Public corporations are led by Chief Executive Officers (CEO) and other upper-ec
ID: 392842 • Letter: P
Question
Public corporations are led by Chief Executive Officers (CEO) and other upper-echelon leaders who, in turn report to shareholders and board of directors (BOD). Interestingly, even though the BOD oversees the CEO, decides on the terms of employment and salaries, and monitors the overall performance, the CEO is, more often than not, the person that nominates board members. The justification? The CEO are well placed to know what type of expertise is needed on the board and should have a BOD that will 'fit' and work with. The relationship between BOD and CEO is a complex. What are the potential ethical and conflicts of interest issues arising from the CEO's involvement in the selection of board members?How can these issues be addressed? Public corporations are led by Chief Executive Officers (CEO) and other upper-echelon leaders who, in turn report to shareholders and board of directors (BOD). Interestingly, even though the BOD oversees the CEO, decides on the terms of employment and salaries, and monitors the overall performance, the CEO is, more often than not, the person that nominates board members. The justification? The CEO are well placed to know what type of expertise is needed on the board and should have a BOD that will 'fit' and work with. The relationship between BOD and CEO is a complex. What are the potential ethical and conflicts of interest issues arising from the CEO's involvement in the selection of board members?How can these issues be addressed?Explanation / Answer
In the context of the given question, a CEO is the Executive of the company along with CFO and COO.
Generally the BOD is the group in power to decide Executive's salary. Also, it is possible for the CEO to be on the BOD as a Chairman and take all strategic decisions.
Its also important that if ever there is a conflict of interest over company assets, salaries and perks, board work etc..shareholder interests must come first. A BOD has a duty of loyalty to its shareholders and this must never be compromised even if it disputes with company's Directors.
BOD is also responsible that the company acts harmoniously and for the society following the norms. For example: a company must avoid any acts of tax evasion, environment pollution etc. and the BOD and CEO must agree on this.
In my experience, one of the most ethical ways to preventing conflicts of interests between the CEO and BOD is to sign a conflict of interest agreement so that if in future decisions taken conflict both the parties, they do not impact the overall company decision making or the shareholders. For example: in the US, the shareholders are the priority and their interests come first than the BOD or the Directors of the company. So, signing a conflict of interest policy is a part of the legal requirement.
The other way to avoid such disagreements is to always think of shareholders and their interests first over the BOD's and Directors/CEO's ego, power and decisions.
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