CEO vs Chairman: Who Really Holds the Power?

By Adrian Lawrence FCA, Founder, NED Capital

The question of whether the CEO or the chairman holds more power in a company is one of the most persistently debated questions in corporate governance — and also one of the most frequently answered incorrectly. The formal answer is clear: in a well-governed listed company, the chairman leads the board and the CEO runs the business, with the board — led by the chairman — holding ultimate authority over the CEO through the power to appoint, evaluate and if necessary dismiss. The practical answer is considerably more complicated. Real corporate power rarely follows the governance chart.

The Formal Governance Answer

Under the FRC UK Corporate Governance Code, the roles of chairman and chief executive should be separate. The Code is explicit on this point: “The chair leads the board and is responsible for its overall effectiveness in directing the company. The chief executive is responsible for proposing the strategy and delivering it.” This separation is not merely administrative — it reflects a fundamental governance principle that the person who sets the CEO’s agenda and evaluates their performance should not be the same person who performs the role.

In formal terms, the chairman holds authority the CEO does not. The chairman leads the board meetings, chairs the nomination committee, manages the board’s governance processes and, in a crisis or CEO failure, is the person who leads the board’s response. The board — not the CEO — ultimately controls the company’s strategy, its capital allocation and its senior appointments. A CEO who loses the board’s confidence can be replaced; a chairman who loses the board’s confidence is in a structurally weaker position and typically departs too, but they are not answerable to the CEO.

In theory, then, the chairman is the more powerful figure. In practice, the answer is rarely so simple.

When the CEO Holds More Power

The most common real-world power inversion in corporate governance is the strong, high-profile CEO who effectively dominates a relatively passive or deferential board. This pattern is not difficult to identify in corporate history — it is typically most visible in the years immediately before a significant governance failure.

Several structural factors create conditions in which a CEO accumulates power that formally belongs to the board. Founder-CEOs are the most obvious example. When the person who created the business, built its reputation and drives its growth also holds the CEO role, the chairman and the board face an inherent authority challenge — challenging the founder on strategy or performance requires both the governance confidence and the interpersonal willingness to confront someone who may be more commercially knowledgeable, more publicly prominent and more important to the business’s identity than any other individual in the organisation.

The combined CEO-chairman role — common in the United States and explicitly prohibited in the UK governance codes for premium listed companies — concentrates formal authority in a single individual. The governance argument against combination is straightforward: the person who leads management’s operational agenda should not simultaneously chair the board that oversees management. In practice, the combined role creates a governance environment in which the board’s independence is structurally compromised before it has even met. This is why the FRC Code’s provision on separation is not advisory but a firm principle, departure from which requires specific explanation in the annual report.

Even where roles are formally separated, a CEO who has been in post for many years — who has relationships with institutional shareholders, who has appointed several of the NEDs through their own influence and who is closely identified with the company’s public narrative — can accumulate informal authority that exceeds their formal governance position. The long-tenure CEO in a company with a relatively new or less prominent chairman presents exactly this dynamic.

When the Chairman Holds More Power

The counterexample — the powerful chairman who effectively sets the CEO’s agenda rather than merely governing the business they lead — is less common but equally instructive. It arises most often in three situations: companies where the founding shareholders have retained significant equity and placed themselves or their representatives in the chair; PE-backed businesses where the chair is appointed by and effectively represents the investor’s interests; and companies in crisis where the board has asserted its authority in response to CEO underperformance or misconduct.

In PE governance, the distinction between a formal chair and a de facto investor representative who carries the chair’s title is frequently blurred. Where the chair is appointed by and effectively accountable to the PE investor, their authority over the CEO reflects the investor’s underlying ownership position rather than any independent governance authority the chair themselves holds. This is a governance structure that provides the appearance of independence without the substance — the chair who defers to the investor on all significant governance decisions is not providing independent oversight of management.

The crisis scenario — in which the board, led by the chairman, reasserts authority over a CEO who has lost the board’s confidence — is the situation in which the formal governance structure most clearly demonstrates its purpose. The board’s power to dismiss a CEO is ultimate and non-negotiable. A CEO who has lost the support of the chairman and a majority of the board cannot survive in post regardless of their public prominence, operational competence or stakeholder relationships. The Boards of some of the most prominent companies in corporate history have demonstrated this capability.

The Tesla Problem — and What It Tells Us

The governance debate about CEO power versus board authority is perhaps best illustrated by the Tesla case. Elon Musk served as both CEO and chairman of Tesla from the company’s early years until 2018, when the US Securities and Exchange Commission required the separation of the roles as part of a settlement following his infamous “funding secured” tweet. The settlement required Musk to step down as chairman while remaining as CEO — and required Tesla to appoint two independent directors approved by the SEC.

