4/18/2014 DailyFT – Be Empowered » The dual role of a CEO » Print

http://www.ft.lk/2014/03/19/the-dual-role-of-a-ceo/print/ 1/4

Tweet

1 1

Like

- DailyFT – Be Empowered - http://www.ft.lk -

The dual role of a CEOPosted By bandara On March 19, 2014 @ 12:00 am In Leadership | No Comments

To be an effective CEO one must be a manager and leader, saysRanjith Fernando

By Cheranka MendisTo become an effective CEO, an individual must subjugate himself tothe functions of the Board of Directors, be familiar with the function of the company modeland play the dual role as a manager and leader – bringing in both a stabilising effect as well

as a destabilising effect to the company. [1]

Speaking at thememorial oration onthe 12th yearremembrance oflate K.Sivagananathan,highly respectedbanker and financerof our time, RanjithFernando who hasacted asDirector/CEO ofNDB, Secretary toMinistries ofIndustries andConstitutionalAffairs listed keypointers that wouldmake a companyCEO an effectiveone.The oration wasorganised by thetrust in associationwith the Associationof ProfessionalBankers Sri Lankaand was followedby a Memorial Trust

Award Ceremony took place at the BOC Head Office in Colombo 1. The model of a companyExplaining his subject from the much celebrated case in 1986 when the House of Lordsdecided in Salmon Vs Salmon to create the fiction of a legal entity/personality in a company –a personality who is distinct from the owners of the company, and from the shareholders ofthe company with power to own property, to be sued and to sue – a hallmark decision at thetime, Fernando noted that the very model and workings of a company has changed overtime, with ramifications when needed, to a tripartite arrangement between three parties –shareholders, board and management.The working of this model also brought with it umpteenth issues and but has grown to suchan extent that there is now a body with legal statute and case law which has built up, anddefines the framework within which a company works.In time to come issues such as the role of a regulator and an independent director will beresolved, he assured confidently.

“A CEO must subjugate himself to the oversight function of the board. The greatestdisaster is having a weak board so that the CEO can run the company as he wants. A CEOmust have a strong board that demands he performs certain functions. The CEO is runsthe company on a day-to-day basis, and therefore it is his duty to defend the turf he is

