Answer to Question #274905 in Management for Matang Mikaere

Question

Explain what is CEO duality and further discuss how the presence of CEO duality may contribute to strategic control issues in a family-owned company. 

Answer 1

CEO duality is the practice in which the Chief Executive Officer (CEO) has both the presidency of the company as the chairman of its Board of Directors. From an agency perspective, CEO duality involves an inherent role conflict for the CEO-chair and enhances the power of the CEO relative to the board, thereby compromising the board's functions of monitoring and disciplining the CEO.

The presence of CEO duality contributes to efficiency and effectiveness in a family-owned company. In the CEO duality, efficient means the company does not need to spend more money to hire CEOs from outside so that it will certainly provide efficiencies for the company in minimizing their expenses. On the other hand, effective in the presence of CEO duality means substantial power as the BOD and CEO provide the effectiveness of the company in making a decision to reach the goals of the company; this is because in CEO duality does not require a long process in making a decision, so it will save more time.

The presence of CEO duality contributes to clear direction of a single leader. This is of course will provide a clear direction from the CEO to their managers, stakeholders, and their subordinates regarding the strategy and business decisions that exist within the company.

A strong power in the CEO duality actually is good in a family-owned company because it can create a clear direction of a single leader.