First published in Appleby's Mauritius Newsletter, August 2019
The role of the chairman is critical to good governance and to effective performance, but the law does not describe the role other than being the person who chairs board meetings. In Mauritius, the board is headed by the chairman who has influence over the direction of the board and the CEO is not responsible for selecting the chair. That is the responsibility of the board.
The question arises as to whether the chairman and the CEO of a company can be the same person, and thus have a combined role. Combining the chair and CEO roles is arguably beneficial because it creates clear lines of command throughout the entire company that converge in a single authority figure. However, in an age of increased emphasis on good governance principles, the view is that a combined role of the CEO and chairman of a company would be putting too much power in the hands of one person.
It would indeed appear that the separation of powers may be more beneficial for a company in the long run. In an ideal corporate world, there would be input from two strong minds on the board – an executive salaried CEO and an independent non-executive Chairman. Indeed, separating the chair and CEO roles can promote overall board independence while allowing the CEO to focus on the everyday demands of managing a company. But, it is also true that personality conflict between the CEO and the independent chair can create a boardroom culture of distrust and dysfunction, which in turn can create larger problems for the company.
The National Code of Corporate Governance for Mauritius (NCCG) seeks to bring awareness in Mauritius that corporate governance means doing the right things, in the right way, at the right time, in a responsible manner and for the right persons.
The NCCG applies to public interest entities, public sector organisations and other companies from the reporting year ending 30th June 2018. The NCCG, as far as possible, avoids taking a mandatory or prescriptive approach to governance practices that focus on compliance requirements. It employs an "apply-and-explain" methodology. All public interest entities and other entities required to report on corporate governance are required to apply all the principles contained in the Code and to explain in their annual reports how these principles have been applied.
The NCCG defines the CEO as the person responsible for the conduct of the business of the organisation under the immediate authority of the Board of directors. Moreover, all organisations should be headed by an effective board and, responsibilities and accountability with the organisation should be clearly defined. In fact, there should be a written job description or position statement for each senior governance position within an organisation, for example, Chairperson, Chief Executive Officer, Chairperson for each board committee and company secretary.
The NCCG states that boards should have a chairperson who may be independent. It further states that the title, function and role of the chairperson should be separate from that of the CEO. Boards should ensure that the Chairperson be able to commit sufficient time to carrying out his or her duties and responsibilities effectively. The duties and expected workload will vary according to the type, scale and complexity of the organisation. A job description for a Chairperson is listed on the NCCG website. Similarly, all boards should consider having a strong executive management presence with at least two executives as members. The duties and expected workload will vary according to the type, scale and complexity of the organisation. A job description for a CEO is listed on the NCCG website.
The NCCG contains in Appendix 2, an example of Board Charter which states that the chairperson is elected by the board from among its members and the chairperson is primarily responsible for the activities of the board and its committees. He acts as the spokesman for the board and is the principal contact for the CEO. It is important to note that the CEO is not necessarily a member of the Board.
There is no standardised list of the roles and responsibilities of a CEO and a chairman, and the exact difference between their roles is decided by company policy. In fact, the roles and responsibilities of a CEO vary from one company to another, often depending on the organisational structure and/or size of the company. It is recommended that the CEO and the chairman have separate and distinguishable roles. The CEO manages and the chairman oversees management, but they must work together in order to achieve organisational goals. Both make high-level decisions.
The practice of separating the two positions is common in certain jurisdictions. In most European, British, and Canadian businesses the roles are usually split in an effort to ensure better governance of the company, and in turn bring higher returns to investors. When the CEO-chairman relationship is strong, the company benefits from having twice as much talent at the top, each playing a distinct leadership role, and each supporting the other. In some corporations the CEO sits on the board, even serving as chairman. Combining the roles does have its advantages, such as giving the CEO multiple perspectives on the company as a result of their multiple roles, and empowering them to act with determination. This, however, allows for little transparency into the CEO's acts, and as such their actions can go unmonitored, paving the way for scandal and corruption.
It is important for organisations to be run responsibly and managed effectively for long-term prosperity, to create sustainable value for shareholders, stakeholders and the nation. Separating the two positions strengthens the overall integrity of the company and encourages an environment of teamwork, communication and mutual respect.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.