Traditionally, the chairpersons of boards of charitable organizations have been those who are not executives or officers of the organization, while the chairpersons of for-profit organizations have been their CEOs. The reason charitable organizations have had non-executive chairpersons is to avoid intermediate sanctions under federal tax laws, which create a rebuttable presumption (or safe harbor) for decisions made by directors free of conflicts of interest of an officer or employee.
Although institutional investors, including the Council of Institutional Investors, advocate that the chairperson of the board of a publicly held company should be an independent director, a September 2011 survey by Institutional Shareholder Services found that 73 percent of publicly held companies and their directors disagree and have opted to designate an independent or outside director as a lead or presiding director, leaving the CEO as chairperson.
Although titles are not as important as the authority and responsibilities of the position, generally the titles and their corresponding authority and responsibilities are:
- Executive chairperson: Typically, the authority and responsibilities of the board’s chairperson are set forth in the organization’s bylaws or regulations. When the chairperson is the CEO, whose authority and responsibilities are also set forth in the organization’s bylaws or regulations, the authority and responsibilities of both positions tend to be fused and, as a result, are greater than those of a non-executive chairperson, or a lead or presiding director.
- Non-executive chairperson: Because the authority and responsibilities of the board’s chairperson, whether or not an executive or officer, are set forth in the organization’s bylaws or regulations, the authority and responsibilities of the non-executive chairperson are less than those of the executive chairperson because there is no fusion with the authority and responsibilities of an executive.
- Lead director: Traditionally, a lead director is someone who is designated by the board to comply with the listing requirements of the New York Stock Exchange to identify publicly by name or position the director or directors who preside at meetings of non-management directors. Generally, lead directors are responsible for fostering communications between the board and management and other organizational constituents. Because the authority and responsibilities of a lead director are often not set forth in the organization’s bylaws or regulations, the authority and responsibilities of a lead director are generally considered less than those of an executive or non-executive chairperson.
- Presiding director: Traditionally, a presiding director presides at meetings of non-management directors and may not have authority and responsibilities for fostering communications between the board and management and other organizational constituents. As a result, the authority and responsibilities of a presiding director are generally considered less than those of an executive or non-executive chairperson or lead director.
Because of the fusion of the authority and responsibilities of the chairperson and CEO, the executive chairperson’s role will generally be whatever he or she defines it to be. However, below are some considerations of the role of the non-executive chairperson, or the lead or presiding director.
- Give input to management on the scheduling of, and the agenda for, any board or committee meeting before either the schedule or agenda is distributed, including having the authority to include matters on the agenda for the board’s or committee’s consideration at any meeting. Typically, management initiates the schedule and agenda, but management and the board may benefit from more collaboration on the planning for meetings.
- Receive input from other board members for matters to be included on the schedule of, and agenda for, any board or committee meeting. Although each director should have the authority to request a matter be considered, collaboration with management through the non-executive chairperson or lead or presiding director may result in better meeting planning.
- Oversee the flow of information to the board.
- Call meetings of the board, including meetings of non-management directors, and preside at meetings of non-management directors. Typically, this is an express authority of the non-executive chairperson, but it should also be an authority of the lead or presiding director.
- Cause, during any board or committee meeting, the board or committee to meet in executive session of the outside or independent members and with or without legal counsel or other advisors deemed appropriate by those members.
- Cause recusal of any board or committee member from consideration by the board or committee of any matter in which the member has a perceived conflict of interest, including: excusing the member not only from speaking or being observed, but also from being able to hear or observe others, during consideration of the matter; waiving the member’s right to withhold approval of any statement in the minutes reflecting the consideration of the matter other than to reflect the member’s absence from the consideration and the member’s absence or abstention in any vote on the matter; and waiving the member’s right for reconsideration of the matter.
- Act, where appropriate, as liaison between the board and the CEO.
- Mentor, where appropriate, other directors on improving their effectiveness.
In any event, governance of any organization includes the culture of that organization. Accordingly, a best practice for one organization may not be a good practice for another. Changing a practice that changes culture generally requires two generations of directors: one to propose the change, and a successor to retain it.