amit pal

14/07/2011 18:55

ceo

1. frequency of performance evaluations
2. commitment to abide by company and regulators’ rules
3. commitment to always promote the interests of the organisation and not to engage in any conflicting interests
4. obligation to return all organisational information to the organisation when leaving
5. confidentiality clauses
6. circumstances in which termination may occur, and associated procedures and entitlements.
"To empower your CEO, create boundaries", Good Governance, July-August 2006, p6 2. Corporations Act 2001 they will retain control over some matters. This will vary from organisation to organisation. Corporations Act 2001. AICD FREQUENTLY ASKED QUESTION DUTY 04 – Role of the CEO and MD Page 3 of 5 "Why the Chief Executive’s report should not dominate the board’s meeting (and how to make sure)", Good Governance, Number 49, January-February 2006, p7. "The CEO as executive director – right or wrong?", Good Governance, Number 54, November-December 2006, pp5-6. Wightwick, I "The CEO as a director" Company Director, Vol 22 (1) February 2006, p46 3. 4, where they act as head of the executive team plus sit on the board of directors. Being an executive director may appear to be a conflict, as the responsibilities of governance and management are different. The CEO as executive director is both an employer, serving shareholders, and an employee, serving the board. 5. Alternatively the board can be given an opportunity to decide whether an executive director should vote on matters where they have conflicts. Refer to Role of executive directors. Corporations Act 2001 to be mean anyone AICD FREQUENTLY ASKED QUESTION DUTY 04 – Role of the CEO and MD Page 4 of 5
7. Austin, RP, Ford, HAJ, Ramsay, IM
Company directors: principles of law and corporate governance, LexisNexis Butterworths, 2005 Guidelines for a board in setting a CEO’s contract, Best Practice Statement 1997/5 Boards that work: a new guide for directors, McGraw-Hill, 2003 Good Governance, Number 54, November-December 2006 Good Governance, July-August 2006 Good Governance, Number 49, January-February 2006 Company Director, Vol 22(1) February 2006 AICD FREQUENTLY ASKED QUESTION DUTY 04 – Role of the CEO and MD Page 5 of 5

 

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Board expectations and delegations of authority

 

The process of formalising the CEO’s powers and responsibilities in writing will help the board to clarify its expectations. At the same time the board’s responsibilities should be made clear in its own charter. These documents are meant to give both sides freedom to act within boundaries, rather than to constrain

Conversely, not defining the boundaries of the CEO role means that a CEO has to regularly approach the board for approval of activities and plans. This is an ineffective use of time, does not encourage high performance and misuses the board’s skills, knowledge and experience by making them a checker rather than an adviser. By proactively communicating expectations, the CEO is free to work within these boundaries to achieve organisational goals and the board is not left to make decisions on the run.

Perhaps the most important clarification concerns matters which must be referred to the board for decision or approval. Because directors have specific duties under the

 

Examples of delegations that boards typically make to CEOs include:

1. management of major operational activities
2. financial management limitations, e.g. on capital expenditure and operational expenditure
3. senior staff appointments
4. writing contracts
5. role in strategic planning.

Delegations should be reviewed regularly as a matter of course but may need extra revision if unanticipated situations arise.

Ultimately, it should be noted that directors are responsible for the exercise by the delegate of any powers delegated by directors to that person, subject only to the operation of the "reasonable reliance" defences under s190 of the

 

What should a CEO report to the board?

 

Expectations regarding CEO communication with the board e.g. frequency and format, are also important. Generally the CEO writes a report for inclusion with the board papers for each directors’ meeting and will probably speak at the meeting. To use this opportunity effectively the CEO should focus on the role of the board – governance and oversight – and use the board’s considerable expertise to assist with high level issues. Hence the CEO should concentrate on governance-level concerns, not operational matters, and ensure that the board receives the report in time to consider it fully.

The board should think of the CEO’s Report as "for information", with matters requiring decisions or

 

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substantial discussion being better placed in separate agenda items

The CEO may need to refer matters to the board at other times. In these cases, the chairman is the main contact point.

 

Do CEOs generally sit on boards?

 

CEOs as executive directors are relatively rare in the non-profit sector but they are common in the corporate sector

There will be times when it is important for the board to meet without any management present. Executive directors in practice may also absent themselves from parts of board meetings to deal with real or perceived conflicts of interests. Executive directors are not usually present for board proceedings when the CEO’s performance or remuneration are being discussed or for board meetings with the external auditor

 

Is the CEO a director or officer for the purposes of the Corporations Act?

 

Whether an executive director or simply the chief executive, CEOs are considered to be either directors or officers for the purposes of the Corporations Act. The term ‘director’ is defined in section 9 of the

1. appointed as a director or an alternate director who is acting in that capacity, regardless of the name given to their position;
2. not validly appointed as a director but acting in that position anyway or a person with whose wishes or instruction the directors are accustomed to act.

An officer of a corporation is defined in the same section as

1. a director or secretary of the corporation;
2. a person who makes or helps to make decisions that affect the whole or a substantial part of the business or who may significantly affect the company’s financial standing;
3. a person in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation);
4. receivers, administrators, liquidators, trustees.

Whether the CEO is a board member or not, the CEO would be classed as an officer at the very least.

This means that he/she is liable under the Corporations Act for his/her decisions and actions.

 

Should a CEO sit on the board of another organisation?

 

This will be determined by individual boards as they see fit. Specific requirements may be outlined in the executive service agreement.

According to the Corporations Act, a director or officer the CEO has legal responsibilities to act in good faith in the best interests of the organisation and for a proper purpose, to act with care and diligence, to avoid conflicts and not to misuse his/her position or information obtained in that position. To fulfil these duties, a CEO will need to devote sufficient time and have regular performance appraisals.

With this in mind and remembering that a CEO position is a full time executive, the board will place the needs of the organisation first in making its decision. For example, the board of a start up company or an organisation experiencing significant change may decide that the organisation needs the CEO’s full attention and disallow any outside directorships.

Refer also to Role of executive directors.

 

Sources

1. Institute of Directors in New Zealand Inc,

1. Kiel, G and Nicholson, G

1. "The CEO as executive director – right or wrong?",

1. "To empower your CEO, create boundaries",

1. "Why the Chief Executive’s report should not dominate the board’s meeting (and how to make sure)",

1. Wightwick, I "The CEO as a director",

 

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Legal advice

 

AICD regrets that it is unable to provide legal advice to members. Accredited legal specialists can be found through your state Law Society.