Chairman of the Board - Explained
What is a Chairman of the Board?
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Table of ContentsChair of the Board DefinitionA Little More on What is the Chairman of the Board (COB)Academic Research
What is a Chairman of the Board?
The Chairman of the Board of Directors (COB) is the leader of the board of directors whose role is to ensure that there is accountability among the officers and is equally accountable for the management of the officers. The chairman acts as a liaison between the top management and the board of directors, ensuring that there is compliance with the company's obligations to all stakeholders.
What does the Chairman of the Board Do?
The Chairman is usually elected by the majority vote of the board members. Since the position is considered influential by both the management and the board members, it is the strongest position in a company. Often, the chairman is always a member of the board with the most significant interest in the organization as well as possesses the highest voting rights among all stakeholders. Most often, the president of the company is always one of the members of the board. He may or may not participate in the daily organizational activities, and sometimes may take control over the actions taken by the executive body. While the CEO (or president) is involved in the planning and implementation of corporate strategies and goals, the chairman can set goals and objectives, and the board members are expected to support the ideologies of the chairman. Some of the goals that a president may propose include achieving profitable goals, increasing the company's market share, developing a customer base, and enhancing the company's image. The president of the company is always, at most times, the CEO of the company or organization. This happens when the board of directors wants to raise the level of CEO to the presidency as a reflection of trust in the presidents leadership. Executive leaders may try to interrupt their roles to maintain the strong leadership positions they hold on the board of directors. The chairman of the board may also assume the role of an executive director in case the leadership that the current CEO rejects changes suddenly. In such instances, the company's president temporarily performs the duties of the executive director until the appointment of a permanent establishment.
- What is the composition of the board of directors?
- CEO as Chairman of the Board
- Outside Director
- Outside Director or Non-Executive Director Definition
- Independent Outside Director
Academic Research on Chairman of the Board?
- Leadership structure: Separating the CEO and chairman of the board, Brickley, J. A., Coles, J. L., & Jarrell, G. (1997). Journal of corporate Finance, 3(3), 189-220. This article explores the roles of the CEO and the chairman of the board in an organization. The authors assert that shareholder activists and regulators pressure firms in the US to distinguish the roles and positions of the CEO and the Boards Chairman. Their argument, according to the author, is that separating such titles would help address the issue of agency costs in corporations as well as improve the performance of the company. The authors further provide empirical studies that support their views including the potential costs and benefits of such separation.
- Board composition, CEO duality and performance among Malaysian listed companies, Nahar Abdullah, S. (2004). Corporate Governance: The international journal of business in society, 4(4), 47-61. This article investigates the roles of the CEO of a company and the board independence in regard to the performance of a firm using key financial ratios such as ROA, EPS, ROE, and the profit margin. The authors argue that if the leadership and board structure are well placed and conform to the organizational practices, the value of the long-term shareholder will increase and the shareholder interest will be protected. To test the roles of the CEO duality and board independence, the authors utilized data offered by KLSE Main Board companies published between 1994 and 1996. The findings suggested that board independence and leadership structure do not show any relationship with the performance of a firm.
- Board meeting frequency and firm performance, Vafeas, N. (1999). Journal of financial economics, 53(1), 113-142. The author analyzes the relationship between the frequency of the board meeting and the firm performance. Based on data from 307 firms between 1990 and 1994, the author found that board meeting frequency has a correlation with corporate governance and ownership in a manner that is consistent with the agency and contract theories. The authors also found that the annual number of board meetings is inversely proportional to the value of a firm. Further, the author acknowledges that operating performance can improve after abnormal board activity.
- Corporate board size, composition and corporate failures in retailing industry , Chaganti, R. S., Mahajan, V., & Sharma, S. (1985). Journal of management studies, 22(4), 400-417. This journal discusses the appropriate size of a corporate board as well as the composition and corporate failures within a retailing industry. The authors note that in recent years, the corporate boards have been structured to assure desirable corporate governance. However, a significant question that arises is whether such changes promote proper governance. As such, the authors examine the issue by analyzing the differences in the board size and composition of 21 pairs of firms, both failed and non-failed.
