Written by Lawrence Zammit, 17 July 2013
We have grown accustomed to the way of thinking that if something goes wrong in a business, the Chief Executive is ultimately responsible and so should be held accountable, even if he / she is not personally involved in what would have gone wrong. Some CEO’s accept this totally, while other CEO’s feel this is not correct.
Here are two opposing views expressed on the matter.
“The CEO sets the strategy of the organisation and is also paid a higher salary for assuming collective responsibility. Serious failure of the organisation should be accepted as a failure of the CEO and as such the CEO must resign”.
“A CEO should be expected to resign only if it is clear that it is his / her own shortcomings that led to the failure.”
The issue and the way it is viewed raises a number of considerations.
What is the role of the Board of Directors when something does go wrong in an organisation? Did they exercise due care? Was the Board functioning effectively? Did the Board members provide good guidance to the CEO? Is burdening the CEO with responsibility a convenient screen for the members of the Board? One needs to remember that there are certain areas where Board members are personally responsible for what happens in an organisation.
From the CEO’s viewpoint, one needs to answer the question: “What could the CEO have done differently to avoid what happened?” Should the CEO be allowed to work with the management team to identify the cause of the problem and rectify it? How serious does the failure have to be to warrant the resignation of the CEO?
In assessing such situations, a great deal hinges on the structure of corporate governance. By definition, such a structure must be determined by the Board of Directors as it regulates the control mechanisms that the Board wants to see in place to ensure that the business is run well. It is a question of balance as the CEO must be empowered to manage the business in line with expectations of the Board and the shareholders; while control needs to be exercised to ensure that actually happens.
It is also a matter of how the directors perceive their role, irrespective of their legal responsibilities. Do they simply want to rubber stamp the decisions of the CEO or do want intervene directly in all the key decisions of the business? There is certainly not an answer that can respond effectively to each situation. Even so this does not exonerate either the Board members or the CEO from being held accountable for what happens, irrespective of whether they were personally involved in what went wrong.