The foundation of the company structure

What is the basis of the company structure?

CEO, CFO, President and Vice President-what is the difference? As the corporate vision changes, tracking people’s work and their position on the corporate ladder becomes more and more difficult. Should we pay more attention to news related to the CFO or vice president? What exactly do they do?

Corporate governance is one of the main reasons for the existence of these terms. The evolution of public ownership has caused the separation of ownership and management. Before the 20th century, many companies were small, family-owned and family-run. Today, many are large international corporate groups that are publicly traded on one or more global exchanges.

In order to build a company that takes care of the interests of shareholders, many companies have implemented a two-level company hierarchy. The first level is the board of directors or board of directors: these people are elected by the company’s shareholders.

Key points

  • The most common corporate structure in the United States consists of a board of directors and a management team.
  • The board of directors usually includes internal directors who work in the company’s daily work and outside directors who can make fair judgments.
  • Most senior management teams have at least one chief executive officer (CEO), one chief financial officer (CFO), and one chief operating officer (COO).

The second level is senior management: these people are hired by the board of directors. Let us first take a closer look at the work of the board and its members. Please note that this type of company structure is common in the United States; in other countries, the company structure may be slightly different.

Understand the company structure

Understand the basics of company structure

Board of Directors

The board of directors is elected by shareholders and consists of two types of representatives. The first category involves internal directors elected from within the company. This can be the CEO, CFO, manager, or anyone else who works for the company every day.

Another type of representative includes outside directors, who are elected from outside and are considered independent of the company. The role of the board of directors is to supervise the company’s management team and act as the spokesperson for shareholders. In essence, the board of directors tries to ensure that the interests of shareholders are well served.

Board members can be divided into three categories:

Chairman: Technically speaking, the chairman of the board of directors is the leader of the company and is responsible for the smooth and effective operation of the board of directors. Their responsibilities usually include maintaining close communication with the CEO and senior management, formulating the company’s business strategy, representing the management and board of directors to the public and shareholders, and maintaining corporate integrity. The chairman is elected by the board of directors.

Internal Directors: These directors are responsible for approving high-level budgets prepared by senior management, implementing and monitoring business strategies, and approving core corporate plans and projects. Internal directors are shareholders or senior managers within the company.

Internal directors help provide internal views to other board members. If these people are part of the company’s management team, they are also called executive directors.

Outside directors: Although they have the same responsibilities as internal directors in determining the strategic direction and company policies, the difference between outside directors is that they are not directly affiliated with the management team. The purpose of hiring outside directors is to provide an unbiased view of the issues presented to the board of directors.

management team

As another layer of the company, the management team is directly responsible for the company’s daily operations and profitability.

Chief Executive Officer (CEO): As the top management, the CEO is usually responsible for the entire operation of the company and reports directly to the chairman and the board of directors. The CEO is responsible for implementing the decisions and actions of the board of directors and maintaining the smooth operation of the company with the assistance of senior management.

Usually, the CEO will also be designated as the president of the company, and therefore one of the internal directors of the board (if not the chairman). However, it is strongly recommended that the CEO of the company should not be the chairman of the company at the same time to ensure the independence of the chairman and clear terms of reference.

Chief Operating Officer (COO): Responsible for the company’s operations, responsible for issues related to marketing, sales, production, and personnel. The chief operating officer is usually more hands-on than the CEO and is responsible for daily activities while providing feedback to the CEO. The COO is often referred to as the senior vice president.

Chief Financial Officer (CFO): The CFO also reports directly to the CEO and is responsible for analyzing and reviewing financial data, reporting financial performance, preparing budgets, and monitoring expenditures and costs.

The CFO must periodically submit this information to the board of directors and provide it to shareholders and regulators, such as the Securities and Exchange Commission (SEC). The CFO is often referred to as the senior vice president, and regularly checks the company’s financial status and integrity.

special attention items

The ultimate goal of management and the board of directors is to maximize shareholder value. In theory, management is responsible for day-to-day operations, and the board of directors ensures that shareholders are adequately represented. But the reality is that many boards include members of the management team.

When you are researching a company, it is always a good idea to see if there is a good balance between internal and external board members. Other good signs are the separation of the roles of CEO and chairman and the various expertise of accountants, lawyers, and executives on the board.

It is not uncommon for a board of directors to be composed of the current CEO (chair), CFO and COO, as well as retired CEOs and family members. This does not necessarily indicate that the company is a bad investment, but as a shareholder, you should question whether such a company structure is in your best interest.

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