messeha 2006). Among the board of directors, there has to be a chain of command. The chairman, more often than not known as the chair is the highest officer among the board of directors. The members of the board chair exclusively elected and have the responsibility to preside over the board’s meetings. It is notable that the chairman of the board more often than not involved with the day to day running of the organizations operations. However, the chairman of the board of directors has the responsibility to ensure that the meetings among the board members are successful. The issues during the board meetings are usually serious and could determine the success or failure of the organization. This is because; the organization’s strategic plan, selection of the managing director and formulation of the organizations objective all take place during the board of directors meetings. In addition, the chair has the role of setting, organizing and coordinating the organization’s annual calendar. The organization’s annual calendar differs from one organization to the other. It is the responsibility of the board of directors to formulate a viable and workable annual calendar. The board of directors meets periodically as stipulated by the organizations by laws. This is because, in many instances, the board of directors comprise of people in different professions. The members of the board usually have other commitments or duties to undertake. This implies that the periodical meetings are a part time agenda. It is worth noting that the board members are not employees of the organization (Kelly 2008). Being an independent team of experts ensures that the board undertakes the oversight role in an impartial mode. The board of directors also reviews the organization's performance. This responsibility entails analytical calculations and evaluations to assert the organization's performance. In some instances, the board of directors also review the performance of the chief execute officer since they are the appointing authority. In a general perspective, the board of directors seeks to negate any conflict of interest among the organization's management while they are performing their duties. This is because; the shareholders select a board of directors to protect their interests (Yocam & Choi 2008). Corporate governance elicits difference modes of running an organization. Corporate governance is a wide discipline and different countries enact it in a different mode. In the United Kingdom and the larger Europe, the managing director and the chair are entirely different people. However, in the United States of America, the chair and the managing director are one and the same person. The difference between this mode of leadership or corporate governance by far and large affects the well being of an organization. This difference in leadership antics has advantages as well as limitations (Hopt 1998). Advantages of a separate chair and managing director in an organization First, the main responsibility of the board of directors conferred by the shareholders is to protect their interests. It is hence difficult to oversee the operations of the organizations while at the same time undertaking the operations (Boggs 2006). This elicits a conflict of interests when the managing director is the chair of the board. In addition, according to human norms, it is difficult to correct one’s self. This implies that in the instance of combining both responsibilities, the duty to oversee the organization’s well being might lapse. It is noteworthy that there is independence between the two positions to ensure protection of the shareholders interests. The other advantage emanates from the fact adequate corrective measures will be in place in the instance of separated responsibility (Hopkins 2013). This implies that the managing director will source more performance motivation knowing that there is an independent oversight authority. The fact that the managing director is answerable directly to an independent body enhances the performance level (Amernic & Craig 2006). Secondly, the board of directors has a solemn authority to overturn the decisions of the managing director. This is in any instance when the decisions of the managing director fail to conform to the stipulated organizations by laws (Bainbridge & Bainbridge 2009). This action ensures that all decisions with regard to the organization performance and well being meet a second clearance level. Decision making in a day to day basis requires the input of various people. With a separate managing director, the board of directors will be able to make independent, flawless and consultative decisions. Ideally, the chairman is the boss of the organization. This implies that the chairman is above the managing director. It is beneficial to delegate authority to mitigate misuse of power as well as organizational resources. A good example of a chair is Bill Gates. Bill Gates chairs the Microsoft board of directors. On the other hand, Steve Ballmer is the organization’s managing director. It is apparent that Bill Gates is famous the world over, but few know about Steve Ballmer. The managing director has the responsibility to run the organization’s day to day operations while Bill Gates only makes strategic input (Butler 2012). This arrangement ensures that an organization’s head will undergo critical and independent evaluation. In addition, the chair takes into consideration all needs of the shareholder from an independent perspective. It is, however, notable that, a balance of power is paramount between the managing director and the chair as this will promote a conducive work environment. It is notable that the stewardship theory comes into play affecting both the chairman and the managing director. This is because; according to this theory states that the managers will act responsibly protecting the assets of their shareholders. This revolves around reducing the amount of agency conflict as the managers and chairman all act in good faith (Kossek 2010). Disadvantages of having a separate managing director and chairman in an organization First, in a scenario where there is autonomy, the chairman is not an employee of the organization. Additionally, the board members are not organizational employees, as well (Mäntysaari 2005). This implies that the critical organizational decision making relies on individuals who are not directly involved in the operations of the organization. It is critical that the decision maker has adequate information pertaining the day to day operations of the organization to enhance informed decisions (Mallin 2007). However, when there is a strict separation between the two posts, the chair is still the most powerful person in the organization but is not part and parcel of the organization on a day to day basis. It is noteworthy that the decision maker is part of the day to day operation to enhance the decision outcome. In addition, urgent decisions that require a timely response might fail to materialize. Many are times when timely decisions cost organizations exorbitant amounts in terms of profits or losses (Futter, Cion & Overton 2002). In the instance that the duties of the chair and the managing director are different, decision making is slow. This might be detrimental to the organization resulting to plunging losses. According to some shareholders, it is better for the managing director to be the chair. This is because, if they trust the managing director, they wish that the managing director would also dispatch the duties of the chair. This adds confidence on the shareholders that their organization is in good hands. In the instance that is not the case, the organization risks losing the confidence of the shareholders (Fernando 2009). Conclusion It is apparent that the corporate governance plays a significant role in the success of organizations today. However, there are different models by which corporate governance prevails in different organizations. Organizations management follows certain hierarchy. It is apparent that the managing director or the chief executive officer heads the organization's management. On the other hand, the chairman of the board of director seeks to oversee the overall performance of the organization. This implies that the chair is the supreme leader in the organizational setting. In the UK, the chair and the managing director are different people. This means that these duties are separate and awarded to different people. In the United States of America, the managing director acts as the chair. There are several differences emanating from the difference in corporate governance structure. However, it is notable that it is essential to balance in the demarcation of responsibility to ensure that the organization meets the stipulated objectives. Reference list Amernic, J, & Craig, R, 2006, CEO-speak the language of corporate leadership, McGill-Queen's University Press, Montréal. Bainbridge, S, & Bainbridge, S, 2009, Corporate law, Foundation Press, New York. Boggs, G, 2006, Handbook on CEO-board: relations and responsibilities, Community College Press, Washington, D.C. Butler, S, 2012, Become the CEO of You, Inc.: a pioneering executive shares her secrets for career success, Purdue University Press, West Lafayette Dornseifer, F, 2005, Corporate business forms in Europe: a compendium of public and private limited companies in Europe, European Law Publ, München Sellier. Fernando, A, 2009, Corporate governance: principles, policies and practices, Pearson Education, New Delhi. Futter, V, Cion, J, & Overton, G, 2002, Nonprofit governance and management, American Bar Association, Chicago, Ill, Section of Business Law Garoyan, L, & Mohn, P, 2005, The board of directors of cooperatives, Division of Agriculture and Natural Resources, University of California. Hopkins, B, 2013, Starting and managing a nonprofit organization: a legal guide, Wiley, Hoboken. Hopt, K, 1998, Comparative corporate governance: the state of the art and emerging research, Oxford Univ. Press, Oxford. Kelly, K, 2008, CEO: the low-down on the top job, FT Prentice Hall, Harlow, England. 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Tricker, R, 2012, Corporate governance: principles, policies and practices, Oxford University Press, Oxford. Yocam, E, & Choi, A, 2008, Corporate governance: a board director's pocket guide : leadership, diligence, and wisdom, Yocam Publishing LLC, Washington, D.C. Read More