The Tesla case illustrates several important governance principles simultaneously. It shows that the combined CEO-chairman role can persist for years in a public company when the CEO is publicly prominent and commercially successful — the separation was imposed externally by a regulator, not chosen voluntarily by the board. It shows that regulatory intervention can achieve governance reform that internal board governance processes have failed to deliver. And it shows that even after formal separation, the practical power dynamics of a board where the CEO is more publicly prominent and more commercially identified with the company than the chairman may not change dramatically simply because the roles are split.

UK governance requires separation for premium listed companies not because separation automatically produces good governance but because it creates the structural conditions for good governance — a chairman who is formally independent of management and who is not simultaneously trying to lead both the board and the business.

The Real Question: Who Is Accountable to Whom?

The more useful governance question than “who holds the power?” is “who is accountable to whom?” — because accountability is where governance either works or fails.

The CEO is accountable to the board. The board evaluates the CEO’s performance, sets their compensation and, in the most important governance moment in any board’s life, decides whether they remain in post. This accountability is real and consequential — every major CEO departure from a listed company in the UK involves the board exercising the authority that formally resides with it.

The chairman is accountable to the board collectively, and through the board to the shareholders. The chairman who fails to lead the board effectively, who allows management to dominate governance or who fails to act when the CEO’s performance requires action, is accountable to the other board members and ultimately to shareholders through the AGM process. Senior Independent Directors — a role specifically created under the FRC Code — exist partly as a governance mechanism for situations where the chairman’s accountability needs to be exercised independently of the chairman themselves.

The practical power dynamics of any specific board reflect the personalities, track records and relationships of the specific individuals in the chair and CEO roles, overlaid on the formal governance structure. A strong, experienced chairman with the confidence to challenge a commercially successful CEO provides genuine governance. A nominally independent chairman who defers to management on significant decisions provides governance theatre. The formal structure creates the conditions for good governance — it does not guarantee it.

Implications for Non-Executive Directors

The CEO versus chairman power dynamic is not merely an academic governance question — it has direct implications for non-executive directors who are considering board appointments or who are already serving on boards where the power balance is unclear or unhealthy.

NEDs who join boards where the CEO is visibly more powerful than the board — where board meetings are primarily information-sharing sessions rather than governance deliberations, where the chairman consistently defers to management’s judgement and where independent challenge of strategy or performance is implicitly discouraged — face a specific governance challenge. Their legal duties as directors remain the same regardless of the informal power dynamics of the board; they are required to exercise independent judgement and to act in the interests of the company even when the board culture makes this uncomfortable.

The NED who identifies that the CEO-chairman dynamic on their board is unhealthy — whether through CEO dominance or through a chairman who is not genuinely independent of management — faces a choice: work to improve the governance culture from inside the board, escalate concerns to the Senior Independent Director or, as a last resort, consider whether continued service is consistent with their governance obligations. This is one of the most difficult judgements a NED makes in practice, and it is a judgement that the formal governance framework provides the framework for but does not resolve.

The Combined Role in Private Companies

In private companies — which are not subject to the FRC Code’s separation requirement — the combined CEO-chairman role is common and not inherently problematic. A founder-led business where the founder serves as both CEO and chairman is a governance structure appropriate to the stage and ownership of the business. The governance principles of separation that are appropriate for a FTSE 350 listed company with dispersed shareholders are not necessarily appropriate for a founder-owned SME where the founder’s judgment is the primary source of value creation.

The governance question for private companies is different: as the business grows, and particularly as it approaches institutional investment or a governance transition, when does the founder’s combined role become a governance constraint rather than an operational asset? This is the conversation that PE investors have with founders before and after investment — and it is the conversation that leads, in well-governed PE transactions, to the separation of the CEO and chair roles as part of the investment governance framework.

Conclusion: The Answer Is “It Depends” — But That Does Not Make the Question Irrelevant

The CEO versus chairman power debate does not have a universal answer because corporate governance does not operate in a uniform context. In a well-governed listed company with an effective chairman and a capable, properly accountable CEO, the power balance is healthily distributed — each role constrains the other in ways that produce better governance outcomes than either unchecked authority would produce. In a company where one party dominates the governance dynamic, the formal governance structure is failing its purpose regardless of who nominally holds more power.

The governance insight that matters is not which role formally holds more authority but whether the accountability mechanisms between the roles are operating effectively. A powerful CEO subject to genuine board governance oversight is a governance asset. A powerful CEO whose board provides only nominal oversight is a governance risk. The chairman’s role — and the NEDs’ role alongside them — is to ensure that the oversight is genuine, even when that oversight is uncomfortable for everyone involved.

Related reading: Chairman of the Board Recruitment  |  Non-Executive Chair Recruitment  |  Why Use a NED Headhunter?  |  NED Roles

NED Capital places non-executive directors and chairs for businesses across the UK. Call 0203 137 2496 or email recruitment@nedcapital.co.uk to discuss a board-level appointment.