Chairman and Chief Executive Officer

Separation of Roles, Responsibilities, and the Governance Relationship

First: Introduction

At the heart of any company’s governance are two main leadership positions: the chairman of the board, who leads the strategic oversight apparatus, and the chief executive officer, who leads daily execution. The relationship between these two positions, the nature of their separation, and the boundaries of authority for each, constitutes one of the most important governance axes in a company. Poor management of this relationship is among the most common causes of company failure globally, and its success is among the most important indicators of sound governance.

In the Saudi system, the debate over separation between the positions has been definitively resolved: the Corporate Governance Regulations mandate complete separation between the chairman position and any executive position in the company. This regulatory shift reflects a global awareness that combining the positions weakens oversight of executive management. This article reviews the theoretical rationale for separation, the different responsibilities of each position, patterns of relationship between them, and best practices for achieving harmony and integration.

💡  Key Insight The chairman and the CEO are not competitors but partners in leading the company from two different angles. The first represents shareholders and oversees management; the second leads management and executes strategy. When the partnership succeeds, the company succeeds. When it fails, everyone fails. Success requires clear understanding of roles, mutual respect, and effective communication mechanisms.

Second: The Principle of Separating Positions

1. The Governance Rationale

Why separate the positions? The fundamental reason is to prevent concentration of power and ensure effective oversight. When the same person executes and oversees execution, the check-and-balance mechanism collapses. Self-oversight is always weaker than independent oversight, regardless of personal integrity.

Detailed reasons for separation:

• Independence of Oversight: The board oversees management and cannot effectively oversee if the person leading the board is the same person leading management.
• Diversity of Perspective: Each position requires a different perspective — strategic long-term for the board, operational short-term for the CEO.
• Distribution of Workload: Each position consumes significant time and energy; combining them leads to deficiency in one or both.
• Mitigation of Personalization Risk: The company does not depend on one person but on a balanced leadership structure.
• Shareholder Protection: Especially minority shareholders, who may find themselves without protection facing a CEO dominating the board.

2. Saudi Regulatory Position

The Corporate Governance Regulations in the Kingdom explicitly state:

• Prohibition of combining the chairman position with any executive position in the company.
• Prohibition of combining the chairman position with the CEO or managing director position.
• The chairman must have different and independent authorities and duties from the CEO.
• Public disclosure of this separation in the annual governance report.

3. International Models

Country / System		Separation Model	Notes
Saudi Arabia		Mandatory Separation	For listed joint-stock companies
United Kingdom		Separation by practice	Comply or Explain
European Union		Leans toward separation	Variable by country
United States		Company choice	Approximately 50% separate
Germany		Complete Separation	Dual board model
UAE		Mandatory Separation	For listed companies
China		Common Separation	For large listed companies
	📊  Note In the United States, about half of large companies (S&P 500) combine the chairman and CEO positions. These companies compensate for the lack of separation by appointing a “Lead Director” who exercises some chairman authorities. However, the global trend is moving steadily toward complete separation.

Third: Role of the Chairman

1. Definition

The chairman of the board is the person elected by the board from among its members to chair its sessions and lead its work. They are the official face of the board before shareholders, executive management, and regulatory authorities. Their primary responsibility is leading the board as a cohesive team, not interfering in executive management.

2. Main Responsibilities

2.1 Board Leadership

• Overseeing Board Effectiveness: Ensuring the board works efficiently and performs its duties.
• Setting the Agenda: In coordination with the CEO and secretary.
• Chairing Meetings: Managing discussions and ensuring every member’s participation.
• Balancing Opinions: Encouraging diversity of opinion and preventing dominance of individual or faction.
• Ensuring Quality of Information: The board receiving sufficient information at the right time.

2.2 Relationship with Executive Management

• Overseeing the CEO: Evaluating performance and discussing challenges.
• Regular Communication: Periodic meetings with the CEO.
• Maintaining Boundaries: Not interfering in daily operational decisions.
• Support and Challenge: Balancing supporting management with challenging it.

2.3 Relationship with Shareholders

• Chairing the General Assembly: Presenting the board and its performance to shareholders.
• Listening to Shareholders: Especially major and institutional ones.
• Responding to Governance Issues: Raised by shareholders.
• Disclosure and Transparency: Ensuring quality of market disclosures.

2.4 Board Development

• Board Performance Evaluation: Self and external assessment.
• Member Development: Training and onboarding programs.
• Succession Planning: Identifying replacements for current members.
• Building Board Culture: Culture of openness, integrity, and accountability.

