What Is a Chairman?
A chairman is an executive elected by a company's board of directors who is responsible for presiding over board or committee meetings. A chairman often sets the agenda and has significant sway as to how the board votes. The chairman ensures that meetings run smoothly and remain orderly, and they work at achieving a consensus in board decisions.
- A chairman is an executive elected by a company's board of directors who is responsible for presiding over board meetings.
- A chairman often sets the agenda and has significant sway as to how the board votes.
- The CEO runs the company and is the person that company executives report to, but since the CEO is appointed by the board, the chairman can influence who will be chosen as CEO.
- In some companies, the roles of CEO and chairman are combined, which can reduce transparency and accountability due to fewer checks and balances.
Understanding a Chairman
The chairman heads up the board of directors for a company. A board of directors is a group of individuals elected to represent shareholders. A board’s mandate is to establish policies for corporate management and oversight, making decisions on major company issues. The board of directors should be a representation of both management and shareholder interests and, typically, consists of both internal and external members. Every public company must have a board of directors.
The board is tasked with making important decisions, which can include corporate officer appointments, executive compensation, and dividend policy. As a result, the chairman has significant power and clout when it comes to influencing decisions made by the board.
The chief executive officer (CEO) runs the company and is the person whose company executives report to, but the CEO is appointed by the board. So a chairman can influence who will be chosen as CEO or to lead the company. However, in most cases, the chairman doesn't get involved with the CEO's responsibilities, which helps maintain clarity of roles and separation of powers.
As more women take on chairman positions at leading organizations, some confusion has arisen over the correct title to use (i.e., "chair" or "chairwoman"). Christine Lagarde, who was managing director of the International Monetary Fund (IMF), decided on the term "madame chairman of the executive board" for the position.
Chairman vs. CEO
The chairman is a different position than that of the CEO and can be either a non-executive or executive position. In some companies, the roles of CEO and chairman are combined, which can reduce transparency and accountability due to fewer checks and balances, which are created by having two separate positions with separate job functions.
While the chairman of the board has several supervisory abilities, the CEO’s primary responsibilities include all major corporate decisions, ranging from day-to-day operations to managing company resources, serving as the main point of communication between the board of directors and other executives. Also, a CEO often has a position on the board.
The CEO's role depends on the size, culture, and industry of the company. For example, in small companies, the CEO will often take on a more hands-on role, making a range of lower-level choices, such as interviewing and hiring of staff.
In larger (e.g., Fortune 500) companies, the CEO typically deals with macro-level strategy and the direction of growth. Other tasks are delegated to division executives. CEOs set the tone and the vision for their organization and are responsible for executing the strategy to achieve that vision. Typically, CEOs of major corporations are well known to investors, shareholders, and analysts, while chairmen or chairpersons usually remain out of the spotlight.
Although the CEO runs the company, the chairman is considered a peer with the other board members, and it's possible to overrule a CEO's decisions if the board votes together.
The chairman can have significant power and clout when it comes to influencing decisions made by the board including choosing the CEO.
Examples of a Chairman
JP Morgan Chase & Co. (JPM) combines the positions with Jamie Dimon as both the CEO and Chairman of the financial services company.
Apple Inc. (AAPL) splits the roles, with Tim Cook holding the CEO position while Arthur D. Levinson holds the Chairman position. Mr. Levinson was the former CEO and Chairman of Genentech and is currently the CEO of Calico.
On the other hand, Facebook Inc. (FB) has one role for Mark Zuckerberg as Founder, Chairman, and CEO of the social media giant.
As stated earlier, some companies have the CEO and chairman roles as separate positions while others combine the roles. In the case of founder-led companies, it's common to see the founder have multiple roles including Chairman and CEO. However, over time, the roles might be bifurcated in founder-led companies if the financial results are not up to par or the founder wants to move on to other endeavors.