Board of Directors vs. CEO: What Is the Role of Each?

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Board members meeting around a conference table with a wall monitor displaying progress charts.The Chief Executive Officer, or CEO, is often the face of a company. Their actions steer the organization’s future, and they often bear the burden of public opinion for their company’s successes and failures.

Behind the scenes, however, a CEO’s decisions are often driven by a company’s board of directors, an elected group that represents company shareholders. This group may not have the public visibility of the CEO, but their influence over an organization’s actions is powerful.

The dynamic between the two is critical to a company’s success. It’s crucial to avoid CEO vs. board of director animosity. Successful CEOs and boards of directors strive to nurture a solid, respectful relationship with each other, even when they may disagree. A healthy working environment between the two primary drivers of a company’s vision can lead to bottom-line success.

What Does a CEO Do?

As the highest-ranking members of an organization’s C-suite, CEOs make the key organizational decisions that steer a company’s strategic direction. These decisions can include operations improvements, resource management, and corporate culture. The CEO position is sometimes elected by a company’s board and shareholders.

A CEO’s involvement in day-to-day processes may depend on the size of the company. At a smaller company, they may be more involved with daily operations, while at a larger one they may concentrate on high-level decisions.

In some cases, CEOs may experience a level of fame that makes their name a known commodity outside business circles. Examples of this phenomenon include former Apple CEO Steve Jobs, whose transformation from computer company founder to iconic tech innovator made him the subject of documentary and feature films. Other CEOs who have achieved a considerable measure of fame include Tesla founder Elon Musk and Amazon founder Jeff Bezos.

What Does a Board of Directors Do?

A board of directors is a governing body elected to represent a company’s shareholders. Their chief task is to establish corporate oversight and management policies. This may include making decisions on stock dividend and options policies; executive compensation; and bringing on or terminating senior-level executives, sometimes including CEOs. A typical board of directors will consist of company insiders familiar with an organization’s inner workings and qualified people who are not with the company but carry expertise in an associated field.

A board of directors’ governance varies by organization and is determined by a company’s own bylaws. These bylaws can influence the board’s structure by setting the number of members, meeting frequency, and election procedures.

A board of directors must balance the interests of a company’s management with those of its shareholders. Forging a solid relationship with the CEO is a crucial part of achieving success.

The Ideal Board-CEO Relationship

In a perfect situation, the board and the CEO cooperate to promote the best interests of the company. The CEO manages the company’s executive team and pursues goals that are meant to drive the company forward, while the board sets those goals and gives counsel to the CEO. The board must also ask tough questions that dig into the deepest details of how a business operates.

The board and the CEO may disagree at times, but in ideal circumstances, these disagreements help strengthen the company rather than diminish its competitiveness.

Managing the Board-CEO Relationship

Whether you are pursuing your executive MBA or have been in a C-suite position for some time, it might benefit you to learn some techniques for fortifying the board-CEO relationship.

The National Association of Corporate Directors (NACD) outlined some of the relationship responsibilities of a CEO as they relate to the board of directors. These include:

  • Setting expectations about the relationship to ensure the board is a supportive force
  • Developing transparency with the board of directors can establish a mutual sense of confidence and trust
  • Establishing clear avenues of communication, which fosters a sense of engagement and can minimize ambiguity

CEOs and boards of directors may have to face conflicts of interest with one another. These disagreements, while they may be built on fundamental differences, don’t have to threaten a company’s short-term success or long-term goals. How disagreements are addressed can minimize their impact.

When conflicts of interest arise, CEOs should strive to see the board’s point of view and vice versa. They should communicate clearly with the chair of the board and seek compromise. Every situation is different but relying on the principles of strong communication and conflict resolution may help you avoid a worst-case scenario.

Become a Business Leader

Strong CEO-board relationships are built on trust and transparency. Effective CEOs navigate those relationships successfully, solidify their position, and avoid tension at the top of a company.

Washington State University’s Online Executive MBA can help you develop the skills that lead to success in the C-suite. The curriculum is designed to equip you with the expertise to build solid relationships and establish strategic leadership.

Find out how Washington State University can help you succeed at the highest corporate levels.

Recommended Reading

Benefits of Startup Incubators

Executive MBA vs. MBA: What’s the Difference?

Globalization in Business

Sources:

American Hospital Association, “How to Create a Better Board-CEO Relationship”

Investopedia, “Board of Directors (B of D)”

Investopedia, “Chief Executive Officer”

LinkedIn, “Board vs. CEO”

NACD Boardtalk, “Maintaining a High-Value Board-CEO Relationship”

N2Growth, “Managing the Board: 10 Things Every CEO Should Know”

Russell Reynolds, “Board Leadership and Performance in a Crisis”