What is a Chairman of the Board?
Often referred to as the Board Chair or Chairperson, the Chairman of the Board is the designated leader of a company’s board of directors. This individual plays a critical role in overseeing the governance and the organization’s strategic decisions. The Chairman of the Board meaning encompasses ensuring that the board operates effectively, sets the organization’s long-term objectives, and oversees the work of executive leadership, including the Chief Executive Officer (CEO).
Who appoints the chair of the board?
The Chairman is appointed by the members of the board of directors. The appointment process generally occurs after the company’s annual general meeting (AGM), where board members are elected or re-elected by shareholders. Once the board is in place, they then convene to elect a Board Chair, typically from within their ranks. Additionally, the election requires a majority vote from the board members.
Chairman vs. CEO: Which is higher in rank?
The role of the Board Chair is distinct from that of the CEO. The Chairman focuses on governance and ensuring that the board functions as a cohesive use, while the CEO is responsible for the day-to-day operations of the business. The relationship between the Chairman and the CEO can vary depending on the organizational structure.
In terms of governance, the Chairman holds a higher rank. While the CEO manages the company’s daily operations, the Chairman oversees the board and ensures it effectively monitors the CEO’s performance. On the contrary, the CEO reports to the board and ensures the management executes its directives. To put it simply, the Chairman acts as the CEO’s direct superior in governance matters, but the CEO may have more visibility or control over the company’s daily activities.
Roles and Responsibilities of the Board Chairman
The responsibilities of the Chairman of the Board can be divided into three categories, (1) leadership, (2) governance, and (3) strategic oversight.
- Leadership of the Board: The Chairman generally leads board meetings and ensures all members are engaged in meaningful conversations. Other responsibilities include:
- Ensuring all directors participate actively and contribute their insights.
- Building consensus or mediating differing opinions among board members to resolve conflicts or offer guidance toward unified decisions.
- Overseeing periodic evaluations of the board’s effectiveness, like personal assessments of individual directors.
- Leading the process of identifying and mentoring future board leaders for better succession planning.
- Governance: Adhering to governance best practices and regulatory requirements is a major part of the Chairman’s role. These include:
- Ensuring the entire board adheres to legal, regulatory, and governance standards.
- Monitoring board composition, from the recruitment, selection, and evaluation of members.
- Enforcing the company’s code of ethics, especially in board activities and decisions.
- Ensuring that shareholders are informed of important decisions, and leading AGMs.
- Strategic Oversight: The Board Chair is also accountable for shaping the organizational direction, working closely with the CEO to ensure alignment. Such responsibilities include:
- Setting strategic agendas focusing on strategic discussions, with sufficient focus on long-term planning.
- Monitoring overall company performance and ensuring the board reviews financial reports and business milestones.
- Guiding the board through decisions on mergers, acquisitions, divestitures, and significant capital investments.
Qualifications of the Board Chair
The Chairman of the Board typically needs at least 10-15 years of board or senior leadership experience. Depending on the board itself, some prefer an independent or non-executive Chairman to ensure unbiased oversight, particularly in publicly traded companies. As to ensure the appointed Chairman will adhere to best practices, formal training or certification in corporate governance, like through the Institute of Directors, is often required. Advanced education (e.g. bachelor’s degree, MBAs, or JDs) provides the necessary analytical skills or knowledge.