Chief Executive Officer vs Managing Director

Difference Between Chief Executive Officer vs Managing Director

Chief Executive Officer and Managing Director are the two key and senior most members of a company. The duties of the CEO are often confused with those of MD and vice versa. However, both Chief Executive Officer vs Managing Director can perform duties similar to each other, but the mere existence of these two corporate titles indicates that there will be a substantial difference in their roles. Both reports to Board of Directors. More recently, the organizations have started identifying the significance of the two roles and have incorporated the same into their structure.

Chief Executive Officer

A senior executive of the management of a company who takes important decisions related to a company.

Managing Director

A senior member of the Board of Directors after Chairman / Vice-Chairman who manages everyday operations of the company

Chief Executive Officer vs Managing Director Infographics

Below is the top 5 difference between Chief Executive Officer vs Managing Director.

Key Differences between Chief Executive Officer vs Managing Director

Both Chief Executive Officer vs Managing Director is a topmost and important position in the organization. Let us discuss some of the major differences between Chief Executive Officer vs Managing Director:

CEO & MD plays a vital role in an organization. There are few pointers which differentiate one from another:

• CEO leads the management of the company while MD is lead by Chairman of the Board
• CEO is focused on future-oriented goals whereas MD handles day to day operations of the company
• As a representative of the firm, CEO handles outside world like media and other public events whereas MD plays the main role inside the firm
• Both Chief Executive Officer vs Managing Director reports to the Chairman. On the other hand, in many cases, MD reports to CEO as well
• Main responsibilities:

1.CEO

• Achieving strategic goals set up under corporate governance
• Making long term and short-term strategies for the company
• Appointing managers and heads of various departments
• Proposed delegation of power to other executives which is approved by the Board of Directors

2.MD

• To attain goals in line with mission and vision devised by the Board of Directors
• Reviewing performance of the company, of various departments and taking corrective measures
• The hiring of supporting staff and supervising people of various departments such as sales, production, procurement etc
• Monitoring expenditures and keep the profitability of the company intact
• Supporting CEO for improvement of operations

 Figure:1 – Corporate Structure of a Company

Chief Executive Officer vs Managing Director Comparison Table

Let’s look at the topmost Comparison between Chief Executive Officer vs Managing Director

Common goals of Chief Executive Officer vs Managing Director:

• Running a firm successfully: Irrespective of internal and external factors, the ultimate goal of CEO & MD is to achieve a business objective and running operations of the company smoothly.
• Code of conduct: CEO / MD is expected to maintain integrity as CEO is no less than a representative of the firm to the outside world. On the other hand, MD mainly represents the firm internally by leading and motivating employees of the company and by setting up examples.
• Accountable to the Board of Directors: It is the utmost duty of CEO / MD to keep Board informed on the status of policies, goals, and targets defined under corporate governance.

CEO and MD as a separate role

Due to the increasing complexities in the current business environment that have increased the importance of having two different positions. The concept of separate MD and CEO started from the US-based firms, and it got acceptance with the UK and the European based entities due to increased difficulties in the corporate environment.

Although the roles and responsibilities of both the titles depend on factors such as legal structure, size of the company and Article of Association defined under Corporate Governance, which may vary from company to company. In small organizations, the requirement for creating a different level is not required.

Scenarios which defines the roles:

Multiple titles:

In many cases, a person can hold both the titles CEO and MD at the same time, subject to laws defined by Article of Association.

• A person with multiple titles like CEO, MD, and Chairman are mainly found where the company belongs to Founder or running as a family business since generations. Example: Mukesh Ambani – Chairman and Managing Director of Reliance Industries; Mark Zuckerberg – CEO and Chairman of Facebook

Ideal practice:

In public and large private companies, the separation of these two posts are desirable and considered as good governance practice as it avoids overlapping of powers & authority

Example:

Elon Musk, CEO and Ex-Chair of Tesla, resigned as Chairman in October 2018 under the fraud charges

• These allegations came in light after his statement of taking his company (Tesla) private which indicated availability of unreported funds
• As a part of a settlement agreed of SEC, he had to step down as Chairman along with a penalty of $20m, while keeping the position of CEO intact
• The main objective to separate his position of CEO from Chairman is to make him focus solely on the company’s operation and not on shareholders demand

Conclusion– Chief Executive Officer vs Managing Director

Chief Executive Officer vs Managing Director has a common goal of managing and execution of operation where MD can play an advisory role. It is considered ideal if the same person doesn’t hold the same position as it helps to avoid dysfunctional group dynamics and maintains the independence of individual role. Their main goal is to run a business successfully and maximize shareholders wealth. Functional role of two might be similar to each other but there will always be legal distinctions between two. While the primary authority to define missions, visions and governance are vested in shareholders and Board of Directors. Board further delegates the powers to the CEO and MD to manage the organization and routine operations of the company. CEO / MD is answerable to the Board of Directors for the performance and all circumstances which may have a significant impact on an organization.

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