CEO vs Chairman - Who really rules the company?

For many investors who are just starting to invest in the American market, the terminology of senior positions in the company can be very confusing. The most questionable positions are: CEO and Chairman. In today's article, we will try to briefly explain the differences between them. We invite you to read!

CEO and Chairman then and now

Every major company has a team of senior managers to manage operational and financial activities. The most important person in control of the day-to-day operations of the company is the Chief Executive Officer (CEO). It is worth noting that Public companies must have a Board of Directors chaired by a Chairman.

From a historical perspective, CEO and Chairman of the Board for a long time were treated together. However, with the evolution of corporate governance and the introduction of good practices in business management by many enterprises, the functions of CEO and Chairman have been separated. Currently, many theorists are talking about separating the roles of CEO and Chairman of the Board. The two positions have completely different responsibilities, making it difficult for the same person to hold both positions in the long term.

Who is the Chairman?

As the name suggests, The Chairman is the chairman of the Board of Directors. The main responsibilities of the Chairman include managing the activities of the Board of Directors and ensuring the transparency of the organization. The Chairman chairs meetings of the Board of Directors. As a rule, the Chairman works closely with the CEO, but does not actively manage the day-to-day operations of the company. The role of the Chairman is to ensure the balance between achieving short-term and long-term goals set for the company. It is worth mentioning that the role of such a person is to represent the voice of the shareholders.

The Chairman of the Board is appointed by the Board of Directors by a majority vote and is responsible for checking progress towards the achievement of the company's objectives. It is worth remembering that The Chairman does not control the entire Board of Directors, but should have a large influence on the activities of the Board members.

There are two types of Chairman of the Board of Directors in American companies. The first one is Eexecutive chairmanand the other is Non-executive Chairman. Executive Chairman is also an employee of the company, non-executive is "outside" the company. The second type is chosen in situations where a supervisor from outside the company is needed, who looks at the processes with a distance. The Executive Chairman, on the other hand, also has other roles in the company, which means that he can take a more active role in the company. The disadvantage of the first type of Chairman is that he has to devote time to fulfilling the employee's duties in the company.

The Chairman should focus on:

• Enforce the best practices of organization management,
• Supervise board meetings including approving meeting agendas
• Act as an intermediary between the Board and executive managers (including the CEO),
• Ensure compliance of the organization's operations with industry regulations,
• Supervision over the effective management of company resources,
• Protecting the interests of the company's shareholders,
• Approval of the annual budget.

Who is the CEO?

CEO is short for Chief Executive Officer, i.e. the Executive Director or Director General. Its task is to oversee the day-to-day operations of the company and make important financial decisions in cooperation with the Board of Directors. He takes care of it development and implementation of strategic goals of the company. Thus, projects regarding the expansion of the enterprise to new markets, the implementation of a new product for sale "come out" from the CEO. The Executive Director is accountable to the Board of Directors for his or her actions. It is the CEO who takes responsibility for applying the best practices in the field in the organization ESG (Environmental, Social and Governance) and CSR (Corporate Social Responsibility). In smaller companies, the CEO also serves as the Chairman. In larger corporations, these roles are often separated.

The entire Board of Directors checks whether the CEO achieves the goals set for the company. This applies both to objectives related to financial aspects (e.g. debt level) and achieved results (e.g. earnings per share, operating profitability). If the CEO is not doing his job properly, the Chairman can start convincing the board to find a better successor.

In summary, the role of the CEO is responsible for:

• Efficient communication between the Board of Directors and senior managers,
• Supervision of the company's daily operations,
• Developing strategic plans for the development of the organization,
• Reporting to the Board of Directors on the operation of the organization,
• Being the "face" of the organization (e.g. participating in industry meetings or meetings with investors).

CEO-Chairman relations

The organization should ensure that in the company there was a kind of balance of power between the CEO and the Chairman of the Supervisory Board. Giving too much power to one position can cause problems in company management.

It is best for every company when the duo of Chairman and CEO work together. Then the risk of understatements or the formation of "information silos" (i.e. lack of information flow) is minimized. It is best when the character and vision match. Then it may happen that the duo will understand each other without words.

Sometimes there is a change of positions in the company on the CEO-Chairman line. An example would be the situation at The Walt Disney. Robert Iger served as CEO until 2020. He was then transferred to the position of Executive Chairman. His place as CEO was taken over by Bob Chapek. Robert Iger became Executive Chairman for a year to “induct” Bob Chapek into his new role.

Mark Zuckerberg. Source: wikipedia.org

It is worth noting that there are many companies that have achieved success with one person who has held both positions. An example is Jeff Bezos (Amazon) and Mark Zuckerberg (Meta, formerly Facebook). Another example is Jamie Dimon, who serves as Chairman and CEO of JPMorgan Chase & Co. Supporters of this approach cite the argument that in such a situation the structure of the company is clearer and it is clear who is responsible for the long-term vision and corporate culture of the organization. Opponents argue that the Chairman is the overseer, as an ancient saying goes:

"Nemo iudex in causa sua"

Which means:

"You can't be a judge in your own case."

Summation

Contrary to popular opinion, The CEO is not the "most important" person in the company. Although he oversees the company's day-to-day operational and financial activities, his position in the hierarchy is his is lower than the Chairman. It is the chairman of the board of directors who can convince the board to fire a poorly managing CEO. Normally, the CEO cannot fire the Chairman. This can only happen if there is a conflict between the two and the CEO manages to convince the shareholders and the Board of Directors of his idea. The Chairman can only be dismissed by the Board of Directors.

It should be noted that both CEO and Chairman need not be owners or shareholders in the company. They can be hired professionals who must perform their duties well. Of course, there are companies in which the founder still serves as CEO and Chairman. This is the case with Meta, where the aforementioned roles are still performed by Mark Zuckerberg, who founded Facebook.