To be an effective CEO one must be a manager and leader, says Ranjith Fernando
By Cheranka Mendis
To become an effective CEO, an individual must subjugate himself to the
functions of the Board of Directors, be familiar with the function of
the company model and play the dual role as a manager and leader –
bringing in both a stabilising effect as well as a destabilising effect
to the company.
Speaking at the memorial oration on the 12th year remembrance of late K.
Sivagananathan, highly respected banker and financer of our time,
Ranjith Fernando who has acted as Director/CEO of NDB, Secretary to
Ministries of Industries and Constitutional Affairs listed key pointers
that would make a company CEO an effective one.
The oration was organised by the trust in association with the
Association of Professional Bankers Sri Lanka and was followed by a
Memorial Trust Award Ceremony took place at the BOC Head Office in
Colombo1.
The model of a company
Explaining his subject from the much celebrated case in 1986 when the
House of Lords decided 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 of the company
with power to own property, to be sued and to sue – a hallmark decision
at the time, Fernando noted that the very model and workings of a
company has changed over time, 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 such an extent that there is now a body with legal statute
and case law which has built up, and defines the framework within which a
company works.
In time to come issues such as the role of a regulator and an independent director will be resolved, he assured confidently.
“A CEO must subjugate himself
to the oversight function of the board. The greatest disaster is having a
weak board so that the CEO can run the company as he wants. 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 defend the turf he is given
Today we find that many CEOs find
it convenient to let the chairman make certain decisions and even
preside over staff or departmental meetings. That kind of CEO is not an
effective CEO as you are breaking down the very model
An 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 are complimentary to each other.
Most companies are, 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 perform both functions
Managing is a stabilising
influence; leadership is a destabilising influence as you bring about
change. Because the world outside is changing and unless your company
can change in relation to what is happening in the world, the end will
be in sight. You need to anticipate change
– Ranjith Fernando”
The tripartite relationship
Today, there are two fundamental principles that defines this
relationship – separation of power between the three bodies with each
body having a role to play and the checks and balance you have against
one another, i.e. that the plenitude of a power of a company is not
derived on a single body. If these principles are violated one cannot be
an effective CEO, he said.
Further elucidating the former he noted that each body has a role to
play. Shareholders meet and discharge certain functions such as election
of the board, declaration of the dividend, etc. and appoint a Board of
Directors who tries to understand the laws that govern the particular
industry of which they are on the board (of a company) and ensure that
the company functions within the said parameters.
The board can also demand a business plan from the CEO whom the board
appoints. They not only appoint the CEO but demand a business plan
setting out clear, time-bound goals to be achieved by the company; and
ensure that CEO delivers these targets. They have an oversight function
over the CEO and the management. They also have a duty for shareholders
to whom they report.
Yet another duty of a board is to ensure integrity of financial
statements produced by the company to the shareholders periodically and
understands the risks in business and ensure the management has put in
certain controls to take care of those risks and are effective.
Understanding the model
The 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, and by codes of conduct which are rules made and
changed in a more flexible manner than an act of parliament,” Fernando
explained. “Today we have a body of knowledge that defines these roles
in a much more definite manner than at the time when the celebrated case
was decided by the House of Lords.”
Within that model, how can a CEO by effective? As the chief of the
management what is his role, he questioned. “The CEO needs to understand
the model and without that understanding he cannot play an effective
role as a CEO.”
“A CEO must subjugate himself to the oversight function of the board.”
The greatest disaster is having a weak board so that the CEO can run the
company as he wants; he noted adding that 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 defend the turf he is given. “Today we find that many CEOs
find it convenient to let the chairman make certain decisions and even
preside over staff or departmental meetings. That kind of CEO is not an
effective CEO as you are breaking down the very model,” Fernando
assured.
Playing the dual roles
An 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 are complimentary to each other,” he stressed.
Leadership has nothing to do with charisma nor is it better than
managers. “Most companies are, 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 perform both 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 about change.
Because the world outside is changing and unless your company can change
in relation to what is happening in the world, the end will be in
sight. You need to anticipate change.”
Each deals with what needs to be done, no doubt, but under different circumstances and different 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 that vision to the people whom he leads, exciting and
aligning them to the vision, obtaining commitment from them, motivating
and inspiring and appealing to values and emotions.”
Fernando said: “It is not a completely rational thing whereas managing
is a deductive process.” Planning is a managerial position, design to
produce orderly results. Setting direction on the other hand is more
inductive – doesn’t produce plans, but a vision and strategy.
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 a focus, framework within which
planning can be carried out.”
He added: Managers organise to create human systems, structures; but
aligning is more a communication challenge which necessitates talking to
more people than in organising clients, governments, etc. “Direction
setting identifies appropriate path for movement whereas effective
movement gets people moving down that path. Managerial process must be
as close as possible to fail-safe and risk-free, whereas leadership is
fraud with change and risk taken.”
“My submission is aligning people is not the same as getting them organised as a structure,” Fernando said.
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