2.5 Relationship with External Parties

• Regulatory Authorities: CMA, Ministry of Commerce, sectoral regulators.
• External Auditor: Especially in material matters.
• Consultants: Legal, financial, strategic.
• Media: In critical situations.

3. Required Qualifications

A successful chairman combines:

• Deep Experience: In business, governance, and leadership.
• Presence and Charisma: Ability to lead a team of peers.
• Independence: Intellectual and personal.
• Sufficient Time: Especially for large companies (sometimes half-time).
• Communication Skills: With board, management, and shareholders.
• Emotional Intelligence: To manage complex relationships.
• Established Integrity: As role model for board and company.

Fourth: Role of the Chief Executive Officer

1. Definition

The CEO is the highest executive position in the company, appointed by the board and working under its supervision. Their primary responsibility is leading executive management and executing the strategy approved by the board, achieving agreed results.

2. Main Responsibilities

2.1 Strategic Leadership

• Formulating Strategy: In cooperation with the board and proposing for approval.
• Executing Strategy: Transforming plans into results.
• Keeping Pace with Changing Environment: Adapting strategy to developments.
• Making Major Decisions: Within their defined authorities.

2.2 Operational Management

• Leading Senior Management: Selecting, developing, and evaluating the team.
• Overseeing Operations: Ensuring efficiency and effectiveness.
• Achieving Financial Objectives: Revenues, profits, cash flows.
• Managing Customers and Partnerships: Especially material ones.

2.3 Relationship with the Board

• Reporting to the Board: Regularly and transparently.
• Providing Information: Complete, accurate, in timely manner.
• Seeking Guidance: On strategic and sensitive matters.
• Responding to Board Decisions: Even when disagreeing.

2.4 Relationship with Shareholders and Market

• Representation before Investors: In conferences and meetings.
• Regular Disclosure: Quarterly results, material announcements.
• Building Trust: Through consistent performance and transparent communication.
• Crisis Response: As face of the company in adversity.

2.5 Relationship with Community and Stakeholders

• Community Leadership: Representing the company in national initiatives.
• Relationship with Government Entities: Building bridges and following files.
• Environmental and Social Commitment: Leading sustainability efforts.
• Company Culture: Building and disseminating values.

3. Required Qualifications

A successful CEO combines:

• Deep Sector Experience: Understanding the sector from within.
• Inspirational Leadership: Motivating the team and leading change.
• Business Acumen: Making decisions under pressure.
• Strategic Intelligence: Seeing the future and preparing for it.
• Financial Competence: Understanding numbers and trends.
• Communication Ability: With all audiences.
• Flexibility and Learning Capacity: Keeping pace with changes.

Fifth: Comparison Between the Two Roles

Aspect	Chairman	CEO
Time Horizon	Long-term (3-5 years+)	Short and medium (1-3 years)
Focus	Strategic and oversight	Operational and executive
Mandate from	Shareholders	Board
Oversight	Oversees management	Subject to oversight
Working Time	Part-time (30-50%)	Full-time (100%+)
Team Relationship	Board leader	Executive management leader
Success Criteria	Governance quality	Achieving results
Performance Compensation	Usually fixed allowances	Large variable performance

Sixth: The Relationship Between Chairman and CEO

1. Patterns of Relationship

1.1 Partnership Relationship

The ideal model: a partnership based on mutual respect, regular communication, and clear understanding of roles. Each party respects the other’s competence, benefits from their expertise, without interfering in their authorities.

1.2 Adversarial Relationship

A poor relationship characterized by repeated disagreements, lack of trust, and one party interfering in the other’s authorities. Leads to decision paralysis, company distraction, and ultimately departure of one or both.

1.3 Disconnected Relationship

A cold relationship with neither friction nor cooperation. Each party works in their world without genuine communication. Externally calm but misses opportunities for integration and causes disconnected decisions.

1.4 Dominant Relationship

A relationship where one party dominates the other. The chairman may interfere in every executive decision, or the CEO actually leads the board. Both cases breach governance.

2. Components of a Successful Relationship

2.1 Regular Communication

• Weekly or biweekly meetings: Depending on company size.
• Emergency contact: On urgent matters.
• Communication before board meetings: To review agenda and prepare.
• Communication after board meetings: To review decisions and follow up.

2.2 Clarity in Roles

• Written Charter: Defining authorities of each position.
• Authority Schedule: Specifying decisions requiring board approval.
• Protocols for Exceptional Cases: When one intervenes in the other’s space.

