CEO vs. Board Responsibility: Where is the Line Drawn?
Blurred lines between the board and the CEO are a common source of conflict and poor corporate governance. A clear distinction between these roles is fundamental for effective management and a prerequisite for a well-functioning board.
The Board is on the Balcony, the CEO is on the Dance Floor
The board's role is strategic and supervisory, while the CEO's role is operational and executive. The board has the overall responsibility for setting the course, overseeing operations, and ensuring a sound organizational structure. The CEO is responsible for managing the day-to-day operations in line with the framework set by the board. A good rule of thumb is that the board should have the 'from the balcony' perspective, while the CEO operates 'on the dance floor'.
A clear distinction between these roles is fundamental for good governance.
The CEO is the Board's Most Important Preparer
The CEO's operational responsibility includes leading daily operations and implementing the board's decisions. However, one of the most critical, yet often underestimated, tasks is the preparation of matters for the board. The CEO is responsible for providing the board with an adequate, correct, and unbiased basis for the decisions to be made. The quality of the board's decisions can never be better than the quality of the information they receive.
Good preparation is a prerequisite for a well-functioning board.
Fact Box: The Division of Responsibilities Explained:
- The Board: Sets strategy, supervises, ensures proper organization, and appoints/dismisses the CEO.
- The CEO: Manages daily operations, implements board resolutions, and prepares matters for the board.
- Interaction: The key lies in mutual respect, trust, and a shared understanding of the different roles.
The Most Common Gray Areas Create the Biggest Conflicts
Problems often arise in the gray areas between the two roles. An 'operational board' that interferes in daily operations undermines the CEO's authority and diverts focus from strategic tasks. Conversely, a 'rubber-stamp board' that passively approves everything is a dangerous abdication of responsibility. Unclear information flow is also a classic trap that can lead to serious poor decisions.
A formal board instruction is a very useful tool to avoid these gray areas.
The quality of the board's decisions can never be better than the quality of the information they receive.
Do you want to learn more about how a board should be organized and work to create the most value? Read our comprehensive guide to board work in Norway.