One of the essentials of every business to get settled in the formation of its corporate structure. We will discuss Chairman vs CEO here. These structures provide the development and completion of the desired goals of any organization. If we observe from the perspective of business management, then these structures fluctuate from one organization to another depending on their settings.
Chairman vs CEO
For choosing a career in business, one should be aware of the terms chairman and CEO. These two terms often go hand in hand. In many companies, the CEO and Chairman hold the same management, but it is crucial to understand the exact difference between them. The importance of knowing the distinct line between the two provides a clear path for a person to select his/her desired goal.
Let’s first know what is a CEO? What are his responsibilities and why there is a need for a CEO in a company?
You must have heard the name of Jeff Bezos, Kevin Systrom, Sundar Pichai, and many more these names are not just the names of an individual but reflect the positions they are holding. Responsible for the overall success of an institution, a CEO is regarded to have the highest bearing. His/her role in an organization depends upon the setting of an organization, such as, if we talk about the non-profit organization, then the only work for a CEO is to look after the goals and aims which are designed by an organization whereas, in case of a company, the role is about to lift and elevate the merit or value of an organization. Therefore, he/she is regarded to have the final or ultimate authority of decision flow in an organization. As the CEO is responsible for an institution’s progress, he is directly chargeable to the board, who the shareholders elect.
What are the responsibilities accounted to the position of CEO?
Being a general term, a CEO has several responsibilities or duties. The organization structure plays a vital role in allocating the desired and required role to a CEO. This point will be cleared by taking the reference of an example. Consider a CEO of a small-scale company and a CEO of a large company. You can easily observe the difference between the two notions. Therefore, the duties are dependent on the organizational setting, its size, and its strategy.
Generally, the role or duties assigned by the board to the CEO and he is a leader who is liable for the overall nurturement and elevation of equity values. Therefore, we can’t exhaustively conclude the prescribed duties of the CEO, but in the usual course of action, he has the following liabilities:
- Being a high power, a CEO is responsible for many things. One of them is communication. As an executive power, the CEO is entrusted with communicating with the employees and the other working entities in an organization, also. To increase the overall value, he has the responsibility to communicate with the press.
- The decision-making process is also included in the list of his/her responsibilities. This role depends on the organization’s requirements and involves planning and strategies with proper steps to attain the desired goal.
- Delegated with the responsibility of making the organization reach the acme, he/she is responsible for communicating with the managers or other entities, spreading the awareness of factors such as market flow, changes in the organizational structure, development of policies or steps to be taken to lift the mission and vision of an institution.
- Taking into consideration the budget of the organization and analysis in the working of other executive officers.
- Update the board about the coming strategies and executed plans by organizing the scheduled conference.
After summarizing the roles of a CEO, it is clear that he/she is the backbone of any institution or organization. In simple language, we can conclude him as a board member who is aware of the daily procedure or operations taking place in the organization. In the context of the U.S.A, the CEO position is determined based on the nature of the organization.
What are relevant skills are needed for achieving the status of CEO?
As the position demands high accuracy for the management and fulfillment of the needs of an organization, the skills should be very sharp. There is no exhaustive list of these skills, but in general, some skills involve:
- Administrative reasoning.
- Presenting ability
- Settlement of conclusions or decision-building ability
- Punctual or scheduled in nature
What is a chairman?
For understanding the meaning of Chairman, it is required to know about the board of directors.
To represent the shareholders in a company, there is a board whose members are elected by the vote of shareholders; they are called the directors. This board is a sum of many individuals who come together and make an elected group. Generally, the representation of shareholder’s interests and the fulfillment of the shareholders’ desires are the main aims of the board. Based on that, they set the formation of policies and other required works. For the supervision of the policies, the board gathers on an orderly gap. In the meeting, all the required and necessary details about the company are discussed, all profit and loss bore by the company in that time period go into consideration. All companies have a different board of directors, but usually, the decent number is seven. The power and the role of the board vary from company to company according to the company’s established rules and regulations.
Coming to the concept of Chairman, he/she is a person who guides or leads the board of directors. As the board of directors is high, there is a need for a person who can monitor the board. The responsibilities given to a chairman are to maintain the smoothness in the organization by proper conduction of gatherings and implementation on the agenda decided by the board during the meeting. Generally, a chairman is a person who influences the meetings and the votes set out by the board. Therefore, he can also use this power in the appointment of the company’s chief executive officer. Sometimes, the chairman is the owner of the company itself. We can refer to Mark Zuckerberg.
