Finance Responsibilities of the Chief Executive Officer (CEO)

A chief executive officer (CEO) is the most senior corporate officer or executive. CEOs lead a range of organizations, including public and private corporations, non-profit organizations and even some government organizations. The CEO of a corporation or company reports to the board of directors and is charged with maximizing the value of the entity, which may include maximizing the share price, market share, revenues, or another element. In the non-profit and government sector, CEOs aim at achieving outcomes related to the organization’s mission, such as reducing poverty, increasing literacy, etc. The CEOs are also titled as president, chief executive (CE), and managing director (MD), as well as representative director (RD) in Japan.The Difference Between CEO and Chairman of the Board:In some European Union countries, there is a dual board system with two separate boards, one executive board for the day-to-day business and one supervisory board for control purposes (selected by the shareholders). In these countries, the CEO presides over the executive board and the chairman presides over the supervisory board, and these two roles will always be held by different people. This ensures a distinction between management by the executive board and governance by the supervisory board. This allows for clear lines of authority. The aim is to prevent a conflict of interest and too much power being concentrated in the hands of one person.In the United States, the board of directors (elected by the shareholders) is often equivalent to the supervisory board, while the executive board may often be known as the executive committee (the division/subsidiary heads and C-level officers that report directly to the CEO).Related Positions:A CEO has several subordinate executives, each of whom has specific functional responsibilities referred to as senior executives, executive officers or corporate officers. Subordinate executives are given different titles in different organizations, but one common category of subordinate executive is the vice-president (VP). An organization may have more than one vice-president, each tasked with a different area of responsibility (e.g., VP of finance, VP of human resources, VP of research and development, etc.). Some organizations have subordinate executive officers who also have the word “Chief” in their job title, such as Chief Operating Officer (COO), Chief Financial Officer (CFO) and Chief Technology Officer (CTO).

USIn the US, the term chief executive officer is used primarily in business, whereas the term executive director is used primarily in the not-for-profit sector. These terms are generally mutually exclusive and refer to distinct legal duties and responsibilities. UKIn the UK, “chief executive” and “chief executive officer”, are used in both business and the charitable sector (not-for-profit sector). In the United Kingdom, the term director is used instead of chief officer.Role and Responsibilities of the CEO:The board’s most important role is to appoint and work with the CEO. In practice the two are mutually dependent. This relationship is crucial to the organisation’s success. It can be hampered by a lack of clearly defined responsibilities/delegations or by either party stepping outside of those agreed terms. This information should preferably be captured in writing, either in the employment contract or a separate agreement.Responsibilities of CEO may include:

Developing and recommending business plans for the board’s consideration;

Submitting reports, budgets and financial statements to the board;

Implementing all approved plans, policies and programmes and achieve agreed targets;

Overseeing the financial management of the organisation;

Maintaining awareness of the business, economic and political environment as it affects the organisation;

Overseeing the effective operation, administration and development of the company;

Protect and enhance the image and reputation of the company;

Ensuring compliance with legal and regulatory obligations.
Terms of appointment and executive service agreements:The terms and conditions of the CEO’s appointment plus the extent of the CEO’s authority will be reflected in either a letter of appointment signed by both parties or in a more formal executive service agreement.This will cover the CEO’s:

Duties and responsibilities;

Length of contract and conditions for reappointment;

Structure of remuneration package, including incentives and other financial benefits;

Entitlements to leave and any special benefits;

Entitlements to employment in the case of a takeover or merger with another company;

Special requirements such as prohibition from having interests in competing companies;

Frequency of performance evaluations;

Commitment to abide by company and regulators’ rules;

Commitment to always promote the interests of the organisation and not to engage in any conflicting interests;

Obligation to return all organisational information to the organisation when leaving;

Confidentiality clauses;

Circumstances in which termination may occur, and associated procedures and entitlements.
Delegation of Authority:The process of formalising the CEO’s powers and responsibilities in writing will help the board to clarify its expectations. At the same time the board’s responsibilities should be made clear in its own charter. These documents are meant to give both sides freedom to act within boundaries, rather than to constrain.Conversely, not defining the boundaries of the CEO role means that a CEO has to regularly approach the board for approval of activities and plans. This is an ineffective use of time, does not encourage high performance and misuses the board’s skills, knowledge and experience by making them a checker rather than an adviser. By proactively communicating expectations, the CEO is free to work within these boundaries to achieve organisational goals and the board is not left to make decisions on the run.

Perhaps the most important clarification concerns matters which must be referred to the board for decision or approval. Because directors have specific duties under the Companies Law they will retain control over some matters. This will vary from organisation to organisation.Examples of delegations that boards typically make to CEOs include:

Management of major operational activities;

Financial management limitations, e.g. on capital expenditure and operational expenditure;

Senior staff appointments;

Writing contracts;

Role in strategic planning.
Delegations should be reviewed regularly as a matter of course but may need extra revision if unanticipated situations arise. For listed companies, the obligations of the board regarding continuous disclosure to the Stock Exchange about market sensitive matters requires clear delineation and understanding.Directors are responsible for the exercise by the delegate of any powers delegated by directors to that person, subject to the operation of the “reasonable reliance” defences under the Companies Law.Reporting to the board:The CEO writes a report for inclusion with the board papers for each board meeting and will probably speak at the meeting. The CEO should focus on the role of the board – governance and oversight – and use the board’s considerable expertise to assist with high level issues. The CEO should concentrate on governance-level concerns, not operational matters, and ensure that the board receives the report in time to consider it fully.The board should think of the CEO’s Report as “for information”, with matters requiring decisions or substantial discussion being better placed in separate agenda items. The CEO may need to refer matters to the board at other times. In these cases, the chairman is the main contact point.