The CEO and MD: under the Companies Act you’re accountable to your board and nobody else!

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Professor Douglas BOATENG

Insights into Directorships and the Boardroom

The Chief Executive Officer (CEO) and/or Managing Director (MD) are the most senior executives within organizations. According the Institute of Directors, the “role of the managing director and chief executive officer are virtually the same with both roles being ultimately responsible for the performance of the company, as dictated by the board’s overall approved strategy.”

Similar responsibilities and accountability requirements exist for Director Generals(DG) of authorities and Chief Directors of government ministries and departments. However, both public sector appointments are “strictly and technically” not guided by the Companies Act.

Although the MD and CEO titles are often used interchangeably, there can sometimes be legal distinctions and significant differences between the duties and responsibilities.

The Chief Executive Officer(CEO)

The CEO is the highest-ranking executive in an organization and is elected by the organization’s board and its shareholders. Their responsibilities are determined by the board of directors and are usually based on the organization’s legal structure. They are also tasked with the overall success of the business by championing important corporate and governance related decisions. When it comes to corporate governance, the CEO plays an essential role in ensuring that the organization complies with its governance imperatives and structures.

The CEO is also responsible for leading the creation and implementation of long-term strategies aimed at increasing shareholder value.  As the leading fulltime executive of the organization, the CEO primarily focuses on driving change, business growth and profitability whilst concurrently meeting corporate citizenry obligations. An example of a CEO role includes but not limited to the below:

    1. Develop the strategic plan to advance the organization’s policy mission, and objectives approved by the board
    2. Oversee the organization’s operations to insure efficiency, quality, service, and cost-effective management of resources.
    3. Ensure that all legal and regulatory documents are timeously filed with the relevant authorities
    4. Maintain a positive dialogue with the board chairperson
    5. Responsible for the organization’s human capital development.
    6. Based on the approved policy develop the tactical and operational implementation plans for maximum revenue and profit generation
    7. Review activity reports and financial statements to determine progress and status in attaining objectives
    8.  Where necessary, revise objectives and plans in accordance with current conditions and in consultation with the board.
    9. Provide leadership to the key executives who are co responsible for strategy implementation.
    10. Monitor compliance with laws and regulations in relation to the organization and report to the board.
    11. Manage relationships with various communities where the organization has business interests
    12. Evaluate performance of executives for compliance with established policies and objectives of the organization and their contributions in attaining the policy objectives.
    13. Maintain positive and trust-based relations with business partners, shareholders, and authorities.
    14. Review executive performance based on agreed individual targets and report to the board
    15. Build and enhance the organization’s public profile at events, speaking engagements, etc.
    16. Represent the company at legislative sessions, committee meetings, and at formal functions.
    17. Present company reports at annual stockholder and board of director meetings.
    18. Fulfill such other assignments as the CEO as determined by the board.

Extensive board level experiences over the last 25 years have led one to conclude that a confident and competent CEO no matter the pressure and interferences from the various stakeholders must:

  1. Be able to provide enough and timely information for board members to digest and provide supervisory input
  2. Be up to date on matters of organizational importance
  3. Foster open communications and consensus within the board
  4. Objectively and independently act to protect shareholder interests

Proven qualities needed in a “value creation driven” CEO include amongst others:

  1. General and sectorial experience, intellectual resourcefulness, sound and objective judgement on organizational matters, a motivator, a good listener, innovator, a role model, communicator, a delegator, results orientated, a continuous learner, resilient, profit driven but socially responsible, change agent

According to Deloitte, Wixley T, Institute of directors, Leblanc R. Kral R.  Haigh J. “the CEO is usually seen as the figurehead for the company in the public eye, and as such should be an individual with the ability to present a positive image of the company.”

A CEO’s role and responsibilities can vary from one organization to another. Organizational size, structure and culture can impact on the type of responsibilities CEOs have.

For example, in large organizations CEOs generally only deal with very high-level strategy and decision-making that impacts on the overall growth of the organization. In smaller companies, they can take on a more hands-on approach, taking responsibilities for lower-level business decisions such as the hiring of employees.

Depending on the size and structure of the organization CEOs as pointed out by Leblanc R. and Everingham G. can also be responsible for evaluating the work of directors, keeping up to date with the organization’s market landscape, reviewing developments in the industry and assessing risks that could impact on the future sustainability of the organization.

