One of the ways in which choosing a CEO also to be a director helps the company is that it also brings some problems with careful thought. The good things that can happen, such as faster decision-making, and risks, such as disagreements, can be discussed in this blog with the best ways to appoint a CEO as a director.
A CEO who is also a director allows a company to make smart decisions. The CEO knows everything that is going on day-to-day, which helps everyone place things into perspective. However this transition requires board members to have their say, and how the CEO role does not dominate all the discussions. This blog covers good practices involving guidelines that are clearly explained, promotion of open conversation, and the maintenance of a good balance of different board members. Taking all these challenges and putting into practice a few simple techniques really helps the company benefit from having its chief executive officer on the board.
The Role of a CEO on the Board
A CEO does not need to be a director. The CEO can just be an employee of the company. The board of directors can elect a CEO, and that person doesn’t even have to report the shareholders unless the CEO happens to be a director. A CEO can be just a director, managing director or even just an employee. Here’s what a CEO does when he is on the board:
- The CEO makes the board aware of how the company is performing as well as what is required.
- It links the board to the happenings in the company day-to-day.
- A CEO helps a board make plans for the future and guide the company toward its goals.
Benefits of Electing a CEO as a Director
A company can enjoy many benefits by having a CEO as a director. Some of the most important advantages are outlined below:
- Unified Vision and Leadership: The CEO leads an organisation that makes sense daily by realising long-term goals, leading everyone clearly in the company.
- Informed Decision Making: The CEO knows a company inside out, which enables him/her to help the board make better decisions by using actual information.
- Strategic Agility: He is alert to a change in the market and hence can help the board alter strategies quickly to stay abreast of the competition.
- Effective Communication: Because of the board’s presence of the CEO, everyone can easily talk and work together, therefore improving the plans that the board gives.
- Increased Responsibility: The CEO will manage the company while still responding to the instructions from the board.
Key Issues During the Nomination of a CEO as a Director
Whenever the decision is made to appoint a CEO as a director in a company, several pertinent factors need to be considered, such as ensuring a balance on the board and preventing any conflicting interests. Here are a few key things that must be kept in mind by a company:
- Maintain a proper relationship with different directors
- The CEO should not dominate others present in the boardroom
- Protect the board from the influence of the CEO
- Board members should receive fair and justifiable discussion and decisions
- Be aware of potential conflicts of interest-in particular around compensation and promotion
- Provide clarity on the role of the CEO in the board
- Clearly differentiate between the role of the board of directors in strategic planning and the day-to-day operations
- Provide adequate dispute resolution mechanisms
- Monitor the composition of the board of directors at stated intervals so that there is a proper balance.
- Lead the organisation well and keep long-term goal very sharp
Best Practices in Constituting the CEO as a Board of Directors
When a company appoints the CEO as a director, then it needs to follow some best practices so that everything goes smoothly. There are the important steps involved in this regard:
- Evaluate the CEO’s Qualifications: The CEO should have the right skills and experience to guide a company. A good leader, healthy, with a great amount of knowledge about business is preferred
- Establish a Good Work Relationship between the Board and the CEO: The CEO and the board must have a good working relationship. Good communication is through setting up company goals
- Institutionalise an Orientation Process: Introduce New Directors and even the Chief Executive Officer to the company so that the new people can know how the company operates
- Establish Succession Planning: The board of directors must often consider who will run the company in the future so as to prepare the next person for continuity
- Maintain Accountability and Governance: Independent directors should always have a voice, and the CEO’s performance should be scrutinised to keep everything balanced.
Potential Challenges and How to Address Them
Having a CEO as a director can also pose some complications for the company. Here are some problems and how to solve them:
- Conflict of Interest: The CEO being involved in any management decisions as well as board decisions may cause disagreements on matters such as pay.
Solution: Elect independent directors who can give unbiased recommendations to the board on important matters. - Uneven Flow of Power: The CEO may sometimes dominate the boardroom with influential decisions, thereby limiting other directors’ right to express themselves.
Solution: Elect an independent leader so that everyone’s say goes through. - Lack of Objectivity: The CEO will most certainly be confused in between their daily management role and oversight duty of the board.
Solution: Review the performance of the CEO periodically so as to separate the two roles. - Overlapping Responsibilities: The Chief Executive’s roles may overlap, and it is sometimes not clear what differentiates day-to-day operations and long-term planning.
Solution: Clearly define what the CEO responsibilities are. - Risk of Over-Dependence: The board relies heavily on the inputs of the Chief Executive, which makes them less effective.
Solution: Promote a balanced board where independent directors provide feedback. - Succession Planning Challenges: It may be hard to find possible successors if all focus only on the Chief Executive.
Solution: Make succession planning a priority and involve other directors in the discussion.
Conclusion
A firm can deploy CEO as a director, with an eye toward better decision-making and keeping the leadership in line with the long-term direction of the firm. However, the relationship between a CEO and their role in a directorship needs to be carefully tended. To realise benefits created from boards when deploying a CEO as a director, firms need to look into several key factors, practices, and challenge their companies in doing so. To know more about this, please feel free to approach our experts to ensure that each part of governance is properly taken care of.
