A chairman of the board of directors leads the board in meetings. The board chairman plays a crucial role in developing a focused and effective board. The competence of the chairman of the board of directors is crucial to ensure that the company’s board is effective.
Required:
Explain FIVE (5) reasons to justify the need to separate the roles of the Chairman and Chief Executive Officer (CEO) of a company. (10 marks)
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Role of the Chairman and Managing director/CEO should be separate for the effective functioning of the company’s board. The chairman and the board are responsible for monitoring and evaluating the performance of the company, while the managing director represent the management team. So, it requires that the roles are performed by two different persons, thereby increasing the accountability of Managing Director. A clear demarcation of their roles ensures proper balance of power. Following are the benefits of separation of roles of Chairman and Managing Director:
- Director communication: A separate chairman provides a more effective channel for the board to express its views on management.
- Guidance: A separate chairman can provide the CEO with guidance and give feedback on the performance of the Managing Director.
- Shareholders’ interest: The chairman can focus on shareholders’ interest and the CEO can manage the company.
- Governance: A separate chairman allows the board to more effectively fulfill its regulatory requirements.
- Long term outlook: The chairman can focus on the long-term strategy while CEO can focus on short term profitability.
- Succession Planning: A separate chairman can more effectively focus on corporate succession plans.