CEO vs. chairman: How are they different?
The CEO vs. chairman debate reaches back to a time when the CEO and the chairman of the board served in the same position. With some of the evolutionary changes in corporate governance and best practices that have resulted from regulatory and legal changes, there has been a lot of discussion about whether companies should appoint a board chair who is not also the CEO of the company. Current trends separate the chairman of the board and CEO roles, but not all organizations have followed suit. This has created a CEO vs. chairman divide that’s increasingly murky.
When considering the CEO vs. the chairman, it’s important to remember that the CEO and the board chairperson perform different duties and can help each other succeed. To help boards understand each position and the appropriate balance of power for each, this article will explain:
- What the chairman is and what they do
- What the CEO is and what they do
- Balancing power between the chairman and CEO
- The importance of separating the CEO and chairman positions
- How the two roles work together to meet shareholder demands
What is a chairman of the board?
The chairman of the board of directors (also known as the 'chairman of the board' or the 'executive chairman') is the head of an organization's board of directors and works to ensure the company meets stakeholder expectations, while the CEO oversees day-to-day activities alongside senior leadership. The chairman's primary responsibility is to meet their stakeholders’ expectations. They also manage the board directors and their activities, providing transparency and accountability.
The board chairperson has substantial power. The person appointed to this position often uses secure board management software to set the board’s agenda and facilitate board meetings. Though the concept of CEO vs. chairman pits the two against each other, the executive chairman usually has a close working relationship with the CEO; they support the CEO but don’t play an active role in managing the daily operations. However, they do guide company objectives through steering committees.
What does a chairman do?
The chairman is responsible for:
- Executing good board governance and best practices
- Overseeing all board meetings, including meeting agendas
- Ensuring compliance with industry regulations
- Making sound financial decisions for the organization
- Facilitating discussion between the board and executive teams
What is a CEO?
A CEO is an organization’s chief executive, overseeing day-to-day activities and making important decisions by collaborating with senior leadership.
The CEO’s position entails focusing on the strategic plan, which includes strategizing about — the competition and which markets to enter. The CEO reports directly to the board of directors, the party ultimately responsible for matters like environmental, social and governance (ESG), corporate social responsibility (CSR) and even corporate email security.
Some CEOs also serve as presidents of their organizations, while larger organizations often have different people serving as the CEO and president. In these cases, the CEO usually focuses on internal operations.
What does a CEO do?
CEOs are responsible for:
- Communicating between the board of directors and senior leadership
- Ensuring daily activities align with the organization’s strategic plan
- Reporting to the board on behalf of the entire organization
- Serving as the public face of the organization
- Managing executive-level recruiting and hiring decisions
What's the difference between the chairman and the CEO?
The differences in the duties and responsibilities between the CEO vs. chairman are clear. In simple terms, the CEO is the top senior executive over management, while the board chairperson is the head of the board of directors.
- The CEO is the company’s top decision-maker and oversees the daily operations and logistics. All of the senior management executives report to the CEO. The CEO is the chief operating officer and usually delegates many of the responsibilities to other senior, mid-level and lower-level managers, depending on the company’s size.
- The executive chairman of a company is the head of its board of directors. The shareholders elect the board of directors and protect the investors’ best interests. Part of that responsibility includes ensuring that the company is stable and profitable. Boards usually meet quarterly to set long-term plans, discuss committee reports, including those from the executive committee, review and monitor the financial reports, oversee the senior-level executives and vote on major decisions. Board directors are also responsible for recruiting, appointing and evaluating the CEO’s performance and replacing those who don’t meet performance expectations.
In this way, the CEO and chairperson fill similar roles at two different levels. The chairperson leads the company’s strategic objectives, while the CEO leads the company’s day-to-day activities in service of that objective.
Striking the right CEO vs chairman power balance
Companies have the liberty to find a balance of responsibility and authority between the CEO and the board chairperson. For this reason, the balance of power between the CEO and chairman varies substantially, even within similar industries.
Since the board chairperson is superior to the CEO, the CEO has to get the board chairperson to approve any significant moves. While the board chairperson has the ultimate power over the CEO, the two typically discuss all issues and effectively co-lead the organization. Some companies find their operations fare better when the CEO has considerable flexibility in running the operation.
The best way for the CEO and the board chairperson to stay connected is with board management software, where they can be assured their discussions are confidential.
The CEO is sometimes allowed to choose the senior executives. It’s common for a company’s bylaws to guarantee retiring executives a board seat. In this way, the CEO effectively influences board composition. Some companies continue to adhere to tradition and assign the CEO as the board chairperson.
Why a company’s chairman and CEO should not be the same person
As noted earlier, some companies choose to allow the CEO to also serve as board chairperson. This is more common in large companies. For high-growth companies, financial experts agree that the executive chairman and the CEO shouldn’t be the same person. Here’s why:
- Boards have unique needs: The question of CEO vs. chairman is also a question of roles and responsibilities. The board’s primary responsibilities are strategic planning, oversight and abiding by the principles of good corporate governance. In recent years, companies in Europe and the United States have seen the benefit when boards spend more time providing value to the CEO and the senior executives — which isn’t as effective when the chairperson and CEO are the same person. Boards of directors typically have varied industry experience and a good understanding of overall economic trends, which make them valuable resources for the senior leadership and the CEO.
- CEOs should emerge in operations: For companies to be successful, they need a CEO who is dedicated to the responsibilities on a full-time basis. Managing a board of directors is also a full-time job. Both positions are of such importance that when one person serves in both roles, it’s difficult, if not impossible, to serve both positions well.
- Boards are increasingly choosing independent directors: There’s no clear answer about whether one person should fill both positions, and no regulations require one structure over the others. The CEO vs. chairman debate has been going on for the last few decades with no clear answer. As it has become more common for boards to choose independent board directors to serve in the role of board chairperson, the general thought has been that independent board directors are the people best suited to serve as board chairperson.
- Distinct roles lead to better performance: The main benefit of separating chairman vs. CEO is that it distinctly separates the roles of the board and management. The separation also allows each person to devote the proper time to their position. Since the board of directors evaluates the CEO and senior executives and sets their pay, separating the CEO and the chairman of the board roles eliminates potential conflicts of interest.
4 reasons to separate CEO and chairman positions
Separating the CEO from the executive chairman allows each person to give their full time and attention to their role rather than to split their priorities. However, that’s not the only benefit.
Here are four more reasons to separate the CEO and chairman:
- There’s a single spokesperson: Having an independent board director as the chair gives one person the ability and authority to speak on behalf of the board.
- It allows for diverse perspectives: An independent director can also better represent individual director perspectives to the CEO. An independent board chair is also more likely to elicit opinions and attitudes that will challenge the CEO and enable them to think differently about specific issues.
- It bridges the gap between the board and other stakeholders: The chairman of the board acts as the primary liaison between the board and management. The person who fills this role is valuable during crises in dealing with external groups such as investors and the media.
- There’s a better balance of power: An independent board chair provides the necessary balance with the CEO position, ensuring that one person’s perspective doesn’t carry more weight than the other board directors.
Overcome the CEO vs. chairman divide to meet stakeholder demands
Separating the CEO and the chairman can ensure a healthy balance of power. But perhaps the most significant benefit of clarifying the roles of CEO vs. chairman is how they can support each other. To thrive, organizations need to keep up with stakeholder capitalism, which requires a level of focus that one person can’t tackle on their own.
By dividing responsibilities, the CEO and chairperson can work together to build a more robust modern governance infrastructure, one that meets and even exceeds stakeholder expectations.
Download the Governance Checklist from Diligent to learn how.