2.3 Mutual Respect

• Recognition of the other’s expertise: Not underestimating it.
• Constructive Criticism: Not personal.
• Public Support: Even with internal disagreement.
• Addressing Disagreements: Quickly and privately.

2.4 Personal Chemistry

It cannot be overlooked that the relationship’s success partly depends on personal chemistry between the two individuals. Communication styles, tastes, even sense of humor may be decisive factors. The nominations committee should consider this when nominating.

⚠️  Caution When the relationship between chairman and CEO deteriorates, the whole company pays the price. Speed in addressing disagreements is more important than avoiding them. Disagreements are natural and healthy when managed professionally. The danger lies in leaving them to escalate without addressing.

Seventh: Special and Exceptional Cases

1. Appointing a New CEO

Among the most important moments of partnership between chairman and the board as a whole is choosing a new CEO. Procedures:

• Nominations Committee led by chairman: Leads the process.
• Clear Criteria: Pre-defined based on company strategy.
• Wide Search: Internal and external.
• Structured Interviews: With final candidates.
• Background Verification: Comprehensive and deep.
• Transparent Announcement: To market and shareholders.

2. Crisis Between the Parties

If a material crisis arises between the chairman and the CEO, options:

• Mediation: From a senior independent member or external consultant.
• Board Intervention: In material cases.
• Separation Between Them: If necessary, by board decision.
• Change: Ultimately, one of them must change.

3. Executive Termination

Terminating the CEO is among the most difficult decisions in governance. Requires:

• Collective Board Decision: Not just the chairman’s decision.
• Documenting Justifications: Performance, conduct, violations.
• Respecting Procedures: Termination procedures in contract and law.
• Organized Communication: With market, employees, partners.
• Smooth Transition: Appointing interim CEO if needed.

4. Death or Incapacity of One

Mature companies have emergency plans for these scenarios:

• Emergency Succession Plan: For both positions.
• Ready Deputy: In each position.
• Rapid Procedures: For emergency board meeting.
• Immediate Communication: With market and shareholders.

Eighth: The Lead Independent Director

1. Concept of Lead Director

In companies that do not fully separate the chairman and CEO positions (common in the United States), or even in companies that separate but want an additional governance layer, a Lead Independent Director is appointed who exercises some independent chairman authorities.

2. Lead Director Responsibilities

• Chairing meetings dedicated to independent members.
• Communicating with shareholders on governance matters.
• Overseeing evaluation of the chairman.
• Direct communication between independent members and management.
• Intervention in major crises.

3. Need for it in Saudi System

Since the Saudi system completely separates the two positions, the lead director role is less necessary. However, large companies may benefit from appointing a “senior independent member” as a communication channel between independent members and shareholders, especially on sensitive matters.

Ninth: Performance Evaluation

1. Chairman Evaluation

The chairman should be evaluated annually, usually by the board led by a senior independent member or the governance committee. Evaluation criteria:

• Quality of meeting leadership.
• Effectiveness of communication with management and shareholders.
• Contribution to board development.
• Management of relationship with CEO.
• Integrity and impartiality.
• Time commitment.

2. CEO Evaluation

The CEO is evaluated annually by the board, usually led by the nominations and remuneration committee. Evaluation criteria:

• Achievement of approved financial objectives.
• Strategy execution.
• Quality of executive management.
• Risk management.
• Disclosure and communication.
• Building institutional culture.

Tenth: Best Practices

1. At the Design Level

• Clear Charter for Each Position: Documented and approved.
• Detailed Authority Schedule: What the board decides vs. CEO decides.
• Communication Protocols: When and how.
• Succession Plans: For both positions.

2. At the Selection Level

• Strict Criteria: For qualifications and competencies.
• Chemistry Test: Ensuring compatibility of personalities.
• Transparency with Candidates: On expectations and challenges.
• Engaging Specialists: In search processes.

3. At the Practice Level

• Regular Communication: At least weekly meetings.
• Mutual Public Support: Even with disagreement.
• Rapid Disagreement Resolution: Before escalation.
• Annual Evaluation: For each.

Conclusion

Separating the chairman and CEO positions is not merely a regulatory requirement but a fundamental pillar of sound governance. The Saudi system has resolved the matter in favor of this separation, aligning with global best practices, and giving Saudi companies a strong foundation for building governance structures at international levels.

