In 2000, Bill Gates stepped down as chief executive officer (CEO) of Microsoft. His former position was taken over by Steve Ballmer. But despite handing over the reins of his company, Gates remained as chairman. Who answered to whom? Or who is ranked higher among those two?
The most basic explanation is that the CEO is the one who makes the decisions in the company. And they also take heat in case those decisions end up being a failure. Likewise, they get heaped with praise when the plan they put into play turns out a success.
Duties of a CEO
A CEO is also the top-ranked official within the company which means that his subordinates, the executives, answer to them. He may be in charge of all the high-level strategies but he has a team of managers and other executives who are delegated specific tasks. Essentially, the decision-making powers of a CEO are more strategic in nature, and can include determining which markets to enter, coming up with strategies on beating the competition and deciding which companies look great as partners.
Then again, that really depends on the size of the company. Some smaller businesses have their CEOs dealing with matters like hiring when that could be left up to a different department. The responsibility of making strategic decisions is most often given to CEOs of large corporations.
All in all, a CEO serves as the bridge between the board of directors and the company. A CEO is the one who goes in and meets with the board, tells them what’s going on and on some occasions solicits their advice. In essence, whatever the board wants, a CEO relays that to his team and they devise strategies to make that happen.
So yes, the CEO takes all the heat from the board when things don’t go exactly as planned. And yes, they can lose their job if the directors are still not satisfied.
Duties of an Executive Chairman
An executive chairman (EC) is a pretty interesting position. For one, executives normally report to the CEO seeing as they are the head of the company. But an EC can be considered as the boss of the CEO as well.
To illustrate this, let’s use Eric Schmidt being named executive chairman of Google in 2011 as an example. He previously held the position of CEO but he stepped down and handed the reigns over to Larry Page. As an executive chairman he acted as adviser to both co-founders Page and Sergey Brin.
An EC functions both as an executive (meaning they report to the CEO) but then they are also the boss of the CEO. When Page assumed the position of EC in 2011, he mentioned that he will still be in charge of “the deals, partnerships, customers and broader business relationships, government outreach and technology thought leadership.” Those are basically jobs that are in the area of responsibility of a CEO, but then again, Google is a very special company.
So essentially, an executive chairman is an office separate from that of a CEO but can function like a CEO and has even a higher authority than a CEO.
But that setup works for Google because they are a special company, structure wise. Then again, they are not the only company employing both an executive chairman and a CEO, other companies such Oracle and HSBC adopt the structure too.
At HSBC, the chairmanship does outrank the CEO. They are also responsible for taking charge of the board and being the company’s representatives during meetings with government officials.
So essentially, executive chairman can have a substantial influence in the company but they do not actively participate in day-to-day operations. Then again, their actual duties depend on what kind of corporate structure a business wants to adopt. Put simple, the role of an executive chairman is decided based on what suits the company best.
Difference Between a Chairman and an Executive Chairman
A chairman doesn’t play an active role in the day-to-day operations of a company. They sit on the board of directors and serve as its head. The shareholders are the one’s in charge of electing individuals to a spot on the board.
An executive chairman, on the other hand, is present day-to-day in the company but the extent of their role is dependent on how the company structures itself. Take the Schmidt example where his duties sound similar to those of a CEO but its Larry Page who carries that title.
Dividing Responsibilities Between Executive Chairman and CEO
“The roles of executive chair and CEO should not just be additive but synergistic as well,” said Mike Lorelli in a Forbes article called The Right Way to Divide Responsibilities Between Chairman and CEO. Basically, there should be a clear line separating the two but can also overlap in terms of collaboration.
George Bradt, Forbes contributor and author of the article mentioned beforehand, provided on outline for properly dividing executive chair and CEO responsibilities:
- Owners delegate authority to boards.
- Chairs or lead directors are in charge of boards. (For non-executive chairs; an executive chair is treated as an employee of the company where they guide and support the CEO).
- CEOs are responsible for running the company.
- Chief operating officers (COOs), chief financial officers (CFOs), chief human resource officers (CHROs) and other executives provide support to the CEO in executing core operating, strategic and organizational processes.
- An individual can “lean in or out” depending on how confident they are in the person they have chosen to deal with.
The Bottom Line
There is a very blurry line between the roles of executive chairman and CEO and the best way to separate the two is by setting clear responsibilities for each. So yes, those roles will differ with each company. Both do have authority over a company but they differ in the extent to which they can wield that authority. But even more important than having clearly defined duties is having a good relationship with both determined to see the company succeed.