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Chief Executive Office "CEO" & The Board Membership

Surfacing for debate is the role of the Chief Executive Officer "CEO" on the Board of Directors. The wisdom of having the CEO as a board member, is being questioned and for good reasons. While the separation of the positions and roles of Chairman of the Board and CEO have long being clarified and determined in many countries of the world – The United States is still battling the idea – so that the two positions cannot be occupied by the same person, the issue of the CEO being a board member is drawing attention and looked at with some unease.

On one side, some challenge the idea of giving the CEO the directorship role and on the other side, some support the appointment. In the following pages, we intend to look at the role and responsibilities of the Board and responsibilities of the CEO to see where the arguments are derived from and whether there are conflict of roles and interest as far as the two roles are concerned.

Responsibilities of the Board of Directors

Following are the Board's main responsibilities:

  • To draw up the company's strategy and devise the necessary plans and implement policies to realize the company's objectives
  • To approve the company's activities and financial policy for the purpose of realizing its objectives and achieving maximum value for the shareholders
  • To elect and dismiss the CEO and specify his terms of reference, duties and responsibilities
  • To approve the appointment and dismissal of executive staff nominated by the CEO
  • To supervise the relationship between the CEO and shareholders
  • To recommend the appointment and replacement of independent auditors
  • To review the company's performance and verify that business management is in accordance with the company's strategic objectives
  • To approve the interim and annual financial statements
  • To nominate members of the Board of Directors' committees and specify their functions, responsibilities and terms of reference; and
  • To approve the Code of Business Ethics for the Company.

Functions of the CEO

  • Work with the Board and senior members of staff to define the company’s mission, communicate it effectively within the company, ensure that it serves continuously as an inspiration and guide and execute it
  • Work with the Board to help ensure that it is properly constituted and trained to conduct effective governance
  • Work with the Board and staff to ensure the adoption of and adherence to appropriate values and ethical standards in all company’s activities
  • Work with the Board and staff to ensure proper care and development of the company’s culture, reputation and image
  • Work with the Board and staff to develop strategies, action plans and systems that are effective and aligned with the company’s vision/mission and ensure that such strategies and systems are implemented well
  • Work collaboratively with Board and senior management to promote social responsibility dictates to generate necessary social impact for the company
  • Help shape the agenda and decision making of government and other external stakeholders
  • Contribute to the vision and thought leadership in the company’s focus area(s) and communicate this vision

Obviously, the CEO’s main role is to act as a conduit or connecting chain between the Board and executive management. The Board approves the strategies of the company and the CEO ensures that these strategies are communicated to and acted upon by executive management. He or she is also responsible to report to the Board on a regular basis on the progress made on the implementation and execution of those strategies by executive management.

As it is a normal practice during board meetings, any CEO plays the role of middleman between management and the Board. He presents to the Board updates on all issues relating to the executive work and performance. In fact, he is the prime communicator on any board meeting as he gives updates on operations and provides clarification on issues the Board members raise.

In representing the executive management, his independent judgment, as a Board member, might be compromised. Not only does he have a duty to protect the executive management’s interest but his own interest is on the line. Here is where his roles can get conflicted.

On one hand he rightly represents the interest of executive management and in the process must not forget his own. He must play his role as a director but also must not depart from his commitment as management leader.

It can be argued that the CEO is better placed to represent executive management on the Board. He knows what goes on in the company, he is involved and aware of operational issues of the company and he is able to address the day-to-day issues the company is faced with. He can call upon the customers and various stakeholders of the company and resolve issues and difficulties. He is more able to explain to the Board these difficulties and how to resolve them.

It can also be argued that being so involved in day-to-day affairs of the company, the CEO cannot isolate himself from the problems faced by the company. He might lock himself in these problems and cannot get away or look beyond the confines of his responsibilities.

Another issue that adds to the difficulty of having the CEO as a Board member is the appraisal of performance and compensation. The compensation as a CEO is the easy part as there is normally a contract which specifies the responsibilities and compensation. The more pressing difficulty is how his contribution to the Board is evaluated and compensated.

We know that the performance of Directors of the Board is handled in a relatively systematic way as they have Board related Key Performance Indicators “KPIs”. However, the CEO might have two sets of KPIs, one relating to his work as CEO and another as a Board member. Would the results of both of these evaluations be the same and what happens if they are not? What kind of compensation could be considered in this case? Will the evaluation be influenced by his two conflicting roles? These are some of the issues which need clarification and more debate. We will address these issues and more in our part two of this article in September issue of our newsletter.

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