When it comes to the highest tiers of a company's governance, there are a few roles that occasionally cause some confusion. Perhaps the biggest question regarding how a company is organized deals with the difference between the board of directors and the chief executive officer (CEO). Both have a significant amount of power over the company. Both the CEO and board members hold positions of prominence. Which role has the real power within the company, though?
To fully answer this question, one has to take a moment to understand the specific roles that the CEO and the board of directors fill within a company. This will not only answer which is more powerful but will also show how the two interact to keep the company running and earning a profit.
What is the Board of Directors?
A company's board of directors is the body that makes plans and decisions for the company's future. The number of directors who make up the board, how they're appointed and the specifics of their roles may differ from one company to another; these details are defined within the company's bylaws and other corporate documentation. Regardless of the specifics of how the board is populated, the role of the board remains largely the same from one company to the next.
The board of directors is made up of multiple individuals who work together to determine a strategy or direction for the company moving forward. In many cases, the board will feature members from diverse backgrounds who bring their unique insights to discussions about the company's future. In most boards, each member has an approximately equal say, though some companies do have nonvoting members of the board of directors as well who act as advisors or observers.
Who is the Chairman of the Board?
The chairman (or chairperson) of the board is the member who leads discussions and serves as the individual in charge of board meetings. In most cases, the chairman is still considered a voting member of the board of directors, though some companies do restrict the chairman's ability to vote unless a board vote has ended in a tie. While the chairman does have some powers that standard board members don't, these are largely limited to parliamentary issues and are necessary for the running of board meetings.
Though the chairman of the board is technically of a higher rank than the average board member, this doesn't in practice present them with a greater amount of influence over the company. Because the board is made up of multiple individuals, even the chairman can't force the company to take action on something without the agreement of the board. Even a matter that only required a simple majority would mean that the chairman would need half of the board of directors on his or her side to pass a resolution or directive for the company.
In some companies, the chairman may also have a role as a member of the company's management in addition to being the leader of the board of directors. In these instances, the chairman role is referred to as the "executive chairman" or a similar title. This indicates that the chairman is tied to the executive tier of the company in addition to serving on the board of directors.
What is a CEO?
Unlike the board of directors, the CEO is a member of the company's management. The CEO is the top member of management in the company and oversees the company's day-to-day operations. This is an important role within a company, as the board of directors doesn't directly control the company on this level; the board's involvement is focused more on higher-end goals and business strategies. The CEO and the rest of the management team focus on the more practical aspects of running the company.
Other executive positions, such as the chief financial officer (CFO) and the chief technical officer (CTO), defer to the CEO as part of the upper management team. The CEO and his or her team ensure that operations continue smoothly and deal with problems within the company as needed. In many cases, the CEO is also the one who makes major announcements as a representative of the company.
CEO and Board of Directors' Responsibilities
Because of the differences in their positions, the CEO and the board of directors have different sets of responsibilities within a company. While the specific job functions and responsibilities of any position can differ based on the company, the typical responsibilities of the CEO include:
- Overseeing day-to-day business operations.
- Making decisions that affect day-to-day operations.
- Setting operational policies for employees.
- Acting as a spokesman for the company as a whole.
- Communicating with the board of directors.
- Implementing directives and policies from the board.
In contrast, the typical responsibilities of the board of directors include:
- Making major decisions about the company and its policies.
- Reviewing performance to maximize investor ROI.
- Selecting and installing a new CEO.
- Analyzing risks that may affect the company.
- Implementing policies concerning ethics, technology use, major expenditures and other important issues.
Board Chairman or CEO: Who is Higher?
In a company with no overlap between the board of directors and the upper tier of management, the chairman of the board is considered a higher-ranking member of the company than the CEO. This is due to the fact that it's the board of directors that selects a CEO and places him or her into the position, placing the board as a whole above the management tier. As the head of the board of directors, this gives the chairman a higher rank within the company than the CEO.
This isn't the case at all companies, however. In a number of companies, the CEO actually serves as the chairman of the board in addition to acting as the chief executive. While the board chair position is higher ranked within the company, having the same person fill both roles means that in effect that individual has control over both management and the board of directors. This doesn't convey any additional control over the board than having separate chair and CEO positions, however.
Even companies that don't give the chairman position to the CEO may place the CEO on the board of directors as a sign of respect. Some companies may make the CEO's seat a nonvoting position on the board, though many will allow the CEO to have all of the rights and responsibilities of other board members. This still technically places the chairman above the CEO, though with the same limitations that the chairman would have when compared to any other board member.
What About Owners and Presidents?
Depending on the size and the structure of a company, other high-ranking positions, such as the company owner or the company president, may also interact with the CEO or the board of directors. If the company has an owner or even multiple owners, they typically act as a final authority when it comes to the company's decisions; even if the company has a CEO and board of directors, the owner can typically override their decisions and take on any duties that they feel should be handled a certain way. This places the owner above both the board and the CEO.
A corporate president, on the other hand, typically holds a position below the CEO and acts as an intermediary between the CEO and other portions of the company. This is especially common in companies that have multiple branches that largely operate independently. Each branch may have a president that oversees operations for that branch, though the president is still responsible to both the CEO and the board of directors.