In all cases the CEO operating under the Companies Act as affirmed by the Institute of Directors, UK, South Africa, and Ghana are accountable to the duly authorized board and nobody else.

In the public sector, or in non-profit organizations, CEOs are largely focused on achieving the organization’s long term and short-term developmental strategies and socially responsible citizenry objectives.

Today, they are becoming the new leaders of the public sector with public institutions often being supervised by a board.  It is important to emphasize that contrary to popular beliefs the appointment of CEOs to companies and state-owned entities operating under the companies Act are supposed to be approved by the board. The same rules apply when the CEO is to be fired.

Secondly, it is improper for some sectorial CEOs to think and believe that a board exists to service their needs and not necessarily that of their shareholders. It is also inappropriate to view the board as a personal perk by referring to the board as “my board and the members as my directors”.

Managing Director

Whilst CEOs and Managing Directors are often seen as one in the same thing, there are instances where organizations have both a CEO and a MD. In these cases, the roles of an MD differ significantly from the CEO. Whereas CEOs report directly to the board, MDs in some instance report to the CEOs. In some organizations, they are referred to as the Chief Operating Officers and increasingly Chief Supply Chain Officers.

MDs are generally involved in the daily management and operations of organizations and provide motivation to the employees. Heads of departments and divisions report directly to the managing director who plays a vital role in the smooth functioning of each organizational division.

As with CEOs, duties and responsibilities of MDs may vary according to the type of organization that they serve. However, some general roles of MDs can include: providing strategic guidance and direction to employees, ensuring stakeholders remain up to date and informed on developments linked to the organization’s objectives, managing resources and hiring personnel and monitoring of organizational efficiency and progress.

Some unfortunate realities are that a number of “handpicked executives” in AU affiliated countries still do not have detailed job descriptions and performance contracts.  This means the board has no way of measuring their job performance and value addition. This has resulted as posited by Ward R. Catlin K. major “misunderstandings, confusion, shareholder anger and frustration over goals and performances of CEOs/MDs.

It is a widely known fact that in a number of African countries, CEOs/MDs are generally “specially selected” especially for state owned entities making accountability to the board just on paper and not in reality. Some of the handpicked executives unfortunately do not have the personal qualities, and sometimes the background to occupy the position. They as rightly pointed out by leading governance experts including King M., Wixely T, “are politically chosen and do little more than nod to requests from external influencers with own vested and not necessarily shareholder, organization, sector and nation building interests”.

For effective governance and CEO/MD accountability, it is the board of an organization that is supposed to appoint, monitor and fire CEOs/MDs operating under the Companies Act. The sometimes misinterpretation between various nations’ constitution, the appointing powers of their respective Presidents and the various Companies Acts must thus be revisited and amended accordingly in line with emerging best governance practices.

With the push for more governance and accountability by forward thinking Presidents of amongst others, South Africa, Ghana, Kenya, Rwanda, Nigeria etc., public sector CEOs and board appointments are expected to go through radical reforms in support of national development, the UNSDGs and the region’s 2063 agenda.

To sum up, an open minded, strong, adaptive, committed CEO/MD and a management team overseen by an experienced and empowered supervisory board is the key to long term shareholder value creation and the implementation of corporate citizenry imperatives. These executive leaders are responsible for ensuring that targets are met, effective implementation of new initiatives to drive revenue, business growth, profitability, productivity, employee and stakeholder wellness.

To conclude, in line with the Companies Act, it is essential that CEOs/MDs only account to the board and not to any external individuals and special interest groups who in most cases are not shareholders. Organizational leaders who ignore this clarion call, risk going to jail, disqualified from being a director or paying a heavy fine if things go wrong with the organization(s) they are heading.

>>the writer is an international chartered director and Africa’s first-ever appointed Professor Extraordinaire for Industrialisation and Supply Chain Governance. Independently recognised as one of the vertical specific global strategic thinkers on industrialization, supply and value chain governance and development, he continues to play leading academic and industrial roles in sectorial reforms both in Africa, and around the world. He is the CEO of PanAvest International and the founding non-executive chairman of MY-future YOUR-Future and OUR-Future (MYO) and the highly popular daily Nyansa Kasa series. For more information on COVID-19 updates and Nyansakasa visit www.myoglobal.org.

 

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