CEO vs. Chairman: Which is Higher in Rank?

The distinction between the CEO and Chairman roles in corporate governance is an important aspect of organisational structure among public companies. This distinction is increasingly leading to the separation of these roles to foster independent leadership within the board. Such separation is seen as a means to enhance board independence and oversight, promoting a clear delineation of responsibilities. On the flip side, some organisations prefer to combine these roles, arguing that this integration fosters more cohesive management and streamlined authority.

The trend towards separating or combining the CEO and Chairman positions reflects ongoing efforts to optimise corporate governance structures. Companies choose their approach based on the desire to balance effective management with robust oversight, aiming for the best possible governance framework to support their strategic objectives and corporate health.

Key Takeaways:

  • The CEO and Chairman play distinct roles in corporate governance.
  • The CEO is responsible for day-to-day operations and performance.
  • The Chairman heads the board and provides strategic direction.
  • Some companies separate the roles for better corporate governance.
  • The debate between unity and separation of CEO and Chairman roles persists.

Introduction to Corporate Hierarchy

The corporate hierarchy forms the backbone of an organisation’s structure, defining the roles, responsibilities, and the flow of information between different levels of management and staff. It delineates a clear line of authority and command, ensuring that the organisation operates smoothly and efficiently. This hierarchical management structure is not just a matter of organisational convenience; it is a reflection of an organisation’s values, priorities, and its approach to leadership and management.

At the top of this hierarchy are two pivotal roles that often shape the direction and success of the company: the Chief Executive Officer (CEO) and the Chairman of the Board. Understanding the corporate hierarchy is crucial for anyone looking to grasp how decisions are made, who holds the power to make them, and how these decisions impact the organisation at large.

The Role of the Chairman

The Chairman of the board is the head of an organisation’s board of directors. They play a crucial role in the overall governance of the company, with formal responsibilities that include:

  • Appointing, evaluating, and potentially dismissing the CEO.
  • Leading board meetings and setting the agenda.
  • Representing the board in dealings with stakeholders.
  • Bridging communication between the board, CEO, and top management.
  • Ensuring legal duties and corporate governance compliance.

The Chairman holds significant power and influence, providing strategic direction to the organisation and making important financial and managerial decisions. One of their key responsibilities is the appointment and evaluation of the CEO. Their behaviour also influences the functioning of board committees, making their role essential in ensuring effective corporate governance.

The Role of the CEO

The CEO plays a pivotal role as the chief executive officer of an organisation, occupying the highest operational position. A study showed that 45% of a company’s reputation is attributed to the CEO. They have a wide range of responsibilities that encompass various aspects of the company’s operations.

One of the key tasks of the CEO is overseeing the day-to-day activities of the company, ensuring that all operations run smoothly and efficiently. They are also responsible for making crucial strategic decisions that shape the direction and future of the organisation.

Furthermore, the CEO plays a vital role in managing the senior leadership team, working closely with other executives to execute the company’s vision and goals. They have a significant influence on the development and maintenance of the company’s culture, fostering a positive work environment that aligns with the organisation’s values and objectives.

In addition, the CEO maintains a crucial relationship with the board of directors. They report to the board regularly, providing updates on the company’s performance and seeking guidance and support on strategic growth matters. This relationship is key to ensuring effective governance and decision-making within the company.

The CEO’s time allocation is diverse, but it often involves attending meetings, cultivating relationships with stakeholders, conducting business reviews, and setting strategic priorities. This allows them to focus on driving the company towards its goals and ensuring its overall success.

Key Differences Between CEO and Chairman

Scope of Responsibilities

The Chief Executive Officer (CEO) and the Chairman of the Board hold distinct roles within an organisation, primarily differentiated by their scope of responsibilities. The CEO is chiefly responsible for the company’s day-to-day operations, management decisions, and the execution of the company’s short and long-term plans. They oversee the organisation’s administrative functions, strategic direction, and operational outcomes. In contrast, the Chairman’s responsibilities revolve around governance and oversight. The Chairman leads the board of directors, ensuring that the board’s directives and policies are implemented and that the company operates in the best interest of its shareholders. Their focus is more on strategic oversight, governance, and board affairs rather than the operational and managerial aspects handled by the CEO.

