Corporate governance, esp. for small business
July 15, 2006 3:23 PM Subscribe
How does corporate governance work in a small- or micro-business environment?
(Note: This post is somewhat US-centric, but I'm certainly interested in hearing perspectives from other nationalities/cultures as well!)
In a small, privately-owned business, how are the various corporate duties and responsibilities typically divided up?
As I understand it, there are basically three groups of corporate leadership:
Group 1:
- Chairman of the Board
- Director
- Director
- etc.
Group 2:
- President
- Vice President
- Treasurer
- Secretary
- etc.
Group 3:
- CEO
- COO
- CFO
- CTO
- CIO
- etc.
While I generally understand the where the Board of Directors fits in, I'm less clear on, say, the difference between a President and a CEO. One person can have both roles -- but what's the difference between the roles?
Similarly, what does the Treasurer do, exactly? How does that differ from, say, a CFO?
And apart from taking minutes and signing things occasionally, what exactly is a Secretary's role? Do they do other things as well?
I'm particularly interested in how these roles relate to the small-business environment. Is it "okay" for the same person to be Chairman, CEO, and President? When the time comes for the group of leadership to grow, which of those responsibilities should be given to someone else? If there are only 1-2 owners who actively run and participate in the business on a daily basis, is a board of directors even needed?
I've looked over Wikipedia, various business books, etc., and I can't seem to find a clear explanation of these relatively simple things. It's as if it's assumed that everyone already knows these things. I must have missed that day. :-)
(Sorry for the big batch of questions, but they're all basically about wanting to better understand corporate governance.)
Thanks!
(Note: This post is somewhat US-centric, but I'm certainly interested in hearing perspectives from other nationalities/cultures as well!)
In a small, privately-owned business, how are the various corporate duties and responsibilities typically divided up?
As I understand it, there are basically three groups of corporate leadership:
Group 1:
- Chairman of the Board
- Director
- Director
- etc.
Group 2:
- President
- Vice President
- Treasurer
- Secretary
- etc.
Group 3:
- CEO
- COO
- CFO
- CTO
- CIO
- etc.
While I generally understand the where the Board of Directors fits in, I'm less clear on, say, the difference between a President and a CEO. One person can have both roles -- but what's the difference between the roles?
Similarly, what does the Treasurer do, exactly? How does that differ from, say, a CFO?
And apart from taking minutes and signing things occasionally, what exactly is a Secretary's role? Do they do other things as well?
I'm particularly interested in how these roles relate to the small-business environment. Is it "okay" for the same person to be Chairman, CEO, and President? When the time comes for the group of leadership to grow, which of those responsibilities should be given to someone else? If there are only 1-2 owners who actively run and participate in the business on a daily basis, is a board of directors even needed?
I've looked over Wikipedia, various business books, etc., and I can't seem to find a clear explanation of these relatively simple things. It's as if it's assumed that everyone already knows these things. I must have missed that day. :-)
(Sorry for the big batch of questions, but they're all basically about wanting to better understand corporate governance.)
Thanks!
Not every small business is a corporation, and rightly so. For many businesses the traditional forms of ownership, such as a sole proprietorship, a partnership, or a limited liability partnership (LLP) are the right ways of operating. Obviously, one of the reasons for operating as a sole proprietorship (or a partnership) is the simplification of reporting responsibility that form of organization assumes. The price for the corporate form of ownership's benefits is the responsibility officers of the corporation have for treating the affairs of the unnatural person which the corporation is considered to be, with due regard for governance.
posted by paulsc at 4:12 PM on July 15, 2006
posted by paulsc at 4:12 PM on July 15, 2006
In the small organization/business where I work, the Chairman role is pretty much ceremonial, as is the Board of Directors. The Executive Committe (the small group within the Board that is actually involved on a quartely basis with the running of the organization) have some influence, but the whole thing is pretty much run exclusively by the President (who is the one with the big ideas) and the Executive Vice President (me, who do most of the day-to-day managerial stuff). The Board functions as the advisors to the President, while the Chairman is also an advisor and is someone who can be the outward face of the organization when needed.
It is fairly common for the small businesses that I deal with on a regular basis to have a "Chairman, President, & CEO" running it. For businesses with 1-10 staff, that is pretty much de rigeur, although many are also just "President & CEO".
My understanding is that the "Chairman" is split out when it's useful to have someone of stature in that position, but the Chairman only offers suggestions on a strategic - rather than tactical - level. Our Chairmen are almost always the nominal heads of more than one business at a time.
If the two positions are split, the CEO is the executive in charge of actually running the day-to-day business (tactical issues), whereas the President determines more of the strategic, long-term goals of the business, while also offering tactical advice. Basically, an intermediary between the CEO and the Chairman.
For the Treasurer/CFO, the treasurer is generally in charge of a the day to day issues, on a staff level, while the CFO is again on a more macro level. If the Treasurer is part of the Board, it's usually a more advisory type position, advising the CFO.
A Secretary is often appointed for the Board, to be the person in charge of the records, to ensure legal compliance, to track decisions, etc. This is a decent write up on the secretary role.
This is my understanding, anyway. Hope it helps.
On preview, what paulsc said is true. This structure is not always the ideal way for a small business to operate. Some of the other forms of ownership can make a lot more sense.
posted by gemmy at 4:44 PM on July 15, 2006
It is fairly common for the small businesses that I deal with on a regular basis to have a "Chairman, President, & CEO" running it. For businesses with 1-10 staff, that is pretty much de rigeur, although many are also just "President & CEO".