But regulatory separation alone is not sufficient. Success requires deep understanding of roles, mutual respect between position holders, and effective communication mechanisms. A successful partnership between chairman and CEO is among the most important drivers of long-term company success, just as a deteriorated relationship between them is among the most important causes of failure. Investing in building this relationship, developing it, and monitoring it, is an investment that pays multiplied dividends in every aspect of company performance.

🎯  Essential Points to Remember (1) Separation between chairman and CEO positions is mandatory in Saudi listed joint-stock companies. (2) The fundamental rationale is preventing concentration of power and ensuring effective oversight. (3) The chairman leads strategic oversight; the CEO leads daily execution. (4) Both positions require different but complementary qualifications. (5) Successful relationship requires regular communication, role clarity, mutual respect, and personal chemistry. (6) Major crises between them warrant mediation, board intervention, or ultimately changing one. (7) Succession plans for both positions are essential. (8) Lead director is a useful complementary role for large companies. (9) Both positions need annual evaluation by clear criteria. (10) Best practices include clear charters, strict selection criteria, regular communication, and periodic evaluation.

Frequently Asked Questions

Why is separation between the chairman and CEO mandatory in Saudi Arabia and what is its governance rationale?

The CMA Corporate Governance Regulations explicitly prohibit combining the chairman position with any executive position in Saudi listed companies, mandate that the chairman have different and independent authorities from the CEO, and require public disclosure of this separation in the annual governance report. The rationale rests on five governance principles. Independence of oversight because a board cannot effectively oversee management if the person leading the board is the same person leading management — self-oversight is always weaker than independent oversight regardless of personal integrity. Diversity of perspective because each position requires a fundamentally different time horizon, with the chairman focused on strategic long-term direction and the CEO on operational short-term execution. Distribution of workload because each position consumes significant time and energy and combining them leads to deficiency in one or both. Mitigation of personalization risk because the company's governance should rest on a balanced leadership structure rather than a single individual. Shareholder protection particularly for minority shareholders who would have no protection against a CEO who simultaneously dominates the board.

What are the distinct responsibilities of the chairman versus the CEO in a Saudi listed company?

The two positions operate from fundamentally different angles with complementary mandates. The chairman leads the board as a cohesive team, sets the meeting agenda in coordination with the CEO and board secretary, ensures every member participates in discussion, oversees the CEO's performance and evaluates it annually, chairs the general assembly and maintains relationships with major and institutional shareholders, responds to governance issues raised by shareholders, and leads board development including succession planning, training programs, and culture building. The chairman is a part-time role typically consuming 30 to 50 percent of working time with fixed allowances as compensation. The CEO formulates strategy in cooperation with the board and proposes it for approval, translates approved plans into operational results, leads and evaluates the senior management team, manages customers and key partnerships, reports regularly and transparently to the board, represents the company before investors and in the market, and leads the company's culture and community engagement. The CEO role is fully consuming all working time and beyond, with significant variable performance compensation. Success criteria also differ: governance quality for the chairman and achievement of financial and strategic results for the CEO.

What makes the chairman-CEO relationship succeed and what happens when it fails?

Four relationship patterns emerge in practice. The partnership model is the ideal, built on mutual respect, clear understanding of roles, and regular communication where each party respects the other's competence without interfering in their authorities. The adversarial model is characterized by repeated disagreements, lack of trust, and boundary violations leading to decision paralysis and ultimately the departure of one or both. The disconnected model has each party working in isolation without genuine communication, missing integration opportunities and producing decisions made without shared context. The dominant model has one party controlling the other, whether through a chairman who interferes in every executive decision or a CEO who effectively leads the board — both breach governance. Four elements sustain a successful relationship: weekly or biweekly direct meetings between the two, a written charter and authority schedule clarifying what each decides, mutual public support even when internal disagreement exists, and rapid private resolution of disagreements before they escalate. When the relationship does deteriorate seriously the options are mediation by a senior independent member or external consultant, collective board intervention, formal separation of the parties, or ultimately replacement of one — with the collective board making any CEO termination decision, never the chairman alone.

References and Sources

• Saudi Companies Law (Royal Decree M/132).
• Corporate Governance Regulations issued by the Capital Market Authority.
• Implementing Regulations of the Companies Law for Listed Joint-Stock Companies.
• OECD Principles of Corporate Governance.
• UK Corporate Governance Code — Role of the Chairman.
• Spencer Stuart Board Index — Chairman and CEO Practices.
• Harvard Business Review — The Chairman/CEO Partnership.
• ICGN Global Governance Principles — Board Leadership.
• Conference Board — CEO Succession Practices.
• McKinsey & Company — Best Practices in Board Leadership.