Running a corporation can be a lot of work. While directors are ultimately responsible for their corporation's performance this doesn't mean they do all the work. In some corporations, especially those with larger operations, the directors hire a CEO to manage the day-to-day operations.
The CEO is the highest ranking employee in an organisation. Not every corporation calls their most senior employee 'CEO'—some prefer the title of ‘general manager’ or ‘executive manager’.
The entire board of directors is responsible for hiring the CEO.
In hiring someone to be the CEO, the directors delegate responsibility for leading and implementing strategy, and managing/running the corporation's operations. To make the delegations clear, the directors should set out what the CEO if responsible for in a position description or duty statement. The CEO is accountable to the directors for their delegated responsibilities; in turn, the directors are accountable to the members for the performance of the corporation.
When directors appoint a CEO they should give them a letter of appointment with the terms and conditions of their employment in writing and a copy of their position description.
A corporation that employs people needs to be aware of their obligations under workplace relations laws—for more information see the website of the Fair Work Ombudsman.
Legal duties of CEO
A CEO is an officer of the corporation. Section 683-1(3) of the CATSI Act defines an officer as someone who is ‘involved in making decisions that affect the business of the corporation’ and has ‘the capacity to affect significantly the corporation’s financial standing’.
Being an officer means a CEO shares the following legal responsibilities that directors also have:
- a duty of care and diligence—for example, officers should prepare accurate and timely reports for the directors so that they are well informed and in a conﬁdent position to make decisions in the best interests of the corporation
- a duty of good faith—officers should always make decisions in the best interests of the corporation as a whole, never for their own personal advantage
- a duty to not improperly use position or information—officers must not misuse their position, or use information obtained as a result of their position, to gain a beneﬁt for themselves, someone else or to cause harm to the corporation.
The CATSI Act doesn’t actually prohibit a CEO from also being a director, but it does prevent the CEO from chairing a directors’ meeting (s. 246-5(5)). And a CEO who is also a director is likely to face regular conflicts of interest and needs to manage their separate governing and managerial responsibilities carefully.
Relationship between the CEO and directors
The roles and responsibilities of the board and the CEO are very different, and it’s important to keep them separate. The directors’ role is to:
- recruit the CEO and induct them into the culture of the corporation and the communities it represents
- share their vision and support the CEO to translate it into action
- regularly assess (and document) the CEO’s performance.
The CEO’s role is to realise the directors’ vision and enable them to see what progress has—and hasn’t—been made:
- be the champion—generate enthusiasm for the mission among staff, funding bodies and other stakeholders
- convert the vision into a step-by-step plan and secure staff and resources to carry it out
- track progress—and income and expenditure—and provide regular reports to all the directors.
In successful corporations, there's a collegial relationship between the board of directors and the CEO (or manager). They have a shared understanding of the corporation's mission and values, and they trust one another. The directors are obliged to stay well-informed in order to make strategic decisions—so they must keep an eye on their CEO's work. But the CEO needs to be trusted to make operational decisions.
Reviewing CEO performance
It's good governance to have clear lines of accountability and a process for monitoring and managing them.
Because a CEO can have a significant impact on the success and results of the corporation, it's vital that directors have a way to keep the CEO accountable for their performance outcomes.
It's best to have a mix of informal feedback (both ways) and a formal evaluation process, usually six-monthly or annually, to check how the CEO is going in fulfilling the role set out in their position description and duty statement. A performance review might also be related to milestones in employment, such as at the end of a probation period.
Performance reviews shouldn't be only about checking a list. Effective reviews provide an opportunity for the board and CEO to strengthen their working relationship by:
- raising issues with how each other operates
- clarifying expectations and strategic direction
- identifying areas of development or signs of possible problems.
ORIC has no authority to censure the CEO or monitor their performance. Only directors do.
Succession planning is a process of identifying and developing people so they are capable of filling a position when a person leaves. Sometimes succession is planned and sometimes it's not. The board should be prepared with a plan to fill the position if either circumstance was to arise.
A board should regularly (at least once a year) review what skills, capabilities and personality they need their CEO to have to manage the corporation into the future. To do this, the directors should consider their corporation's:
- current and long-term strategic direction
- risks and opportunities e.g. economic development or proposed changes in government policy
- internal corporate culture
- what phase their corporation is in (its level of maturity) e.g. growth, maintenance, consolidation.
Directors should compare the results of this review to the current CEO's performance to work out if that person is still the right fit to carry the corporation through its next phase. They should also look at what people might have the skills and capabilities to undertake the role if the current CEO leaves.
Resources and further information
Download templates for
- a contract for CEO employment in:
- reviewing CEO performance—PDF (40kb) or editable RTF (637kb).
Fact sheet: Duties of directors and other officers
In March 2013 ORIC released a report on remuneration (salaries) and other benefits paid to senior staff of Aboriginal and Torres Strait Islander corporations.
See also these issues of the ORIC Oracle newsletter on: