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CEO Executive Leadership - References and Resources Directory

A chief executive officer (CEO, American English), managing director (MD, British English), or chief executive is the highest-ranking corporate officer (executive) or administrator in charge of total management of an organization. An individual appointed as a CEO of a corporation, company, organization, or agency reports to the board of directors.

Leadership has been described as the “process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task”.

Many CEOs have the title "president and CEO". This is a popular combination especially if someone else is a non-executive chairman of the board. In addition, it can mean the opposite (especially in the United States), in other words that the title holders are also inside directors on the board of directors if not the chairperson (often called "president"), or it can mean that they are also the chief operating officer. Compared to the CEO, who is supposed to be the visionary, the president is often considered to be more focused upon daily operations, so the title "president and CEO" is often used to emphasize that the title holder performs both these roles.

A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. The body sometimes has a different name, such as board of trustees, board of managers, board of governors, or executive board. It is often simply referred to as "the board."

A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization's bylaws. The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet.

In an organization with voting members, e.g., a professional society, the board acts on behalf of, and is subordinate to, the organization's full assembly, which usually chooses the members of the board. In a stock corporation, the board is elected by the stockholders and is the highest authority in the management of the corporation. In a non-stock corporation with no general voting membership, e.g., a university, the board is the supreme governing body of the institution.

Typical duties of boards of directors include:

  • governing the organization by establishing broad policies and objectives;
  • selecting, appointing, supporting and reviewing the performance of the chief executive;
  • ensuring the availability of adequate financial resources;
  • approving annual budgets;
  • accounting to the stakeholders for the organization's performance.
  • setting their own salaries and compensation

The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates. For public corporations, these responsibilities are typically much more rigorous and complex than for those of other types.

Typically the board chooses one of its members to be the chairman, sometimes called a president of the board in the United States.

Theoretically, the control of a company is divided between two bodies: the board of directors, and the shareholders in general meeting. In practice, the amount of power exercised by the board varies with the type of company. In small private companies, the directors and the shareholders are normally the same people, and thus there is no real division of power. In large public companies, the board tends to exercise more of a supervisory role, and individual responsibility and management tends to be delegated downward to individual professional executive directors (such as a finance director or a marketing director) who deal with particular areas of the company's affairs.

Another feature of boards of directors in large public companies is that the board tends to have more de facto power. The board can comprise a voting bloc that is difficult to overcome, because of the practice where institutional shareholders (such as pension funds and banks) grant proxies to the board to vote their shares at general meetings, and because a large number of shareholders are involved. However, there have been moves recently to try to increase shareholder activism among both institutional investors and individuals with small shareholdings. A board-only organization is one whose board is self-appointed, rather than being accountable to a base of members through elections; or in which the powers of the membership are extremely limited.

In most cases, serving on a board is not a career unto itself, but board members often receive remunerations amounting to hundreds of thousands of dollars per year since they often sit on the boards of several companies. Inside directors are usually not paid for sitting on a board, but the duty is instead considered part of their larger job description. Outside directors are usually paid for their services. These remunerations vary between corporations, but usually consist of a yearly or monthly salary, additional compensation for each meeting attended, stock options, and various other benefits. Tiffany & Co., for example, pays directors an annual retainer of $46,500, an additional annual retainer of $2,500 if the director is also a chairperson of a committee, a per-meeting-attended fee of $2,000 for meetings attended in person, a $500 fee for each meeting attended via telephone, stock options, and retirement benefits.

A board of directors is a group of people elected by the owners of a business entity who have decision-making authority, voting authority, and specific responsibilities which in each case is separate and distinct from the authority and responsibilities of owners and managers of the business entity. The precise name for this group of individuals depends on the law under which the business entity is formed.

Directors are the members of a board of directors. Directors must be individuals. Directors can be owners, managers, or any other individual elected by the owners of the business entity. Directors who are owners and/or managers are sometimes referred to as inside directors, insiders or interested directors. Directors who are managers are sometimes referred to as executive directors. Directors who are not owners or managers are sometimes referred to as outside directors, outsiders, disinterested directors, independent directors, or non-executive directors.

Boards of directors are sometimes compared to an advisory board or board of advisors (advisory group). An advisory group is a group of people selected (but not elected) by the person wanting advice. An advisory group has no decision-making authority, no voting authority, and no responsibility. An advisory group does not replace a board of directors; in other words, a board of directors continues to have authority and responsibility even with an advisory group.

The role and responsibilities of a board of directors vary depending on the nature and type of business entity and the laws applying to the entity (see types of business entity). For example, the nature of the business entity may be one that is traded on a public market (public company), not traded on a public market (a private, limited or closely held company), owned by family members (a family business), or exempt from income taxes (a non-profit, not for profit, or tax-exempt entity). There are numerous types of business entities available throughout the world such as a corporation, limited liability company, cooperative, business trust, partnership, private limited company, and public limited company.

Much of what has been written about boards of directors relates to boards of directors of business entities actively traded on public markets. More recently, however, material is becoming available for boards of private and closely held businesses including family businesses.

Board of Directors Failure

While the primary responsibility of boards is to ensure that the corporation's management is performing its job correctly, actually achieving this in practice can be difficult. In a number of "corporate scandals" of the 1990s, one notable feature revealed in subsequent investigations is that boards were not aware of the activities of the managers that they hired, and the true financial state of the corporation. A number of factors may be involved in this tendency:

Most boards largely rely on management to report information to them, thus allowing management to place the desired 'spin' on information, or even conceal or lie about the true state of a company.
Boards of directors are part-time bodies, whose members meet only occasionally and may not know each other particularly well. This unfamiliarity can make it difficult for board members to question management.
CEOs tend to be rather forceful personalities. In some cases, CEOs are accused of exercising too much influence over the company's board.
Directors may not have the time or the skills required to understand the details of corporate business, allowing management to obscure problems.
The same directors who appointed the present CEO oversee his or her performance. This makes it difficult for some directors to dispassionately evaluate the CEO's performance.
Directors often feel that a judgment of a manager, particularly one who has performed well in the past, should be respected. This can be quite legitimate, but poses problems if the manager's judgment is indeed flawed.
All of the above may contribute to a culture of "not rocking the boat" at board meetings.

Because of this, the role of boards in corporate governance, and how to improve their oversight capability, has been examined carefully in recent years, and new legislation in a number of jurisdictions, and an increased focus on the topic by boards themselves, has seen changes implemented to try and improve their performance.

Source: Wikipedia

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