The CEO is responsible for defining mission and setting directional goals that are challenging but realisable, specific and future-orientated. (Samson & Daft, 2003) They also must clearly define the organisations values and ensure that all employees embrace them so to create a strong organisational culture. Often culture and values of a company need to be adjusted. Micheal Chaney is of the belief that such a change should be the responsibility of top management, however the board of directors are responsible for ‘…setting the framework within which management can operate…’ (Thomas, 2004) This is particularly important during mergers where the clash between the two different cultures undermines the ability to exploit any synergy between the companies. (Parker 1998), (Nadler, 2004)
The CEO together with top management, are responsible for managing the overall strategic process and ensuring it corresponds with the corporate plan. Koteen (1989) states that it is the CEO’s responsibility to ensure the strategic management system is flexible, innovative and user-friendly so that strategic plans can be implemented smoothly and conflict and resistance can be overcome easily. CEO’s, must also continually monitor the environment to identify any threats or opportunities and analyse the strategic implications on internal decisions. This involves attaining information about the state of the economy, behavioural characteristics and major trends.
The importance of top management participating visibly and showing to others their interest, concern and enduring commitment to the strategy is increasingly being acknowledged. (Bailey & Verity, 1999)
Fred Hassan and Lee Scott, the CEO of Wal-Mart are both active in this commitment and ‘love visiting company stores and mingling as if [they] were just another clerk.’ (Colvin 2004)
The roles and responsibilities of the Board of Directors
The board of directors are elected by the shareholders and are required by the Corporations Act to represent the shareholders interests in the company. (Hill & Jones 2001, p59) A board typically comprises of a combination of internal and external directors. Internal directors are usually sourced from top management and provide valuable detailed information about the company’s activities. In contrast, external directors are not full time employees and provide an additional professional opinion external from management that is therefore less likely to be biased. 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;
- Setting corporate strategy, overall direction, mission or vision.
- Hiring and firing the CEO and top management
- Controlling, monitoring, or supervising top management
- Reviewing and approving the use of resources
- 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. Boards that take a very active role, and make all the key decisions that are then implemented by management are considered to be Operating Boards. At the other end of the continuum are the Passive Boards who take little responsibility and participate in strategic decisions at the discretion of the CEO. The Certifying Board, the Engaged Board and the Intervening Board fall along the middle of the continuum. It should be understood that boards are often required to move along the continuum in response to certain environmental factors.
CONCLUSION
It is evident from research sited that both the CEO and the board of directors have a wide range of roles and responsibilities in organisation’s strategic management. The CEO customarily devises the strategic direction through the setting goals, and depending on the level of involvement the board ensures such direction is in line with the shareholders interests and provides advice or sanctions. The actions of directors and CEO’s are becoming increasingly scrutinized by shareholders and regulators as a result of recent corporate failures.
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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
This figure was up from 25% in 2001
Michael Chaney is the Chairman of the National Australia Bank
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)
The National Association of Corporate Directors estimates that in 1997 40 – 50 % of large company had
an outside director as chairman.
Refer to Appendix 1: ‘How engaged should a board be?’, adapted from (Nadler, 2004)
