An investigation into the separation of chairman and CEO positions

An investigation into the separation of chairman and CEO positions

Chairman and CEO positions

Chairman and CEO positions; Following the financial crisis, publicly traded listed companies worldwide are under pressure from activist shareholders, institutional investors, proxy advisory firms and regulators over the issue of separating the roles of Chairman and Chief Executive Officer (CEO), with a view to acquiring of independent leadership in the field of the board. Good corporate governance encourages the separation of the roles of chairman and managing director into two people instead of one person being the chairman and the managing director.

Companies around the world in the recent past have begun to part ways, either voluntarily or through shareholder activism. This article attempts to study specific UK, US, South Africa, Australia and India facilities. The article also analyzes the BSE 500, BSE 200, BSE 100, BSE 30, NASDAQ 100 and FTSE 100 companies on the separation of chairman and CEO roles.

Chief Executive Officer (CEO) and Chairman

The Chief Executive Officer has executive responsibility for business operations. While responsible for leading the board, the chairman ensures that the board meets regularly and that all directors have access to all the information they need to make an informed contribution to board meetings and that all directors are given the opportunity to speak at Board meetings. The CEO manages; the chairman supervises the management.

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Chairman and CEO positions, According to the UK Combined Code, 2014, the chairman is responsible for setting the agenda of the board of directors and ensuring that sufficient time is available to discuss all agenda items, in particular strategic matters. The chairman should also promote a culture of openness and debate by facilitating the effective contribution of non-executive directors in particular and ensuring constructive relationships between executive and non-executive directors. The chairman is responsible for ensuring that directors receive accurate, timely and clear information. The chairman must ensure effective communication with shareholders.

Should the positions of chairman and general manager be combined or separated?

Few issues in corporate governance are more contentious than whether the roles of chairman and CEO should be separated or combined. Does segregation of roles really improve governance, or is it just window dressing for shareholders with little impact on board effectiveness?

Chairman and CEO positions, Different experts in the field of Corporate Governance have different opinions about the separation of the position of chairman and managing director. Some experts believe that separating the roles of CEO and chairman will have a very positive impact on boardroom performance. Their arguments are that "the existence of the Board is based on the necessity of accountability. The Board is there to hold management accountable for the enormous discretion it exercises. Thus, when the Chairman of the Board is also the CEO. , he is accountable to a body headed by management. It could mean putting the CEO in a position to evaluate his own performance. ”In simple terms, the CEO leads the company and the chairman leads the board, a of his responsibilities to supervise the CEO.

Chairman and CEO positions, When the chairman and the CEO are one and the same, it is difficult for the board to criticize the CEO or to express independent opinions. If the CEO is also the chairman, the temptation is too great to tilt things toward protecting the CEO's career interest. Separation of roles would lead to a more objective evaluation of the CEO and create an environment of greater accountability. Another argument for role separation is that a non-executive chairman can serve as a valuable, sounding board mentor and advocate for the CEO.;action=redirectexit;url=

Some experts believe that separating the roles of CEO and chairman will negatively impact boardroom performance. Their argument is that "the company should be run by one person" and that splitting roles could create two centers of power, hindering decision-making. Stewardship theory based on the principle of "unity of command" states that having clear and unambiguous authority concentrated in one person is essential to effective management. Unity of command creates clear powers to which management (and the board) can respond more effectively. In an environment where strong, direct, stable and unconscious leadership is seen as critical to the success of an organization, this kind of legitimacy is an important signal to stakeholders about who is responsible.

Chairman and CEO positions, Some corporate governance experts believe that combining the two roles does not mean that the CEO who is also chairman will inevitably manipulate his board of directors, but it does give him that opportunity.

In short, when roles are combined; it provides the following positive points:

Provides strong and central leadership

Unambiguous leadership

Increases efficiency

Superior knowledge of the organization

Failure to segregate roles can have the following consequences:

Lack of overview

Uncontrolled force / concentration of power

Reduces the independence of a board

The role of the Board is to hire and fire the CEO. Uniform role can cause conflicts of interest.

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