Who’s who
Determining a company’s hierarchy—including how many layers of power it has,
and how many staff to appoint at each level—is one of the biggest challenges of
modern management. In family-run businesses, positions are usually filled by
family members who answer to the head of the family. The emergence of public
companies has meant that company ownership is separated from management,
so that shareholder interests are prioritized.
Stakeholders and
shareholders
Stakeholders are anyone with a vested
interest in the company. Shareholders
are stakeholders who have bought
stock in the company. See pp.60–63.
Who’s who in an organization
Board of directors
The board of directors makes sure the
company is run profitably to provide
returns to shareholders. The board
votes in a chairman, who is sometimes
also the chief executive officer (CEO).
See pp.52–55.
C-suite executives
The top level operates the company
day to day and sets strategy. All titles
of top management begin with a “C”
for chief. Senior managers are headed
by the CEO. See pp.56–59.
US_050-051_Whos_Who_OVERVIEW.indd 50 21/11/2014 14:24
50 51
how companies work
Who’s who
46%
of UK employees
believe what senior
managers tell them
about what is happening
in their organization
Overtime pay
Managerial staff who are not paid for overtime
hold exempt positions. Non-exempt positions
usually belong to non-managerial staff who are
paid by the hour and qualify for overtime pay.
Who bosses whom
When one manager has formal authority (decision-
making power) over another, it is called vertical
specialization. Horizontal specialization means
several managers have equal authority.
STRUCTURAL WHYS
AND WHEREFORES
Mid-level management
Division and department heads are
usually called directors or managers.
Jobs at this level are often the first to
go when a company downsizes or
restructures. See pp.56–59.
Junior management
Supervisors, managers, or team
leaders directly manage groups of
employees carrying out specific tasks.
Examples include a head nurse or
foreman. See pp.56–59 and pp.74–75.
Non-management
employees
The lowest ranks of the organization:
skilled and unskilled workers carry out
core tasks needed for the company to
operate. See pp.56–59 and pp.74–75.
US_050-051_Whos_Who_OVERVIEW.indd 51 21/11/2014 14:24
50 51
how companies work
Who’s who
46%
of UK employees
believe what senior
managers tell them
about what is happening
in their organization
Overtime pay
Managerial staff who are not paid for overtime
hold exempt positions. Non-exempt positions
usually belong to non-managerial staff who are
paid by the hour and qualify for overtime pay.
Who bosses whom
When one manager has formal authority (decision-
making power) over another, it is called vertical
specialization. Horizontal specialization means
several managers have equal authority.
STRUCTURAL WHYS
AND WHEREFORES
Mid-level management
Division and department heads are
usually called directors or managers.
Jobs at this level are often the first to
go when a company downsizes or
restructures. See pp.56–59.
Junior management
Supervisors, managers, or team
leaders directly manage groups of
employees carrying out specific tasks.
Examples include a head nurse or
foreman. See pp.56–59 and pp.74–75.
Non-management
employees
The lowest ranks of the organization:
skilled and unskilled workers carry out
core tasks needed for the company to
operate. See pp.56–59 and pp.74–75.
US_050-051_Whos_Who_OVERVIEW.indd 51 21/11/2014 14:24
How it works
All companies must have at least one
director. If a company goes public and
issues shares, it is legally required to have
a board of directors. The board is made
up of experienced business advisers who
provide independent oversight of the
company for shareholders and are mandated
by law to govern the company responsibly.
Board members may come from within
the company or be independent outsiders,
and should cover a range of expertise—
such as legal, financial and marketing—
or have specialized industry knowledge.
Networkers are also highly prized for their
ability to build connections with influential
figures in the corporate and governmental
spheres. From within their ranks, the board
elects a chairman, vice-chairman, secretary,
and treasurer.
Board of directors
Public companies are required by law
to appoint a board of directors to
provide oversight.
RepoRts to
Any person or
institution that has
bought shares in
a publicly listed
company is a
shareholder. The
board works for
the shareholders,
who effectively
own the company.
Shareholders
Board of directors
The board of directors of a publicly listed company
sits between the company and its shareholders.
Appointed by
The board
Responsible for
Presenting yearly accounts
Leading audit committee
Treasurer
Appointed by
The board
Responsible for
Publicly representing the
company’s policies and
leading board meetings
Secretary
eVALUAtes
$ $
US_052-055_Board_of_directors.indd 52 21/11/2014 16:38
52 53
HOW COMPANIES WORK
Who’s who
Responsible for day-to-day
production, sales and marketing
operations, and finance. The
company reports to the board via
its chief executive officer (CEO),
who executes the board’s decisions.
Company
REPORTS TO
The average
company board
in the US has
9.2
directors
Appointed by
The board
Responsible for
Standing in for chairman
Undertaking special
projects for chairman
Assisting chairman in
balancing experience,
personality, and age of
directors on board
Vice-chairman
Appointed by
The board
Responsible for
Determining strategy
Monitoring achievement
of implemented policies
Appointing managers
Accounting for company’s
activities to shareholders
and other stakeholders
Directors
Appointed by
The board
Responsible for
Publicly representing the company’s policies
Leading the board, conducting board meetings
Determining the composition of the board
Mentoring and monitoring the CEO or
managing director (MD)
Communicating with shareholders
Chairman
Appointed by
The board
Responsible for
Performance of
the company
Implementing
board strategy
Leading senior management
Reporting back to chairman
and board
CEO
EVALUATES
REPORTS TO EVALUATES
Management
Managers pass the CEO’s
decisions down to employees.
