These days, more companies than ever are hiring their previous CEO to serve as executive chairperson.
The extraordinary benefit of doing this is that the organization can ensure a smoother transition. This is a fantastic way for organizations to survive the tricky transitional period which is the death knell for so many companies.
In this article, you'll learn what an executive chairperson is, how long one should stay on for, why your CEO and executive chairperson shouldn’t be the same person, and other things too.
Let’s get started!
What is a non-executive chairman?
There are two different types of chairpersons: the non-executive type and the executive type.
Whether of the executive or non-executive variety, chairmen hold the most power on a company’s board of directors and provide leadership to the organization's officers and executives.
In the corporate universe, the board chair serves as the direct link between management and the board of directors. In the nonprofit sector, the board chair is the liaison between the board and the organization's members, its donors, and the stakeholders.
For a board chairman to be effective, he must be excellent at nurturing relationships with both the CEO and the community.
This means he must be outstanding about honing his people skills.
What is an executive chairman?
An executive chairman has many of the same responsibilities as a non-executive chairman, except he's a company's paid employee.
An executive chairman is usually a former CEO. He stays on to pass his institutional knowledge and expertise on to the current one. Many CEOs feel that their organizations need their long-term leader's expert guiding hand before that CEO rides off into the sunset.
Appointing an executive chairman is usually a sign of a peaceful, smooth, and orderly transition.
In other words, a good omen.
It’s important to emphasize that an executive chairman is directly employed by the company and not independent from it, like a non-executive chairman would be. An executive chairman takes a more active role in supporting the CEO, ensuring the CEO grows into the role.
He can help the CEO make the right decisions and avoid wrong ones.
According to a recent study, approximately 20% of non-CEO chairmen at public companies are of the executive type.
In 2000, this is precisely what Bill Gates did when he stepped down as CEO of Microsoft, handing the company's reins over to Steve Ballmer.
Mr. Gates remained in the role of executive chairperson.
Your executive chairman shouldn’t be making CEO-type decisions or doing any heavy lifting. Although there certainly will be plenty of work for him to do, his role, besides overseeing the board, is more of that of a consultant.
What is a CEO?
A CEO is always the highest-ranking executive manager within any organization.
He makes the decisions and takes the heat if those decisions end up being cataclysmic failures. A CEO also serves as the bridge between the board of directors and the company. He meets with the board and tells them what's going on.
The CEO relays whatever the board wants to see happen back to his team. The team then devises strategies to make those things happen.
The CEO’s primary responsibility is setting strategy and vision.
After that, his most important duty is to build a viable workplace culture. That's because to attract top-tier talent, you must have a work environment that people find enjoyable.
Culture is built in innumerable ways, and the CEO sets the tone. This is an integral part of workplace culture.
A CEO's third most crucial duty is building a great team. The CEO hires and fires the senior management team. In turn, they hire, fire, and lead the rest of the company on to greatness.
A CEO must wear a lot more hats in a startup than he would in a traditional company.
What are the major differences between the two?
The wording that's sometimes used to describe a CEO and an executive chairman's roles makes it all so very confusing.
In some organizations, the executive chairman is also referred to as the chief executive, but this doesn’t mean he’s the chief executive officer. Executive chairmen can have a massive influence on a company. Still, they're not involved in the nitty-gritty, day-to-day operations.
Executive chairmen oversee the board's activity, including running the meetings, maintaining good relations among members, and voting on the CEO's strategic plans.
Also, they act as a consultant to the CEO.
The CEO makes the actual strategic decisions, including studying market trends, coming up with tactical business plans, and supervising overall company operations.
The executive chairman is mainly responsible for maintaining business sustainability and profitability so that the shareholders benefit. As such, he protects the best interests of the company.
The executive chairman is always part of the board, while the CEO is often a board member. A board with the executive chairman at its head can overrule decisions made by the CEO.
Amount of Interaction
The amount of interaction between a CEO and an executive chairman depends on the needs of the company.
A CEO is more hands-on, while an executive chairman guides the board in making decisions that are right for the organization.
During challenging times, the two will work more closely together. The executive chairperson draws upon his wealth of expertise to help the CEO steer the company through treacherous waters.
How do the two balance their responsibilities between each other?
There's no right way to divide responsibilities between an executive chairman and a CEO.
The optimal way to separate the two is by setting clear responsibilities for each. What really matters is that there's a smooth succession process and clear leadership that inspires and empowers others.
This means that titles and formal divisions of responsibility don’t matter as much as these other things.
How long does an executive chairman stay on?
An executive chairman usually stays on for six to twelve months.
The end date usually is the end of the calendar year or the next annual shareholder's meeting when board members are elected.
The shelf life of an executive chairman isn’t set in stone. Still, anything longer than a year raises questions about why the overlap period must be so long. It also raises concerns about the confidence the board has in the newly appointed CEO.
Many times, the former CEO just wants to get the heck out of there because nobody likes being a redheaded stepchild. Many of these former CEOs wish to move on and get out of the way of their successors, who are often people they groomed to assume their former responsibilities.
However, the board might insist he stay at least for a little while because they're nervous about that individual’s vast storehouse of knowledge walking out the door just like that.
Sometimes, a company won't indicate an end date for the former CEO'S executive chairperson's tenure. This might be a red flag that the former CEO is trying to hoard power and secretly continue running the organization.
Maybe he successfully convinced the board that they cannot afford to lose his inexhaustible goldmine of experience, knowledge, and expertise.
Sometimes, the company doesn't announce an end date for the executive chairperson’s tenure when announcing the new CEO. In these cases, you'll often see an announcement in a few short months about an exit plan.
That's because it usually becomes readily apparent that there's really no need for the former CEO to stick around much longer.
Make sure your CEO and executive chairman are not the same person
The whole point of hiring an executive chairman is to help the new CEO smoothly transition to his new role.
If the CEO and executive chairman are one and the same, it defeats the whole purpose.
Jeff Bezos demonstrated this recently when he announced he’s set to resign his position as the CEO of Amazon around the third quarter of the fiscal year.
Andy Jassy will replace him as CEO, and Bezos will become the executive chairperson. Bezos will help his hand-picked successor learn and grow in the CEO role. Although Jassy previously worked as the chief executive of Amazon Web Services, I’m sure he has a lot to learn.
At least, he's got a darn good executive chairman to serve as a mentor!
Which is more critical for a startup to hire first?
As a startup, you won’t be hiring an executive chairperson until the current CEO is leaving his role.
Suppose your startup feels the company could benefit from the guiding hand of the former CEO. In that case, it makes sense to hire this individual as your new executive chairperson.
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