The roles of the Chairman and Chief Executive Officer are the most powerful positions in a company. The Chairman is responsible for the leadership of the Board, while the CEO is the leader of the Management team, exercising such powers as delegated by the Board. Absolute authority is vested in one individual when these roles are combined and there is therefore the possibility of that individual becoming a dominant influence in the company.
The SEC Code of Corporate Governance provides that the positions of the Chairman of the Board and Chief Executive Officer should be separated and held by different individuals. The CBN, PENCOM and NAICOM Codes have similar provisions. This is to avoid over concentration of powers in one individual which may deprive the Board of the required checks and balances.
The Role of the Chairman vis-à-vis the Role of the Chief Executive Officer
The Chairman’s responsibility relates primarily to ensuring that the Board functions effectively. He must promote a culture of openness and constructive challenge which allows the expression of divergent views. Most importantly, he should not be involved in the day-to-day running of the business.
On the other hand, the CEO leads the Management team and is responsible for the day-to-day running of the business and answerable to the Board on the company’s performance. One of the primary responsibilities of the CEO is to execute and implement strategy as approved by the Board. His key performance indicator is the growth of the company based on parameters defined by the Board.
Combination of the Positions of Chief Executive Officer and Chairman
When one person holds the position of the CEO and Chairman, he would have unfettered powers over the Company’s decision making process unless there are strong individuals on the Board, who can act as a counterweight.
The combination of the roles of the Chairman and the CEO increases the Board’s d e p e n d e n c e o n m a n a g e m e n t w h i c h invariably might lead to decline in the monitoring and oversight functions of the Board. It would clearly be difficult for the Board to objectively evaluate his decisions and performance when the CEO also leads the Board.
However, one school of thought posits that a combination of the roles of “head of management” and “head of directors” would actually benefit the company as it would provide a clearer delineation of authority. The notion of “Executive Vice Chairman” appears to align with this school of thought. However, it is safe to say that such a situation is unlikely to provide effective results in the Nigerian corporate environment. Little wonder the CBN Code of Corporate Governance proscribes the role of the “Executive Vice- Chairman”.
It is telling that all the Codes of Corporate Governance in Nigeria provide for the separation of the roles. This underscores the importance of maintaining the distinctiveness of the two positions. In some exceptional cases, a combination of the two roles might have been necessary in the short term to provide strong leadership required to see an organization through difficult times as in the case of Luc Vandevelde, Chairman and CEO of Marks and Spencer between 2000 and 2003.