Every public corporation in India is required to have a Board of Directors (Board), which is tasked with overseeing management’s activities and protecting the interests of the company’s shareholders, and other stakeholders. The Board comprises a Chairperson, a Managing Director, Executive Director(s) and Non-Executive Directors.
The Chairperson heads the Board. She/ he is first among equals. She/he is elected by other Directors and is responsible for presiding over Board and/or committee meetings (where she/he is the Chairperson). A Chairperson is expected to play a role in setting the agenda. She/he ensures that meetings run smoothly, and remain orderly, and works at achieving a consensus in board decisions. She/he usually does not have a casting vote in Board decisions.
A Managing Director (MD) or Chief Executive Officer (CEO) is the highest-ranking executive in a company. His/her primary responsibilities include making major corporate decisions, managing the overall operations and resources of a company, and acting as the main point of communication between the Board and the management. An MD is elected by the shareholders, and the CEO is appointed by the Board. While an MD is a Director of the Board, a CEO is not a Director, unless he/she is also a Whole-time Director.
Over the years, while some organisations have moved towards having two persons manning these positions, others continue to have one person in both these posts.
1) Promoter Chairperson, whether executive or non-executive and Professional MD/ CEO
The founder/ promoter of the company serves as the Executive Chairperson or the Non-Executive Chairperson of the Board, while the Board appoints a professional MD/ CEO, with experience of managing the operations of the company.
2) Chairperson, who is also the MD/ CEO
In some companies, the post of Chairperson and MD/ CEO is held by the same person. This need not be a promoter led company. Many Public Sector Undertakings, for example, have the same person manning the position, and going by the designation of Chairman and Managing Director (CMD).
3) Executive Chairperson and Professional CEO
The Chairperson and CEO both hold executive positions.
Our thoughts :
It has been observed that the most suitable structure combination is for the Chairperson to be a non-executive member. In this, the Chairperson, as head of the Board is able to hold management, through the MD/ CEO, responsible for its action. Such distinction and clarity in the two roles are important for good corporate governance.