A:

In general, the chief executive officer (CEO) is thought of as the highest ranking officer in a company while the president is second in command. However, in corporate governance and structure, many permutations can take place, so the roles of both CEO and president may be different across various firms. For this reason it is important to have a general understanding of the corporate environment and how different positions ultimately fit into it.

First of all, the board of directors is elected by the shareholders of a company and is composed usually of both inside directors (senior officers of the company) and outside directors (individuals independent of the company). The board establishes corporate management policies and decides on "big picture" corporate issues. Because the board is in charge of executive functions, and as the CEO is responsible for integrating company policy into day-to-day operations, the CEO often (but not always) fills the role of chairman of the board.

Another factor that determines the positions of company officers is corporate structure. For example, in a corporation with many different businesses (a conglomerate), there may be one CEO who oversees a number of presidents, each running a different business of the conglomerate and reporting to the one CEO. In a company with subsidiaries, it would be unusual to have one person carry out the roles of both CEO and president.

Presidents often hold the position of chief operating officer (COO). The COO is responsible for day-to-day operations and has vice-presidents for different parts of the company reporting to him or her. Generally, the board of directors sets the policy; the president executes the policy and reports back to the board; and finally, the board reports back to the shareholders who are the ultimate owners.

A company without subsidiaries may have one person execute the roles of CEO and president (and perhaps even chairman). As such, greater communication and contact can be achieved between the board of directors, which sets policies, and the president, who oversees the day-to-day operations of the company.

Keep in mind that these are examples of general scenarios. The CEO is not always the chairman of the board, and the president is not always the COO. The ultimate goal in corporate governance is to effectively manage the relationship between owners and decision-makers and increase shareholder value.

For further reading on corporate structure, check out the article The Basics of Corporate Structure, Lifting the Lid on CEO Compensation and Get Tough On Management Puff.

RELATED FAQS

  1. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    Learn the effects the Sarbanes-Oxley Act has on corporate governance in the United States, including strict disclosures, ...
  2. Why should investors research the C-suite executives of a company?

    Learn how C-suite officers affect shareholders; discover how the CEO impacts financial performance and why governance is ...
  3. What is the difference between a direct and an indirect distribution channel?

    Learn about the primary differences between direct and indirect distribution channels, and under what circumstances a company ...
  4. How can an investor determine a company's annual return from looking at its financial ...

    Understand what a share premium account is, what funds go into the account and the specific purposes for which the funds ...
RELATED TERMS
  1. Value Of Risk (VOR)

    The financial benefit that a risk-taking activity will bring ...
  2. Business Judgment Rule

    A legal principle which grants directors, officers, and agents ...
  3. Separation Of Powers

    An organizational structure in which responsibilities, authorities, ...
  4. Protected Cell Company (PCC)

    A corporate structure in which a single legal entity is comprised ...
  5. Registered Holder

    Shareholders who hold their shares directly with a company.
  6. Duty Of Loyalty

    A director's responsibility to act at all times in the best interests ...

You May Also Like

Related Articles
  1. Stock Analysis

    Google Stock: A Tale of Two Share Classes

  2. Professionals

    Top Places to Work for Financial Advisors

  3. Investing News

    A New Corporate Governance Initiative ...

  4. Retirement

    Equity Vs. Salary: What You Need To ...

  5. Entrepreneurship

    Why did Howard Schultz leave Starbucks, ...

Trading Center