In the US, the National Association of Corporate Directors is the standard bearer for corporate governance and it has developed a multi-chapter network of regional associations where board directors meet regularly to share best practices and generate collective wisdom.  While often more focused on public company corporate governance than private, NACD has published good thought leadership around various board roles and their differences.  For more on the NACD perspective of the differences between CEO, Chairman, and Lead Director responsibilities, see this article.

EXECUTIVE CHAIR

One of the growing areas of BSG’s board search practice is that of the Executive Chair board seat.  This position was popularized first in the UK, where the Executive Chair role has become a common position on both private and public boards of growth-oriented companies.  In fact, one of the best descriptions of the Executive Chair role is displayed on the investor relations page of a UK publicly traded technology services company called Micro Focus. In the position description, it outlines key responsibilities of the executive chair role, including the following:

• Board management--responsibility for managing the rest of the board of non-executive directors.
• Business strategy
• Executive team management (CEO reporting into the executive chair role)
• Investor relations
• Board meeting leadership
• All corporate governance related responsibilities

Why is this a role growing in importance in BSG’s practice?

• A push by corporate governance experts due to Sarbanes Oxley best practices with the goal of splitting the traditional combination of CEO and Chairman across two different people, rather than the prior concentration of power in one executive holding both titles.
• In privately held, growth equity-backed businesses, these companies need to bring in an executive chair as key tool to help less experienced, often first time CEOs or founder-CEOs, get the mentorship they need to continue to grow in parallel with their companies’ growth. Without this mentor cum executive chair, too often a CEO can get outrun by the increased complexity of running a rapidly growing business. Without an executive chair, often the only option that remains for the board is to replace one CEO with someone from the outside in an effort to topgrade the CEO seat to better match company needs.

What industries in the US have seen significant adoption of the executive chair role?

• Technology businesses where technical CEOs who carry much of the R&D responsibility in addition to that of the CEO function.
• Any business that has a founder-CEO and is experiencing, or will likely experience, significant growth and expansion.
• Biotechnology/drug discovery. Often a scientific founder is naturally also the CEO. But as the company grows, an executive chair is brought in to supplement the founder-CEO due to the increasing complexity of: the business, investor management, strategy and corporate governance.

For a good example of a private equity-backed US business that has instituted a split Chair-CEO role, read Forbes’ coverage of Rita’s, a Philadelphia-headquartered Italian ice manufacturer in the food and beverage industry.  Note that Rita’s has since been purchased by BSG client and private equity firm Argosy Capital.  

Board Director FAQ

What are the differences between a non-executive versus executive chair, or board director?

• The biggest difference is the amount of time expected be spent on company business by the person in this role. For a non-exec director or chair, most of the time is spent at monthly or quarterly board meetings, and light schedule of calls between board meetings. For an executive chair or executive board director, it is really a part time position that could require a commitment of one to three days a week.
• Compensation is also different because of the increase in time commitment to the company. For an executive chair or executive director role, there is typically a salary and potentially performance bonus, in addition to a stakeholder role in the company. In contrast, outside non-executive board directors may receive only a small annual honorarium or meetings fees plus an equity stake in the business.

For more on the differences between non-executive versus executive chair, see the Harvard Law piece, “What does a non-executive chairman do anyway?” There are a host of other variants of the board director role that may also be important to consider when either building a board for the first time, re-tooling the board for growth, or preparing a board for an IPO or sale.

• Outside directors. Often a privately held business and their board is comprised primarily of board directors who are representatives of the equity investors who committed growth capital to the business. Outside directors are a critical component of well-run boards to help bridge varying investor interests with all shareholders, offer external objective perspective on external market forces, broaden business strategy, and respond to company sale overtures or alternatives.
• Outside lead director. This role is neither as powerful as the chair role nor as much of a time commitment, but is a role that is often established to bring harmony across multiple outside directors or bridge the different perspectives of inside versus outside directors. For more on lead director responsibilities, see the National Association of Corporate Directors’ detailed framework for the role. 

Read More on the Differences between a CEO and a Chairman