US_052-055_Board_of_directors.indd 53 21/11/2014 16:38
52 53
HOW COMPANIES WORK
Who’s who
Responsible for day-to-day
production, sales and marketing
operations, and finance. The
company reports to the board via
its chief executive officer (CEO),
who executes the board’s decisions.
Company
REPORTS TO
The average
company board
in the US has
9.2
directors
Appointed by
The board
Responsible for
Standing in for chairman
Undertaking special
projects for chairman
Assisting chairman in
balancing experience,
personality, and age of
directors on board
Vice-chairman
Appointed by
The board
Responsible for
Determining strategy
Monitoring achievement
of implemented policies
Appointing managers
Accounting for company’s
activities to shareholders
and other stakeholders
Directors
Appointed by
The board
Responsible for
Publicly representing the company’s policies
Leading the board, conducting board meetings
Determining the composition of the board
Mentoring and monitoring the CEO or
managing director (MD)
Communicating with shareholders
Chairman
Appointed by
The board
Responsible for
Performance of
the company
Implementing
board strategy
Leading senior management
Reporting back to chairman
and board
CEO
EVALUATES
REPORTS TO EVALUATES
Management
Managers pass the CEO’s
decisions down to employees.
US_052-055_Board_of_directors.indd 53 21/11/2014 16:38
BOARD OF DIRECTORS
CEO as chairman
A setup in which the company’s CEO serves as the board’s
chairman. While this offers less independent scrutiny of
finances, strategy, performance, and pay, it avoids duplication
of roles. This setup is found in US corporations and in many
small- and medium-sized companies in other countries.
Balancing the board
The board has three clear areas of
responsibility: developing business
strategy, advising the company,
and overseeing how the firm is run.
Selecting the right mix of directors
to fulfill these functions is crucial.
Board members may come from
inside or outside the company.
Those who work for the company
(executive or internal directors)
have more expertise in running
the business, but independent
members (non-executive or external
directors) are better placed to offer
perspective, scrutinize the actions
Independent board of directors
The board sits between shareholders and company. The
CEO is the main channel of communication between board
and company, while the chairman is the principal conduit
between shareholders and board. This structure gives the
board most independence.
of company executives, and call
them to account. When potential
conflicts of interest arise between
management and shareholders,
independent directors can weigh
decision-making in favor of acting
in the company’s best interests.
The ideal balance is a hot topic
in corporate governance. In US
companies, CEO and chairman roles
have traditionally been combined,
but following a spate of corporate
scandals, the roles are now more
often vested in two individuals. In
Europe, keeping the roles separate
has long been seen as best practice.
Shareholders
Board of directors
Management and
employees
Board of directors
Chairman
and CEO
Management and
employees
Shareholders
CEO
Shareholders
Chairman Treasurer
Secretary
Key
Board structure variations
NEDs Non-executive directors,
also known as independent,
external, or outside directors
Executive directors Board
members who also work for the
company—not to be confused with
the term executive director when
used as a title for the CEO
Model Business Corporation
Act Developed by the American
Bar Association, this model is used
as the basis for corporate
governance in the US
NEED TO KNOW
US_052-055_Board_of_directors.indd 54 21/11/2014 16:38
54 55
how companies work
Who’s who
Two-tier board
An arrangement that is made up of separate supervisory
and executive boards. The supervisory board is composed
of outside directors, led by a chairman. The executive
board comprises senior managers, including the CEO.
The two boards always meet separately.
Senior management as directors
A structure in which senior managers also sit on the board.
The chief financial officer (CFO) is appointed board treasurer
and the chief operations officer (COO) is vice-chairman. In
some countries (Germany, for example), employees must
be included on the board by law.
Board of directors
Supervisory board
Executive board
Management and
employees
Management and
employees
Shareholders Shareholders
Treasurer
and CFO
Vice-chairman
and COO
Chairman
and CEO
44%
of S&P 500-listed
companies had
distinct CEO and
chairman roles in
2012—up from
21% in 2001
Management and employees
CEO
Vice-chairman Other directors
CEO and board
member
Employee and
board member
PROS AND CONS OF CEO AS CHAIRMAN
Pros
Strong, central leadership
Decisions hold fewer conflicts.
Efficiency CEO/chairman can
implement board decisions swiftly.
Expertise CEO has company and
industry knowledge (a CEO may
become chairman after retirement).
Balance of power Established
hierarchy between CEO/chairman
and other directors reduces risk
of conflict on the board.
Cons
Lack of transparency Conflicts of
interest/corruption are more likely.
Reduced objectivity Board
headed by CEO is unable to monitor
CEO’s work objectively.
Higher remuneration Combined
role generally commands higher pay
than two separate individuals.
Mentoring Chairman who is
also CEO cannot offer independent
mentoring and support for the role.
US_052-055_Board_of_directors.indd 55 21/11/2014 16:38
..................Content has been hidden....................
You can't read the all page of ebook, please click here login for view all page.