What are the roles and duties given to the chairman?
As the moderator or a president, a chairman has many crucial functions to perform.
- He sets out the motto or plan for the gatherings to be called upon, consisting of the board members.
- The crucial work of any organization or a company is to determine the interests of its investors or shareholders. Therefore the chairman is the person who considers the interests during the meeting with the board.
- As he/she takes the responsibility to conduct a meet of the board, he/she also has the power to postpone the same.
- The vote given to the chairman is only one, and therefore, his vote plays a vitally important role where the board cannot conclude.
- Considering the overall performance of executive managers and employees and making the nature of the organization clearer and more transparent.
- Setting the value of paying compensation to the management executives.
After summarizing the roles and duties of a chairman, it is clear to us that the board of directors reports the chairman and the chairman is working on behalf of the interest of the shareholders.
Depending upon the nature of an organization, the dominance or charge of a chairman is determined. In some organizations, executive powers are not granted to the chairman. He/she is just a mediator or a person elected to speak on behalf of the other elected member in a company.
Taking the reference of USA, in most public organizations, a member called the executive chairman has different obligations as to that of a chief executive officer.
Coming to the main topic, what is the difference between CEO and chairman? Are these terms similar, do they have similar obligations?
To answer this question, we can put our gleam on the structure of a corporation, given in figure 1.
Analyzing the structure, it is, however, concluded that both the notions differ from the working procedures. If we talk about the context of the U.S.A, then there in many companies, the position of executive chairman is provided, which is different from that of a CEO.
Let’s put a gleam on the differences included in both the positions:
- From the above discussions on the meaning of CEO and chairman, it is observed that the role of a CEO is determined to be at the top position in the context of management. In contrast, the chairman is directly responsible for lifting the interest of the investors and shareholders.
- The board of directors is not aware of the daily activity within the organization as they only meet once or twice a year, as per the requirements. In contrast, the CEO is aware of the regular activity which is happening within the institution.
- It is, however, observed that the chairman of a company has a high position with r CEO, as the CEO doesn’t take any policy into his consideration directly without the permission of the board.
- The differentiation can be observed in the management. Also, the chairman is the person who leads the board of directors. He/she is sometimes regarded as the president or the policymakers, whereas the CEO is the foreman to the executive members in an organization.
- The enrollment or signing of a member for the management purpose is in the hands of the board of directors. Therefore the chairman has more authoritative power concerning the CEO.
- The chairman has a considerable unit of power, while the CEO has the ultimate power in the context of management.
What is the need to separate the two notions?
The concept of separating both the position is somewhere very clear by referencing the role and duties assigned to both the position. The overall development of any organization depends on the achievement of its mission and goals but important is that the policy which is formed for the organization should be as per the need of the company and market. These two important aspects conclude the distinction between the position of a chairman and CEO.
If the same person is assigned the same task, it would be an uphill task for him/her to manage both the positions with full performance and dedication. Now there is not an exhaustive list of reasons as to why these positions should be separated, but some reason can be estimated such as: –
- As we know, the duty to calculate the performance of the working of the executive section, including the chairman, the board, and the chairman, is responsible. If the same person is granted both the responsibilities, then it will be biased and not accountable.
- One of the works of a chairman and board of directors is voting for the desired amount to be given to the executives. It would be fatal for the organization that the same person is calculating the values for himself/herself.
- The role of the chairman in considering fit persons for the position of CEO is considerably important. It will not make any sense if the chairman is itself a CEO.
The summary of this article suggests the importance of differentiation between the positions of a CEO and a Chairman. The chair must be independent of any other executive work, as the principle of every organization is to promote development, accountability among the members, and transparency. If the chair is merged with the work of the CEO or vice-versa, the main aim of any organization can be targeted, which will lead to the declination of any organization’s interest. Therefore, it is always necessary to separate the powers rather than create a single person’s burden.
Frequently Asked Questions:
- What is the role of the CEO? The role of the CEO is to look at the management and achieve the desired goals of an organization.
- Is the Managing Director synonymous with the chairman? No, both notions differ in the working area within the organization.
- Are the duties of a company’s CEO written in their by-laws? The duties of the CEO are generally based on the nature and size of the company. Therefore, there is not an exhaustive list.
- Why is the chairman important? A chairman is a person who represents the shareholders. Therefore, he is an important member of the company as he determines the policies according to the interests of the investors.
- Is there any limit on the count of the board of directors? No, there is not any list concerning the count. It is moreover dependent on the requirement by the company. However, the ideal count is considered to be 7.