4/18/2014 DailyFT – Be Empowered » The dual role of a CEO » Print

http://www.ft.lk/2014/03/19/the-dual-role-of-a-ceo/print/ 2/4

givenToday we find that many CEOs find it convenient to let the chairman make certaindecisions and even preside over staff or departmental meetings. That kind of CEO is notan effective CEO as you are breaking down the very modelAn individual who is a CEO is both a manager and a leader. Both roles are very differentfrom each other, one is not inferior to the other but are complimentary to each other.Most companies are, I submit, over-managed but under-led. Not everyone can be good atboth. In fact, companies today try to bring about manager-leaders and leader-managerswho perform both functionsManaging is a stabilising influence; leadership is a destabilising influence as you bringabout change. Because the world outside is changing and unless your company canchange in relation to what is happening in the world, the end will be in sight. You need toanticipate change – Ranjith Fernando”The tripartite relationshipToday, there are two fundamental principles that defines this relationship – separation ofpower between the three bodies with each body having a role to play and the checks andbalance you have against one another, i.e. that the plenitude of a power of a company is notderived on a single body. If these principles are violated one cannot be an effective CEO, hesaid.Further elucidating the former he noted that each body has a role to play. Shareholdersmeet and discharge certain functions such as election of the board, declaration of thedividend, etc. and appoint a Board of Directors who tries to understand the laws that governthe particular industry of which they are on the board (of a company) and ensure that thecompany functions within the said parameters.The board can also demand a business plan from the CEO whom the board appoints. Theynot only appoint the CEO but demand a business plan setting out clear, time-bound goals tobe achieved by the company; and ensure that CEO delivers these targets. They have anoversight function over the CEO and the management. They also have a duty forshareholders to whom they report.Yet another duty of a board is to ensure integrity of financial statements produced by thecompany to the shareholders periodically and understands the risks in business and ensurethe management has put in certain controls to take care of those risks and are effective.Understanding the modelThe role of a CEO must therefore be taken in the context of working that model, he said.“This relationship between three parties had been defined over time by courts, statutes, andby codes of conduct which are rules made and changed in a more flexible manner than an actof parliament,” Fernando explained. “Today we have a body of knowledge that defines theseroles in a much more definite manner than at the time when the celebrated case wasdecided by the House of Lords.”Within that model, how can a CEO by effective? As the chief of the management what is hisrole, he questioned. “The CEO needs to understand the model and without thatunderstanding he cannot play an effective role as a CEO.”“A CEO must subjugate himself to the oversight function of the board.” The greatest disasteris having a weak board so that the CEO can run the company as he wants; he noted addingthat a CEO must have a strong board that demands he performs certain functions.The CEO is runs the company on a day-to-day basis, and therefore it is his duty to defendthe turf he is given. “Today we find that many CEOs find it convenient to let the chairmanmake certain decisions and even preside over staff or departmental meetings. That kind ofCEO is not an effective CEO as you are breaking down the very model,” Fernando assured.Playing the dual rolesAn individual who is a CEO is both a manager and a leader.“Both roles are very different from each other, one is not inferior to the other but arecomplimentary to each other,” he stressed.Leadership has nothing to do with charisma nor is it better than managers. “Most companiesare, I submit, over-managed but under-led. Not everyone can be good at both. In fact,companies today try to bring about manager-leaders and leader-managers who performboth functions.”Management is about coping with complexities. It brings about order and consistency.Regulate and deciding on a systematic way of allocating resources, checking performances,getting feedback, correcting the loop and achieving certain results.Leadership on the other hand is synonymous with change. It is very different from managing.“Managing is a stabilising influence; leadership is a destabilising influence as you bring aboutchange. Because the world outside is changing and unless your company can change inrelation to what is happening in the world, the end will be in sight. You need to anticipate

4/18/2014 DailyFT – Be Empowered » The dual role of a CEO » Print

http://www.ft.lk/2014/03/19/the-dual-role-of-a-ceo/print/ 3/4

change.”Each deals with what needs to be done, no doubt, but under different circumstances anddifferent roles.Managers plan and budget, setting targets and goals, detailing implementation steps,allocating resources, monitoring implementation, controlling and problem solving.In contrast, leaders set direction, a long term vision for the company. “They articulate thatvision to the people whom he leads, exciting and aligning them to the vision, obtainingcommitment from them, motivating and inspiring and appealing to values and emotions.”Fernando said: “It is not a completely rational thing whereas managing is a deductiveprocess.” Planning is a managerial position, design to produce orderly results. Settingdirection on the other hand is more inductive – doesn’t produce plans, but a vision andstrategy.Planning works best not as a substitute for direction setting but as a compliment to it.Planning process is a useful reality check on the direction setting. “The latter provides afocus, framework within which planning can be carried out.”He added: Managers organise to create human systems, structures; but aligning is more acommunication challenge which necessitates talking to more people than in organisingclients, governments, etc. “Direction setting identifies appropriate path for movementwhereas effective movement gets people moving down that path. Managerial process mustbe as close as possible to fail-safe and risk-free, whereas leadership is fraud with changeand risk taken.”“My submission is aligning people is not the same as getting them organised as a structure,”Fernando said.Pix by Upul Abayasekara

[2]

Article printed from DailyFT – Be Empowered: http://www.ft.lk

URL to article: http://www.ft.lk/2014/03/19/the-dual-role-of-a-ceo/

URLs in this post:

[1] Image: http://www.ft.lk/wp-content/uploads/2014/03/1113.jpg

[2] Image: http://www.ft.lk/wp-content/uploads/2014/03/L19.jpg

4/18/2014 DailyFT – Be Empowered » The dual role of a CEO » Print

http://www.ft.lk/2014/03/19/the-dual-role-of-a-ceo/print/ 4/4

Copyright © 2011 DailyFT - Be Empowered. All rights reserved.