- Board leadership structure and CEO turnover, Goyal, V. K., & Park, C. W. (2002). Journal of Corporate Finance, 8(1), 49-66. This paper provides an analysis of whether bestowing the duties of a CEO and a boards chairman on one individual affects the decision of the board to dismiss an ineffective CEO. The findings reveal that the sensitivity of CEO turnover to the performance of the firm is lower when the CEO and chairman duties are bestowed in a single person. These findings were found to be consistent with the view that the lack of independent leadership makes it challenging to remove poorly performing managers.
- Board leadership structure and firm performance, Kang, E., & Zardkoohi, A. (2005). Corporate governance: an international review, 13(6), 785-799. This article studies the effect board leadership structure and its impact on firm performance. According to the authors, an equivocal empirical result of a board leadership structure on the performance of a firm has both conceptual and methodological roots. The authors emphasize on whether the board leadership structure lowers or enhances the performance of leaders. The article concludes with five testable propositions that offer suggestions on how the propositions can guide future research.
- Chairman of the board: demographics effects on role pursuit, Kakabadse, N. K., & Kakabadse, A. P. (2007). Journal of Management Development, 26(2), 169-192. This article illustrates how demographic factors of a chairman of the board affect the pursuit of the role. According to the authors, the role of the chairman has a significant impact on the board dynamics including the roles and contributions to the management process. The authors analyze nine factors that affect how the chairman role is exercised in different regions including the UK, the USA, and Australia.
- Independence of the chairman and board composition: Firm choices and shareholder value, Coles, J. W., & Hesterly, W. S. (2000). Journal of Management, 26(2), 195-214. This article examines how the leadership structure role and board composition affects poison pill adoptions. The author differentiates between independent, separated leadership structures and non-independent, separated leadership structures. The findings reveal that there is a significant interaction between board composition and the board chairman independence. In addition, inside directors were also found to provide a critical informational role in the decision-making process of the board.
- Strategists on the board, McNulty, T., & Pettigrew, A. (1999). Organization studies, 20(1), 47-74. The authors of this article examine the contributions made by the non-executive directors and chairmen in UK companies. The authors used the term part-time board member to refer to individuals executing such roles. The key research question of the study is: How, if at all, do part-time board members influence strategy in the UK? Using data from 108 company directions, the authors suggest that part-time members of the board do not simply ratify decisions that are made by influential executive members. The authors further develop a conceptual model indicating that part-time board members can influence processes of strategic choice, control, and change through the shaping of ideas and content of the company strategic choices.
- CEO and board chair roles held jointly or separately: much ado about nothing?, Daily, C. M., & Dalton, D. R. (1997). Academy of Management Perspectives, 11(3), 11-20. The article addresses the controversy on the CEOs that jointly serve as board chairs. The authors highlight that powering organization constituents have targeted firms that use joint structure. The shareholders of such companies prefer non-executive director serving the same position as board chair. Over 80% of CEOs in large firms have also been found for serving as the chair of the boards. It is believed that the joint leadership structure provides a unified focus and communicates strong leadership in an organization. Accordingly, the authors pose the question: Does a board leadership structure of an organization matter? Specifically, the authors focus on the extent to which chairs who serve as CEOs are independent than their separate counterparts.
- The relationship between governance structure and corporate performance in entrepreneurial firms, Daily, C. M., & Dalton, D. R. (1992). Journal of Business Venturing, 7(5), 375-386. This journal discusses the relationship between governance structure and corporate performance in entrepreneurial firms. Literature explores the linkages between top executives and the board of directors in entrepreneurial firms, suggesting a strong relationship between these executives and firm performance in large firms. Additionally, the authors reveal how inappropriate governance structure can affect firm performance. The finding is, however, contrary to the related research that has found that stable small corporations CEOs are less likely to use prescribed governance structures; this can be jeopardizing firm performance.