Chairman Vs. CEO: What Are The Key Differences?

In the ever-evolving landscape of corporate governance, the roles of the chairman and CEO remain pivotal. Both are integral to steering the organization toward its goals. However, understanding the distinctions between these two leadership positions is essential for navigating the complexities of modern business.

Key Takeaways

• The chairman serves as the head of the board of directors.

• The CEO leads the company’s internal operations and strategic initiatives.

• The board of directors appoints the CEO, emphasizing the collaborative nature of corporate leadership.

What Is a Chairman?

The chairman of a company is the leader of its board of directors, elected by the board members to safeguard the interests of shareholders. In public companies, a board of directors is mandatory, while private and nonprofit organizations may vary in their structure.

• A board of directors has crucial responsibilities, including:

  Responsibilities of a Board of Directors:

  • Establishing management policies
  • Ensuring the company’s stability and profitability
  • Addressing structural issues
  • Setting long-term objectives
  • Approving annual budgets
  • Determining salaries and benefits
  • Directing dividend policies
  • Recruiting, appointing, and evaluating the CEO
  • Meeting regularly to discuss major strategic decisions

The board holds ultimate decision-making authority, consisting of both internal and external members representing various interests.

• As the head of the board, the chairman wields significant influence, serving as a senior representative of shareholders and striving to maximize profits while balancing short-term gains with long-term stability.

However, the chairman does not have direct managerial authority over board members, as they are peers within the decision-making process.

Key Responsibilities of a Chairman:

• Setting agendas for board meetings
• Facilitating smooth board meetings to reach consensus
• Conducting votes on strategic policies proposed by the CEO
• Hiring and firing key executives, including the CEO
• Monitoring the overall profitability, sustainability, and growth of the company

• The chairman’s influence shapes board decisions, yet they do not engage in daily operations. Each chairman adopts a unique approach; some may be hands-on, while others delegate substantial authority to the CEO.

What Is a CEO?

The CEO is the highest-ranking executive in a company, tasked with formulating strategic processes and ensuring progress towards corporate goals. The CEO oversees all other executives and delegates day-to-day operational responsibilities while maintaining the authority to override managerial decisions when necessary.

The role of the CEO is integral to creating a comprehensive corporate vision. Beyond ideation, effective communication with investors, management, employees, and the board is essential for executing initiatives.

As the principal decision-maker, the CEO bears ultimate responsibility for the company’s success or failure, ensuring that challenges are addressed effectively and the organization remains on its strategic path.

Differences Between Chairman and CEO Positions

The chairman holds a superior position over the CEO, who must seek board approval for significant decisions. The chairman influences how the board votes on proposals from the CEO.

• Collaboration is key. The CEO and chairman typically co-lead the company, discussing strategic issues and determining the CEO’s level of autonomy in executing new strategies. Ultimately, the board retains final authority, including the power to hire or fire the CEO.

• Power dynamics vary. The balance of power can differ significantly between companies. In some organizations, a proactive chairman may take a more authoritative role, while others may allow the CEO to lead independently.

  Specific dynamics include:

  • The CEO can overrule decisions made by other executives.
  • The board, led by the chairman, can overturn the CEO’s decisions.
  • The CEO ranks above other executives in the corporate hierarchy.
  • The chairman is a peer to other board members.
  • Both the CEO and chairman are appointed by the board and can be dismissed by them.

• Differences in background and approach. CEOs typically emerge from practical leadership roles deeply involved in operations. In contrast, chairmen may come from advisory backgrounds, focusing more on high-level strategy.

While distinct, the chairman and CEO roles share common objectives, collaborating to ensure the company’s profitability and stability while pursuing competitive advantages and market growth.

Can a Chairman and CEO Be the Same Person?

Yes, in some companies, the chairman may also serve as the CEO. This is often seen in founder-led organizations where the founder is a significant shareholder. While this arrangement can offer advantages, it raises concerns about potential conflicts of interest, as the CEO must seek the chairman’s approval for significant decisions.

Arguments for separating the roles include:

• The full-time nature of both positions makes it difficult for one individual to fulfill both roles effectively.
• The board evaluates the CEO’s performance, which could create conflicts of interest.
• An independent chairman can more effectively identify and address deviations from the board’s mandate.
• Audit committees are required to consist solely of external board members, ensuring objectivity.
• A separation allows for diverse perspectives, encouraging healthy debate and strategic discussion.

Ultimately, having an independent chairman provides a necessary check and balance to the CEO’s power, promoting a healthier organizational structure.

Choosing Between Becoming a Chairman or a CEO

If you’re contemplating a future in either role, consider the following factors:

• Your experience. While both positions require strong leadership skills, a CEO role often suits individuals with extensive operational experience within the company, whereas a chairman may be better suited to those with a background in governance or advisory roles.

• Your interests and skills. If you thrive on the daily operations and dynamics of a business, you might find fulfillment as a CEO. Conversely, if you excel in strategic oversight and advisory roles, the chairman position may be more rewarding.

Chairman vs. CEO FAQ

1. Who is higher, CEO or chairman?

   The chairman is technically higher than the CEO. The chairman can appoint, evaluate, and dismiss the CEO, while the CEO is responsible for the operational structure of the company.

2. Can a CEO fire a chairman?

   No, a CEO cannot unilaterally fire a chairman. While a CEO may influence board decisions, removing a chairman typically requires board consensus.

   However, a majority shareholder CEO may have the leverage to remove board members, including the chairman, under certain conditions.

3. Is the chairman the owner of the company?

   No, the chairman is not usually the owner of the company. Ownership is typically held by shareholders, and the chairman’s role is to represent their interests.

4. What is the highest position in a company?

   The chairman is considered the highest position in a company. While the CEO is the core operational leader, the chairman holds authority over the board, which includes appointing the CEO.

5. What does “C-Suite” mean?

   C-suite refers to high-ranking executive positions within an organization, all beginning with “C” for “Chief”. C-suite executives are crucial in driving a company’s success, making decisions about hiring and firing key personnel.

6. What are examples of common “chief” positions at a company?

   Common chief positions include:

   • Chief Executive Officer (CEO)
   • Chief Operating Officer (COO)
   • Chief Financial Officer (CFO)
   • Chief Technology Officer (CTO)
   • Chief Information Officer (CIO)
   • Chief Compliance Officer (CCO)
   • Chief Security Officer (CSO)

7. Who can fire a chairman?

   The board of directors can fire a chairman. While the chairman leads the board, they do not outrank its members.

8. Does a chairman get paid?

   Yes, a chairman typically receives compensation for their role. Salaries can vary, and some chairpersons may serve in volunteer capacities.

9. Is being a chairman a full-time job?

   Yes, serving as a chairman usually requires a full-time commitment. The role involves significant responsibilities and time investment.

10. Can a chairman be an employee?

    Yes, a chairman can also be an employee. However, this practice is often discouraged due to potential conflicts of interest.

Final Thoughts

The positions of chairman and CEO are both prestigious and critical to a company’s success. If you aspire to reach these heights in your career, consider pursuing roles that develop your strategic and leadership skills.

To prepare for a future as a chairman or CEO, seek opportunities in management or strategy where you can gain the experience needed to drive a company’s success and contribute to its operational effectiveness.

References

1. Washington State University – Board of Directors vs. CEO: What Is the Role of Each?

Author

Matthew Zane

Matthew Zane is the lead editor of Zippia's How To Get A Job Guides. He is a teacher, writer, and world-traveler that wants to help people at every stage of the career life cycle. He completed his masters in American Literature from Trinity College Dublin and BA in English from the University of Connecticut.