This is a question I am quite often asked, so it’s worth considering carefully.
The first thing to say is that there is no specific legal definition of CEO or MD. Indeed, there is also no formal definition of Chairman either. However, a typical company’s constitution is likely to set out the way in which a Chairman would be appointed to chair either directors’ (also called ‘board’) meetings, and meetings of the shareholders (also called ‘members’ or ‘general’ meetings). This states:
Chairing of directors’ meetings
The directors may appoint a director to chair their meetings.
The person so appointed for the time being is known as the chairman.
Chairing of general meetings If the directors have appointed a chairman, the chairman shall chair general meetings if present and willing to do so. In many companies, the role of a CEO and/or MD are interchangeable and may be carried out by the same person. Sometimes a company might give an executive the title ‘CEO’ when the job description is more akin to that of an MD, and vice versa. The term CEO is an American one, which has increasingly crept into usage in the UK of late. It tends to be used instead of MD where the overall organisation is large, and where there are a number of separate companies in the group.
Generally, the Chair of a group of companies and the Group CEO are the two most important decision-makers. In larger groups, each (subsidiary) group company may have its own MD, and each MD may well report to an overall (more senior) group CEO. In a single business operation however, the MD / CEO role will usually be carried out by the same person, who might also be the chair (as well as the most significant shareholder).
The chairman is head of the board of directors. This person chairs board meetings and meetings of the shareholders. The role typically involves considering ‘strategic’ (as opposed to ‘operational’) matters and liaising with key stakeholders. The chair is answerable to and is there to protect the interests of shareholders and investors as a whole. Sometimes a chair is ‘non-exec,’ which means he/she does not work full time in the company and is brought in from outside the business in order to provide independence and objectivity.
A CEO (or Chief Executive Officer) in contrast, is responsible for the general direction of a company or group, and of its overall financial performance. He/she is usually the most highly paid executive and is typically also tasked with the delivery of the group’s business plan.
Whilst a Chairman is responsible for strategy, the CEO is required to deal with operational matters. Other main board directors report to the group CEO and the CEO reports to the chair. In circumstances where there are individual MD’s of each (subsidiary) group company, they also report to the CEO. A CEO will typically be the public face of a group, with investor-engagement responsibilities and responsibility for leading the executive team as a whole.
An MD (or Managing Director) has responsibility for the day-to-day running of a business, working closely with the senior executive team, approving operational workflows and supervising more junior management. This person should have a clear understanding of the company’s direction and, in a larger group structure, he/she will be the most senior executive in that business. Where there is a Group CEO, the individual MD’s will be rather more ‘hands-on’ and ‘operational’ than the Group CEO. MD’s report to the Group CEO (if there is one) or directly to the Chair if there is no CEO.
Andrew Lindsay
Chairman
Representation UK