Managing Director, Chairman or both?
If we describe a board of directors as the “mind and will of the company”, that begs the question, who is guiding that mind and will? At the risk of being trite, who directs the directors?
When it comes to board leadership, there are two key roles: the Chair and the Managing Director (also known as the CEO). However, two roles don’t always mean two people. The combination of responsibilities can mean the boundaries and differences between Chair and MD can get blurry. Let’s briefly lay out some clarity here…
In a nutshell
The Chair – as the name suggests – is appointed by the directors to run the meetings of the board and general meetings of members. As such, the Chair has a degree of control over the board’s agenda and influence over the board’s decisions.
Where the Chair runs the board, the Managing Director is focused on running the company; implementing the board’s direction as corporate decisions and acting as the link between the board and the rest of the company; particularly the company’s management.
Duties of the Chair
The Chair’s focus is on the board itself, the fellow directors, how they work together and their effective (or otherwise!) guidance of the company. The Chair’s role is to help the board fulfil its function of good governance, keeping the focus on strategic issues appropriate to the board’s overview, and generally manage the board’s activities. This gives the Chair a degree of sway over issues including corporate appointments, executive compensation, and dividend policies.
Whether it’s described as such, this includes elements of team leadership, managing not only the board’s business but with a focus on the board’s relationships – both within the board and with the wider company and external stakeholders.
Duties of the Managing Director
While the Chair leads the board, the Managing Director or CEO leads the management of the company. As such, the MD has a much more direct role and impact on the running of the business, potentially including key corporate decisions and management of company resources. On the one hand, this gives the MD a huge amount of influence, but given that the MD is appointed (or removed) by the board, the Chair has a significant (even, ultimate) influence over the MD. That said, to maintain a separation, it’s uncommon for a Chair to directly interfere with the MD’s role.
The MD’s exact role – including how hands-on it is, day to day – will depend on the size of the company, the prevailing corporate culture, and even which industry it operates in.
The ‘combo’ option
In an ideal world, the two roles work in partnership – hence the understandable (and not uncommon) decision to combine the roles in a single person. However, there are pitfalls to putting these two eggs in the same basket…
- Potential role confusion on the board.
- Overlap can affect objectivity.
- Daily concerns can be pressing and management can take priority over governance.
- A combined Chair-MD role potentially gives too much authority or power to one person.
- There may actually be too much for one person to realistically do.
Although the roles of Chair and Managing Director can be clearly distinguished on paper, it’s clear that the roles and responsibilities can get a bit fuzzy in practice, suggesting a clear benefit to keeping the roles separate – there remains the potential for conflict but at least it’s out in the open. Ultimately, the decision on how to apportion and manage these responsibilities will depend on the company itself.
For more detail on how the Chair and Managing Director roles can work together effectively, consider our one-day Effective Director workshop, which can be tailored to your specific organisational needs; or give us a call on 01582 463465. We’re here to help.