Briefing the Role of Chairperson and Chief Executive Officer

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Briefing The Role of Chairperson and Chief Executive Officer

The chairperson of the board of directors and the managing director/ chief executive officer (“CEO”) exercise important roles in the corporate governance structure of a company. This briefing was produced by the Institute of Directors It is best corporate governance practice that the roles of in association with McCann FitzGerald for use in Ireland. chairperson and CEO are performed by different people, McCann FitzGerald is one of Ireland’s premier law although in a small company it may be the case that the firms, providing a full range of legal services to many of roles are combined. Ireland’s leading businesses. Clients include international organisations, major domestic The following table sets out a detailed breakdown of the respective roles: concerns, emerging Irish companies and clients in the State and semi-State sectors. Chairperson CEO Role The role of the chairperson is The CEO has the primarily to guide the board in responsibility of ensuring that its task of setting and helping the day-today running of the to implement the company’s company and its performance strategic policies. The is in accordance with the chairperson is appointed from strategic goals that the board his fellow board members has determined. Typically and usually is a non-executive a CEO is a director of the part-time position. The company but this is not a legal chairperson will work closely requirement. The CEO usually with the CEO in a ‘bridge’ role reports to the chairperson. between the board and the (see IOD Factsheet: The Role executive management team. of Managing Director/Chief (see IOD Factsheet: The Role of Executive) the Chairperson)

mccannfitzgerald.com briefing prepared for institute of directors – the role of the chairperson and ceo

Chairperson CEO Decision-Making The chairperson can only The CEO is tasked with make decisions on matters achieving the strategic goals entrusted to him or her by of the company by directing the board. However, the human and material resources chairperson should ensure to the appropriate areas and that the decision-making monitoring the performance processes of the board are of those resources. effective and that the board Operational and financial challenges sufficiently and decisions should be made with effectively major proposals regard to the running of the that are put forward by the company in order to achieve executive management team the goals that the board has as represented by the CEO. determined. The chairperson should encourage every board member to engage in board and committee meetings by which strategic decisions are taken.¹ Strategy The chairperson sets the The CEO is responsible for agenda for the board’s implementing company deliberations. That agenda policy. He or she should direct should focus on strategy, strategy towards the profitable performance, accountability growth and operation of and the creation of value the company. Longer-term for shareholders. The issues objectives and priorities relevant to these areas should which are established by the be reserved for decision by the board should be developed. board exclusively and reserved The CEO has a crucial role in matters should be identified ensuring that these strategies clearly in writing and made are in fact implemented and known to the CEO. delivered. Frequently the CEO contributes views to the chairperson to assist the board in devising company strategy.

1. The (UK) Financial Reporting Council has commented: “An effective board should not necessarily be a comfortable place. Challenge, as well as teamwork, is an essential feature” (FRC (2011) Guidance on Board Effectiveness, paragraph 1.3).

mccannfitzgerald.com briefing prepared for institute of directors – the role of the chairperson and ceo

Chairperson CEO Communication The chairperson has a The CEO should, on a timely responsibility to ensure basis, provide the board effective communication with adequate impartial with shareholders and other information to enable the stakeholders. In order to make board to make decisions. informed decisions, board members should be given a timely flow of high-quality supporting information. Ethics and Values The chairperson should set The CEO should promote clear expectations concerning the company’s cultures, the company’s culture, values values and behaviours and behaviours and the style through both the CEO’s own and tone of board discussions. example and the day-to-day working environment of the organisation. He or she should ensure that the standards of performance are accepted and understood by management and the employees. Risk Management The chairperson should The CEO should put in place ensure that the board operational planning and determines the nature, and financial control systems, extent of the risks that the consistent with the strategy company is willing to embrace determined by the board, and in the implementation of ensure that there is adequate its strategy, and to have in oversight of these areas. place effective monitoring of compliance (legal and regulatory in particular). Administration The administration and The CEO is responsible for running of the business ought the day-to-day running of the to be left to the executive company’s business. managing team. Serious friction, and blurring of respective roles, can occur between a chairperson and CEO if a chairperson attempts to interfere in matters that have been delegated exclusively to the CEO or otherwise in the day-to-day management of the company’s business.

mccannfitzgerald.com briefing prepared for institute of directors – the role of the chairperson and ceo

Chairperson CEO Finance The chairperson should The CEO should monitor ensure that strategic decisions closely the operating and of the company are informed financial results of the by consideration of the company against plans and financial resources and budgets (as determined by the constraints of the company. board). It is a key role of the CEO to deliver the strategic goals of the company, within budget. Business Frequently the chairperson The CEO should represent the Development is the company’s leading company to major customers representative and presents and professional associations. the company’s goals, business and values to shareholders, the public and the media. Staff The chairperson should, The CEO should build on a regular basis, consider and maintain an effective succession planning and executive team, effective the current and future management and effective composition of the board management structures and executive management within the organisation. team. The chairperson The CEO should maintain should take the lead on issues an on-going dialogue with of director development, the chairperson to impart including through induction information and as a source of programmes for new directors advice to the CEO. and regular reviews with all directors and of the senior executive management team. Evaluation The chairperson should act The CEO should ensure on the results of any board that effective reporting evaluation. He or she should mechanisms exist within also provide constructive the organisation to provide feedback for the CEO from a feedback at all levels of board perspective. management. He or she should also establish what action should be taken in respect of any area in which a need for improvement is identified.

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Further information is available from

Garreth O'Brien Peter Osborne Frances Bleahene Partner Consultant Senior Associate +353 1 607 1489 +353 1 611 9159 +353 1 607 1466 garreth. obrien peter.osborne frances.bleahene @mccannfitzgerald.com @mccannfitzgerald.com @mccannfitzgerald.com

Alternatively, your usual contact in McCann FitzGerald will be happy to help you further.

Institute of Directors in Ireland, Europa House, Harcourt Street, Dublin 2 01 411 0010 | [email protected] | www.iodireland.ie

This document is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.