My understanding is that the "Chairman" is split out when it's useful to have someone of stature in that position, but the Chairman only offers suggestions on a strategic - rather than tactical - level. Our Chairmen are almost always the nominal heads of more than one business at a time.
If the two positions are split, the CEO is the executive in charge of actually running the day-to-day business (tactical issues), whereas the President determines more of the strategic, long-term goals of the business, while also offering tactical advice. Basically, an intermediary between the CEO and the Chairman.
For the Treasurer/CFO, the treasurer is generally in charge of a the day to day issues, on a staff level, while the CFO is again on a more macro level. If the Treasurer is part of the Board, it's usually a more advisory type position, advising the CFO.
A Secretary is often appointed for the Board, to be the person in charge of the records, to ensure legal compliance, to track decisions, etc. This is a decent write up on the secretary role.
This is my understanding, anyway. Hope it helps.
On preview, what paulsc said is true. This structure is not always the ideal way for a small business to operate. Some of the other forms of ownership can make a lot more sense.
posted by gemmy at 4:44 PM on July 15, 2006
Some thoughts:
- the board of directors represents the shareholders and their interest in the operation of the company. if the company is privately held and the owners run it (sole proprietor is president etc.) there's really no need for that function from the board. if the financials are audited by an external auditor there's really no need for the audit committee of the board of directors either. yes the board also has an advisory role but w/o the other functions I'd just call them an "advisory board" or some such.
-the senior management of the company really needs some one to be everyone's administrative boss and decision maker - let's call him "president" if it's a private company and add on CEO if we need to for ego/prestige/ and in the event that there's multiple subcompanies within the main corp - he could be the boss of the presidents. anyway if there's a board the chairman is the CEO's boss in a manner of speaking ...
- someone leads the financial structure of the company: how we raise money to fund operations and how we account for the business and how we report to owners (shareholders) he's the chief financial officer. he might also be the treasurer if he hasn't delegated the management of the company's cash to a subordinate.
- the secretary I think keeps track of official minutes of meetings at official meetings (bad sentence... running out of steam)
- a key concept for all of these positions is segregation of duties. the bigger a company gets and the more money and owners are involved , the less acceptable it becomes for a single individual to make all the decisions - chooses the vendors *and* writes the checks to pay them... could get sticky. anyway that's all I got
posted by kaytrem at 4:44 PM on July 15, 2006
- the board of directors represents the shareholders and their interest in the operation of the company. if the company is privately held and the owners run it (sole proprietor is president etc.) there's really no need for that function from the board. if the financials are audited by an external auditor there's really no need for the audit committee of the board of directors either. yes the board also has an advisory role but w/o the other functions I'd just call them an "advisory board" or some such.
-the senior management of the company really needs some one to be everyone's administrative boss and decision maker - let's call him "president" if it's a private company and add on CEO if we need to for ego/prestige/ and in the event that there's multiple subcompanies within the main corp - he could be the boss of the presidents. anyway if there's a board the chairman is the CEO's boss in a manner of speaking ...
- someone leads the financial structure of the company: how we raise money to fund operations and how we account for the business and how we report to owners (shareholders) he's the chief financial officer. he might also be the treasurer if he hasn't delegated the management of the company's cash to a subordinate.
- the secretary I think keeps track of official minutes of meetings at official meetings (bad sentence... running out of steam)
- a key concept for all of these positions is segregation of duties. the bigger a company gets and the more money and owners are involved , the less acceptable it becomes for a single individual to make all the decisions - chooses the vendors *and* writes the checks to pay them... could get sticky. anyway that's all I got
posted by kaytrem at 4:44 PM on July 15, 2006
Corporate governance and Chief executive officer.
In closely held corporations, it is general business culture that the office CEO is also the chairman of the board. Specifically, one person shares the chairman and CEO titles while another person takes the presidency or may become chief operating officer (COO). Regardless, in virtually all cases where the CEO and president are not the same person, the CEO is of the higher rank and ultimate authority. However, the term president is from the U.S. and in the UK COO is favoured. Underneath that comes the Executive Vice President (U.S.) or Executive Director (UK). In publicly held corporations, the CEO and chairman positions can be separated but there are implications in corporate governance by doing so.
posted by frogan at 7:10 PM on July 15, 2006
In closely held corporations, it is general business culture that the office CEO is also the chairman of the board. Specifically, one person shares the chairman and CEO titles while another person takes the presidency or may become chief operating officer (COO). Regardless, in virtually all cases where the CEO and president are not the same person, the CEO is of the higher rank and ultimate authority. However, the term president is from the U.S. and in the UK COO is favoured. Underneath that comes the Executive Vice President (U.S.) or Executive Director (UK). In publicly held corporations, the CEO and chairman positions can be separated but there are implications in corporate governance by doing so.
posted by frogan at 7:10 PM on July 15, 2006
oissubke: you have got some good answers so far. I don't have time right now to elaborate any more on what has already been said. However, I am a business professor and this just happens to be my area of interest. Feel free to send me an email and I would be happy to talk with you about this more extensively.
posted by bove at 9:38 PM on July 15, 2006
posted by bove at 9:38 PM on July 15, 2006
This thread is closed to new comments.
posted by Robert Angelo at 3:52 PM on July 15, 2006