Position in the Organisational Structure

In the organisational hierarchy, the CEO acts as the highest-ranking executive officer, with most employees and other C-level executives reporting directly to them. The CEO is at the forefront of all operational decisions and strategies. The Chairman, however, presides over the board of directors and occupies the highest seat within the governance structure of the company, not involved in the day-to-day operations but playing a crucial role in shaping the company’s strategic vision and ensuring corporate integrity.

Reporting and Accountability

The CEO typically reports to the board of directors, with the Chairman as the liaison between the board and the CEO, reflecting the CEO’s accountability to the board for the company’s performance. The Chairman, while accountable to the board members and the shareholders, works in tandem with the CEO to ensure the board’s decisions and strategies are effectively implemented within the company.

Which is Higher: CEO or Chairman?

Understanding the Corporate Governance Structure

In determining which position is higher, it’s essential to understand the corporate governance structure. The CEO and the Chairman serve in distinct yet complementary roles within this framework. While the CEO is the top executive responsible for operational leadership, the Chairman oversees the governance and strategic direction as the head of the board. The hierarchy between these roles depends on the company’s structure and whether roles are separated or combined, but traditionally, the Chairman is seen as having a higher governance authority, with the CEO reporting to the board.

Relationship and Interaction Between CEO and Chairman

The relationship and interaction between the CEO and Chairman are pivotal to the company’s success. A harmonious relationship built on mutual respect and clear communication can significantly enhance the company’s ability to achieve its strategic objectives. The CEO and Chairman must work closely together, with the Chairman providing guidance and support to the CEO and the board, ensuring the CEO’s decisions align with the company’s long-term goals and shareholder interests.

Conclusion

Understanding the distinctions between the CEO and Chairman roles, their responsibilities, positions in the organisational structure, and their reporting and accountability is crucial in appreciating corporate governance and leadership dynamics. While the CEO is involved in the day-to-day management and operational leadership, the Chairman focuses on strategic oversight and governance, making these roles indispensable to each other and vital for the organisation’s success. The question of which position holds higher authority can vary, but it’s clear that both roles are fundamental to guiding the company’s direction and ensuring its long-term prosperity. 

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FAQ

What is the difference between a chairman and a CEO?

The chairman of the board is the head of the board of directors, while the CEO is the head of the management team and responsible for the company’s day-to-day operations.

Can a CEO also be the chairman of the board?

Yes, a CEO can also hold the position of chairman of the board, known as the executive chairman.

What are the main responsibilities of a CEO?

The CEO is responsible for ensuring the company’s overall success, setting strategic direction, making major decisions, and representing the company to employees, stakeholders, and the public.

What are the main responsibilities of a chairman?

The chairman leads the board of directors, ensures that the board functions effectively, and provides direction and leadership to the company’s management team.

What is the relationship between the chairman and the CEO?

The chairman and the CEO collaborate closely to align the board’s objectives with the company’s strategic direction and to ensure efficient and effective governance and management.

Can a chairman and a CEO be separate individuals?

Yes, some companies separate the roles of chairman and CEO, with the chairman often being an independent director, while the CEO leads the management team.

Who is higher in rank, a chairman or a CEO?

While both positions are influential, the chairman of the board holds a higher rank in terms of governance and leadership of the company.

How does one become a CEO or a chairman?

 Becoming a CEO or chairman typically involves gaining extensive experience in leadership roles, demonstrating strategic vision, and often having a background in the industry the company operates in.

What is the difference between a chairman and a chairperson?

There is no functional difference between a chairman and a chairperson; the titles are often used interchangeably to denote the head of the board of directors.

Written by: John Courtney

John is highly ranked in the Top 100 UK Entrepreneurs list by City AM and is winner of the Lifetime Achievement Award from techSPARK. He has been a Board Director himself for over 40 years and first started placing Non-Executive Directors over 25 years ago. John founded and ran seven of his own businesses including a Management Consultancy for 10 years, a Corporate Finance offering for 10 years and a mid-sized Digital Agency for another 10 years.