Question

In: Finance

explain why separation of roles of chairman and CEO is considered best practice in most jurisdictions

explain why separation of roles of chairman and CEO is considered best practice in most jurisdictions

Solutions

Expert Solution

Separation of role of chairman and CEO, is necessary due to :

The board of directors have the task of managing all the business operations and protecting the interests of the shareholders. The chairman heads the board of directors . Separation of the chairman and the CEO, who is the top manager of the company ensures smooth functioning of the organisation.

  • The board of directors decides the compensation of the CEO. A CEO also the chairman could lead to a conflict in matters of executive compensation,recruitment of new staff. The board oversees the performance of the CEO and hires and fires them after their performance evaluation. Making the CEO and chairman one person makes it difficult to perform such functions. It could lead to conflict of interest , as the CEO may vote for his own compensation.
  • Splitting the role of chairman and the CEO is important as combining both the roles lead to lack of oversight and reduces the independence that the board enjoys. Appointment of a separate CEO helps to signal the board that a unified leader is answerable to the board, while the board can concentrate completely on execution of business strategies
  • Both the roles are very intensive roles and so a separation of both these roles is a must. A CEO also the chairman can lead to a abuse of the position. A company which is run by an independent board makes sure that the business is run as per the mandates and nay deviation is immediately rectified.
  • The separation helps the CEO to concentrate completely and focus on the operations of the business.

Related Solutions

EXPLAIN why an aging of receivables is considered to be the most reliable of the methods...
EXPLAIN why an aging of receivables is considered to be the most reliable of the methods used to calculate bad debts expense and the resulting allowance for doubtful accounts.
Which body fat measure is considered the best and why?
Which body fat measure is considered the best and why?
Best Ride Pty Ltd. produces electric scooters. Best Ride scooters are considered the most reliable in...
Best Ride Pty Ltd. produces electric scooters. Best Ride scooters are considered the most reliable in the marketplace. The firm is planning to launch a new electric scooter model featured with the new long-lasting battery generation and the lightest weight. The following data relating to this model are based on production of 70,000 units per year. Total Direct materials $1,800,000 Direct labor $2,400,000 Variable manufacturing overhead $600,000 Fixed manufacturing overhead $1,800,000 Variable selling and administrative expenses $360,000 Fixed selling and...
Why is the inclusion of politics in social media considered a Modern practice to people in...
Why is the inclusion of politics in social media considered a Modern practice to people in the U.S.? Who does this practice of Modernity (using social media to express political views, run internet campaigns, Trump being a big social media influence now, etc.) affect? How does it affect them?
Why is it considered good practice to acknowledge the limitations of your research in the project...
Why is it considered good practice to acknowledge the limitations of your research in the project report?
Which aggregate supply curve in Figure 14.7 does the Fed chairman fear the most? Why?
Which aggregate supply curve in Figure 14.7 does the Fed chairman fear the most? Why?
Why might the traditional model of Health Information Management practice roles not be appropriate for today's...
Why might the traditional model of Health Information Management practice roles not be appropriate for today's healthcare environment?
Why might the traditional model of Health Information Management practice roles not be appropriate for today's...
Why might the traditional model of Health Information Management practice roles not be appropriate for today's healthcare environment?
Why is the NPV considered to be the best method for capital budgeting? What does the...
Why is the NPV considered to be the best method for capital budgeting? What does the NPV tell you? What are the limitations of the payback period as an investment decision criterion? What are its advantages? Why do you think it is used so frequently? When a firm finances a new investment, it often borrows part of the funds required, so the interest and principal payments this creates are incremental to the project’s acceptance. Why are these expenditures not included...
Critique why incremental process models are considered by many to be the best approach to the...
Critique why incremental process models are considered by many to be the best approach to the software application development in a modern context?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT