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The Relative Roles and Responsibilities of the board of directors and the CEO in Strategic Management

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THE RELATIVE ROLES AND RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THE CEO IN STRATEGIC MANAGEMENT Julia Herald Strategic Management 1091243 Table of Contents Executive Summary 1 Introduction 1 CEO and the Board of Director's: Overview The roles and responsibilities of the CEO The roles and responsibilities of the Board of Directors Conclusion References Appendices Executive Summary Introduction The roles and responsibilities of the Chief Executive Officer (CEO) and the board of directors has changed quite dramatically, particularly regarding the amount of involvement and input into strategic management. In the wake of major corporate collapses such as HIH and Enron, public companies are also being urged to better monitor the performance of directors so to increase corporate governance. (Hepworth, Oldfield, 2004, p 3) Competition has also increased and as a result in 2002 nearly 40% of CEO's were fired for poor performance1 (Valier, 2003) due to the'...shorter grace periods and higher performance bars...' (Warrick, 2004) that are often implemented. The current environment is constantly changing, therefore the roles and responsibilities of the company leaders need to adjust in order to remain competitive in the market. Leaders can no longer be exclusively concerned with technical data and skills, but rather must be proficient with social skills and be "...skilful with people, renewal, vision, and values as well as with systems and structures.' ...read more.


Another option available to companies is to combine the role of CEO and Chairman of the board which is argued to '...increase the strength of the board and provide better accountability...' (Thompson, 2001) despite investors, researchers and government officials believing that the best corporate governance practices require a separation. (Allen, Berkley 2003) The research of Demb and Neubauer (1992, p13) has identified five key responsibilities of the board of directors as being; 1) Setting corporate strategy, overall direction, mission or vision. 2) Hiring and firing the CEO and top management 3) Controlling, monitoring, or supervising top management 4) Reviewing and approving the use of resources 5) Caring for shareholder interests To fulfil these responsibilities, the board, often with the assistance of the CEO and other executives must to ensure the company has effective systems in place to provide an environment where sound strategic decisions are made. The board may also 'evaluate and influence' (Wheelen & Hunger, 2004) proposals and decisions made by management and provide opinions and advice where required and 'initiate and determine' corporate mission and strategic direction depending on the level of board involvement. LEVEL OF BOARD INVOLVMENT Research has suggested that the board of directors have differing levels of input in strategic management depending on the type of board. ...read more.


The Australian Financial Review, 17 August, p 62. Thompson, John L (2001), Strategic Management 4th Edition, Chapter 12: Strategic Leadership and Entrepreneurship p453, Thompson Learning Valier, Karyn (2003) 'Making companies work' The Economist, 25 October, p 14-15 Warrick, Judy (2004) 'The new CEO: Rethinking the corner office' Harvard Business Review, April, p 145. Wheelen, T.L & Hunger, J.D (2004) Strategic Management and Business Policy, Prentice Hall, 9th Edition Appendix 1: 'How engaged should a board be?' Adapted from (Nadler, 2004) LEAST INVOLVED MOST INVOLVED The Passive The Certifying The Engaged The Intervening The Operating Board Board Board Board Board 1 This figure was up from 25% in 2001 2 Michael Chaney is the Chairman of the National Australia Bank 3 Fred Hassan is the Chairman and CEO of Schering-Plough 'I made it my business to know the top 200 managers personally... I don't sit with the brass from headquarters; I sit with the sales reps. I also like to be on the front lines to observe how people are working. All of this contact is time-consuming but worth it in the long run.' (Hassan, 2003) 4 The National Association of Corporate Directors estimates that in 1997 40 - 50 % of large company had an outside director as chairman. 5 Refer to Appendix 1: 'How engaged should a board be?', adapted from (Nadler, 2004) ?? ?? ?? ?? 2 ...read more.

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