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THE ROLE OF CEO AS A BOARD MEMBER

In the newsletter of 2nd Quarter 2014, we discussed in part one the role of CEO. This part continues discussion the role and emerging thinking.

Council on Foundations, in an article titled “Should CEOs be on the Board” (2010) discussed at length the roles of the Board and CEO vis-à-vis the governance in for-profit corporations and for non-profit corporations. It gave a survey data in the table below to show status of CEO as Board member with voting and no voting rights at various grant makers’ Boards:

It further states that “practices vary depending on foundation type. For Example, community and public foundations are least likely to have CEOs who serve and vote on the Board. On the other hand, family foundations are somewhat more likely to give top staff person a vote on the Board. Independent foundations are the most likely to appoint the CEO as a voting member of the Board.

In its reasoning for the case of CEO serving only as staff, the article gives the following justifications:

  • Management role remains separate from governance as the board is expected to govern and the management role is to manage. The CEO is the leader of management.
  • Stronger governance will be achieved as roles will be distinct and over dependence on the CEO can weaken the governance function of the Board.
  • Conflict of interest will potentially increase when CEO serves on the board that employs him and sets the terms of his compensation.
  • Better supervision of the CEO’s performance by the board is achieved through monitoring and evaluation process.
  • Strained Board relationships could surface if the CEO serve on the board specially in cases where voting of the CEO differs from other members.

The table below gives the pros and cons for the CEO as staff and as board member:

In another article by Better Boards (http://betterboards.net/articles/board-ceo), titled “The Board and CEO Relationship, by Lauren Murden, May 7, 2012 it was argued that the “role clarity is essential to ensure a productive CEO/Board relationship is founded. The article looked in the issues of Comparing management Responsibility, accountability, decision making, policies and financial reports and how these are handled by the Board and CEO. The mutual obligations of both the Board and CEO were highlighted. The board’s obligations towards the CEO were listed and include:

  • Compensation, benefits, and a working atmosphere that make the CEO’s position attractive to the best possible candidates;
  • A clear duty statement and performance goals;
  • Regular formal performance reviews;
  • Constructive informal feedback on job performance;
  • Rewards for tasks well done; and
  • Prompt and thoughtful response to requests for guidance or assistance.

The article goes further to list CEO’s obligations to the Board which include:

  • Commitment to the organization’s mission and sensibility to communities it serves;
  • Responsible performance of fundamental organizational and administrative tasks;
  • An administrative structure and decision-making mechanism that promote a productive working atmospheres and effective staff relations;
  • Thorough and timely communication with the Board on financial and administrative matters;
  • Effective representation of the organization in the community and commitment to enhancing its public image; and
  • Prompt and thoughtful response to Board member’s requests for information.

The article concludes that both the Board and the CEO have a duty to act in the best interest of the organization as a whole. Therefore, the separate roles and distinct responsibilities of the CEO/Board relationship should exist in an environment or teamwork, communication and mutual respect.

Like the development that took place vis-à-vis the role of Chairman and CEO, which resulted in the two positions being separated, a due consideration and further study need to be undertaken to see how best the CEO’s role on the board should be handled. The existing practice might not be the solution, or not the best one.

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