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CEOs and how to evaluate them

  • Published at 07:11 pm July 30th, 2019
CEOs lead the way-Bigstock
CEOs lead the way Bigstock

Current measures of a CEOs success are vague and inadequate

The chief executive officer (CEO) is the highest ranking officer in a company, who is generally elected by the members and the board of directors of a company. 

A CEO can be called the president or chairperson, because the top responsibilities are vested on him along with overall performance and operations of such company.

This makes them solely responsible for the actions of the company. However, there is no standardized list of the roles and responsibilities for a CEO, except a few typical duties that can be reckoned such as public communication, implementing company's vision and mission, evaluation of work, maintenance, assessing risks management, maintaining social responsibilities and so forth. Furthermore, the CEO has to set strategic goals and make sure that they are measurable and describable. 

The Anglo-US model emphasizes cooperative roles of three key players -- management, directors, and share-holders of a company -- who can be called the “corporate governance triangle.” In this model, the management lies on the CEO as he acts as the bridge of communication with the directors and shareholders.

The German model defers two boards with separate members such as a management board, composed of executives and a supervisory board composed of the labour and shareholders representatives. The CEO’s actions have to be reported to supervisory board for final approval that makes such model fairer.

The Japanese model involves the government for the activities of the company where the CEO cannot make the entire decision alone. Government ministries have powers to alter or override the decisions and to provide recommendations.

Therefore, it can be argued that both the German and Japanese models have scope to evaluate the CEO’s performance at the end of the decision-making process and business operations. However, Bangladesh adopted a partial corporate governance where a good governance structure is required.

Bangladesh has enacted many laws for governing the corporate sector such as The Companies Act 1994, The Companies Rules 2009, The Companies (Foreign Interests) Act 1918, and others. Predominantly, these laws have specified the incorporation process of a company -- qualifications, appointments, functions, powers of directors, etc. Despite having countless number of laws, none of them mentioned the roles and responsibilities of a CEO -- and that is not a sign of good governance.

Addressing the inadequacy issue, Security Exchange Commission notified the Corporate Governance Code by publishing in the official gazette on June 3, 2018. The code provides specific duties for the CEOs to enhance the interest of investors and the capital market. 

The code provides specific duties for CEOs, where the CEO must certify to the board of their review regarding financial statements for the year to the best of their knowledge and belief. Additionally, they have to ensure that no fraudulent and illegal transaction has taken place while disclosing such in the annual report.

Provided that, if any fraudulent activity happens; the burden of allegation has to be taken by the CEO as a certifier of no illegality and no violation of the code of conduct has taken place. However, this provision remains silent about the CEO’s non-fulfillment of aimed targets at the end of each annual financial, that excludes a CEO from allegations of not fulfilling his targeted mandate.

Whereas the typical duty of a CEO is to set measurable, as well as describable, strategic goals and to achieve them; no provision for such has been introduced by this code. Provided that, CEOs could be alleged only for illegality or any fraudulent misconduct. Nonetheless, being the main operating body of a corporation to conduct its business; the CEO enjoys indemnity from the liability of being a failure even though they are negligent.

Therefore, if a company falls or becomes bankrupt because of the CEO, or even fails to achieve its targets, the CEO can remain out of it, and that may reduce the production rate of a company. As a result, the shareholders suffer and good governance falls under threat. 

It can be urged of policy-makers to advance the code or corporate laws that could provide the shareholders a real chance to evaluate the performance of CEOs more significantly, and expand the jurisdiction of the courts to provide justice if a CEO fraudulently or negligently deprives shareholders.

Md Asif Mahbub Tanvir is a graduate law student of North South University.

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