Chairman vs. CEO: What’s The Difference?

By Chris Kolmar - Nov. 17, 2020

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If you’ve set your aspirations for the top of the corporate ladder, knowing the difference between top-level leadership positions is essential. When people think of the higher-ups in business, the two positions that spring to mind are chairman and CEO.

If you’re wondering just what the heck these people do and what differentiates these two roles, you’re in the right place. We’ll go over each position’s responsibilities and highlight the differences between a chairman and a CEO.

What Is a Chairman?

A company’s chairman is the head of its board of directors. He or she is elected by the board to protect investors’ interests. Shareholders elect a board of directors to represent them. Every public company must have a board of directors, while private and nonprofit organizations may or may not have one.

A board of directors has the following responsibilities:

  • Establish management policies

  • Ensure the company’s stability and profitability

  • Handle structural issues within the company

  • Set long-term objectives

  • Approve annual budgets

  • Set salaries and benefits

  • Direct dividend policy

  • Recruit, appoint, and evaluate CEO

  • Meet at least quarterly to vote on major strategic decisions

The board of directors holds the ultimate decision-making authority in the company. The board of directors is typically composed of both internal and external members, representing both managerial and shareholder interests.

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As the head of the board, the chairman is an executive who wields substantial power. The chairman acts as a senior representative of shareholders, meaning their role is essentially ensuring the company is maximizing profits. In a real-world setting, the board of directors needs to balance short-term profitability goals with long-term stability.

Notably, a chairman does not have managerial oversight over other members of the board. All board members are considered peers, so the board’s decisions are not solely the chairman’s. However, a chairman has the following responsibilities:

  • Set the agenda for board meetings

  • Ensure board meetings run smoothly and achieve a consensus on decisions

  • Hold votes on key strategic policies offered by the CEO

  • Hire and fire executives, including the CEO and president

  • Monitor the overall profitability, sustainability, and growth of the company

The chairman has significant clout in deciding how the board votes. However, he or she does not play an active role in managing the company’s day-to-day operations. Just as every company is different, so is every company’s chairman.

Some take a more hands-on approach, while others allow senior executives, like the CEO, considerable flexibility in carrying out their functions. Ultimately, though, the board of directors, with the chairman as their lead representative, acts as the CEO’s superior and serves as a check on any major policy decisions he or she offers.

What Is a CEO?

A CEO is a company’s top decision-maker who establishes strategic processes and ensures that progress is made toward corporate objectives. The CEO position is the highest rung on the corporate ladder, and all other executives answer to him or her. A CEO delegates tactical responsibilities involving day-to-day operations to other managers. They also have the authority to overrule managers’ decisions when deemed necessary.

Think of the CEO as the ultimate big-picture guy or gal who develops a broad corporate vision. It’s not enough to come up with stellar ideas, though. A CEO has to communicate his or her vision to a host of characters, including investors, management, lower-level employees, and the board of directors. Without this communication, key initiatives would never get off the ground.

A CEO has the following responsibilities:

  • Oversee departmental managers, and overrule their decisions when necessary

  • Develop and communicate the company’s vision, policies, and strategies

  • Handle strategic issues like:

    • Determining which markets to enter

    • How to counter competitors

    • Which companies to partner with

    • Which companies to take over

  • Act as the “face” of the company by:

    • Directing public relations

    • Maintaining investor relationships

    • Attending and presenting at conferences

  • Select other senior executives

  • Drum up further investments

  • Update the board of directors with timely, thorough information

  • Identify opportunities for growth

  • Establish and maintain a company culture

  • Monitor company’s finances

  • Align the company’s budget with corporate goals

  • Implement decisions made by the board of directors

As you can see, a CEO holds substantial authority in determining his or her company’s policies and actions. Note that, while CEOs hold other executives accountable, the CEO is held responsible by the board of directors.

A CEO is ultimately responsible for a company’s success or failure. It is their job to ensure that issues are met with appropriate responses and that the business is on the right track.

Differences Between Chairman and CEO Positions

The chairman of a company’s board of directors is superior to the CEO. A company’s CEO must seek board approval to make any significant decisions. As head of the board, the chairman holds considerable sway over how the board votes on decisions proposed by the CEO.

Typically, however, a company’s CEO and chairman work together to co-lead the company. They discuss issues and the corporation’s overarching vision, and the chairman decides how much flexibility the CEO has in implementing new strategies. Ultimately, though, the board has the final say and can hire and fire CEOs as they see fit.

However, this explanation comes with a pretty massive grain of salt. CEOs are typically in charge of appointing departmental managers, who, in some companies, are automatically made members of the board. By having a say over some board members, the CEO also has the power to determine who will oversee and evaluate his or her work. It depends on a company’s bylaws whether this is how the board’s composition is decided.

The balance of power between chairman and CEO varies from company to company, even within the same industry. A more active chairman can effectively become the head boss of an organization. Most chairmen, however, take a more hands-off approach and leave the company’s management to the CEO.

To break it down:

  • A CEO can overrule the decisions of other high-level executives

  • The board (headed by the chairman) can overrule the CEO’s decisions

  • A CEO is above other executives in terms of corporate hierarchy

  • A chairman is not above other members of the board; he or she is a peer

  • A CEO is selected by the board of directors, who can also fire them

  • A chairman is selected by the board of directors, who can also fire them

While the positions of chairman and CEO are distinct, they generally share the same goals and work in tandem to achieve them. Both are top-level leadership positions with a focus on keeping the corporation profitable and stable. They both focus on gaining a competitive advantage and a larger market share.

Can a Chairman and CEO Be the Same Person?

Yes, the chairman of a company can also be its CEO. This arrangement is common in founder-led companies, like Facebook. In this case, the founder is the primary shareholder and thus a natural fit for chairman. Who better to protect investors’ interests than the top shareholder, after all?

While no laws prohibit a chairman from also being the CEO or vice versa, it is generally seen as a bad idea, fraught with potential conflicts of interest. After all, a CEO must seek approval from the chairman. If the two are one and the same, then the CEO essentially has no check on their power. Of course, other board members can dissent from the CEO’s thinking, but as we’ve said, the chairman has significant clout in determining board votes’ outcomes.

Here are some other arguments for separating the positions of chairman and CEO:

  • The positions of CEO and chairman are both full-time. An individual will have difficulty performing both functions well.

  • The board of directors evaluates the CEO’s performance and sets salaries for senior-level executives, all but ensuring a conflict of interest.

  • An independent chairman is more likely to identify areas where the company is drifting from the board’s mandate and correct those issues.

  • Audit committees are required by law to consist of only external board members (i.e., the CEO and all other senior executives are left out of the process). However, because the board must report to the chairman (in this case, the CEO), the committee’s effectiveness is severely limited.

  • When the board is led by management, employees may be less inclined to report abuse to the committee, and the committee may be less likely to act on any reports.

  • An independent chairman is more likely to elicit perspectives that challenge the CEO and allow for different avenues of thought.

Overall, it’s challenging to act as the liaison between the board and management when you’ve got your foot in both doors. A business with an independent chairman serving as a check and balance to the CEO will ultimately be healthier.

Final Thoughts

The title of chairman and CEO both come with big paychecks and a whole lot of prestige. If you’ve got your sights set on getting to the top of the corporate hierarchy, these positions are the be-all and end-all.

To situate yourself as a potential chairman or CEO one day, consider seeking a position as a director of strategy or operations. Ensuring that all aspects of a business are functioning at maximum effectiveness and efficiency are crucial for both roles and will provide the necessary experience to become a chairman or CEO.

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Chris Kolmar

Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.

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