Can a company have both a ‘Managing Director’ and a ‘Chief Executive Officer’?

It is customary for companies to have either a Managing Director (MD) or a Chief Executive Officer (CEO). But can a company have both MD and CEO posts hold by two separate individuals?

At the outset, the Companies Act, 1994 does not define, use or discuss the term "Chief Executive Officer". In practice, the terms "managing director" and "chief executive officer" are used interchangeably. Hence, the question arises as to whether the eligibility and functions of an MD and a CEO are the same. The consequential question that arises is whether in presence of an MD, a CEO can be appointed or vice versa. To address these questions, eligibility and functions of both these positions are to be examined. In this regard, as per section 2(m) of the Companies Act, 1994, a "managing director" is a director with powers of management entrusted to him by virtue of an agreement with the company, or of a resolution passed by the shareholders at their general meeting or by the board of directors. Hence, an MD occupies the dual capacity of being a director as well as an employee of the company. In contrast, a CEO is essentially a C-level executive, a member of senior leadership at the top of a company's corporate hierarchy. A CEO does not need to be a director of the board, he acts as a top employee of the company. So, the eligibility criteria of an MD and a CEO is distinct.

With regards to the functions, typically, a CEO has the responsibility to facilitate business and should also have a strategic vision to align the company, both internally and externally. He plays the role to guide the employees and the executive officers of a company, whereas an MD is the member of the Board with the power of managing hence described as a managing director. Despite the possibility of having some overlapping, the functions of a CEO and an MD are not necessarily the same or identical. As such, from a general point of view, there is no legal bar in appointing a CEO while having an MD so long as the roles and responsibilities of each person are defined. Having said that, if the company is a public limited company, the Corporate Governance Code issued by the Bangladesh Securities and Exchange demands consideration. Section 4(a) of the Corporate Governance Code states, "The positions of the Chairperson of the Board and the Managing Director (MD) and/or Chief Executive Officer (CEO) of the company shall be filled by different individuals." Section 4(d) states, "The Board shall clearly define respective roles and responsibilities of the Chairperson and the Managing Director and/or Chief Executive Officer". By using the expression "and/or" in between the terms "Managing Director" and "Chief Executive Officer", the Code essentially indicates that a public company may have both an MD and a CEO; and that if the positions are taken by different individuals, their roles and responsibilities need to be clearly defined.

In addition to the above, the articles of association of the company requires to be examined to identify, if there is any direct or implied restriction to appoint a CEO in presence of an MD.

To reiterate, subject to the provisions in the articles of association of a company, different individuals for both the positions of CEO and MD can be appointed. However, it is of importance that the roles of these individuals are clearly defined to avoid any potential major overlapping.

The Writer is an Advocate and one of the Associates at Tanjib Alam and Associates.