Sound-Up Governance

Each week, we will release two illustrated definitions of corporate governance jargon in order of increasing complexity. In this instalment we have the definition of "senior executives". Check the episode thumbnail for an illustration by Nate Schmold.

Originally published Mar 20, 2023

What is Sound-Up Governance?

The real impact of corporate governance isn't about compliance or structure or policies, it's about the conditions that impact decision-making. Sound-Up Governance features fresh perspectives to help boards and executives to be a bit better tomorrow than they were yesterday.

When corporations get big enough, they usually have a layer of managers at the very top whose boss is the CEO. Most of the time, each of the managers in that layer is responsible for a specific technical function in the corporation and has their own employees to help them to carry out that function. These managers are called “senior executives” and often have the word “chief” and “officer” in their title, just like the CEO, with the word in between being the name of their function, like “Chief Financial Officer” or “Chief Tarantula Handling Officer,” AKA the CTHO.

Senior executives are important to corporate governance because they “own” a lot of decisions in their functional area. They also usually get to spend a bunch of time with the board to make sure the board knows and approves of what they’re up to. Let’s say the board sets an objective that the corporation needs to handle 50% more tarantulas over the next year. Obviously, a lot of that responsibility is going to fall on the CTHO. If you’re the CTHO, your boss (the CEO) will be responsible for managing your performance and making sure you’re set up with the resources to get your job done well. But even though your boss is the CEO, the board will be super interested in how you plan on meeting your new tarantula handling objectives, and how well the corporation is performing. Are you going to acquire a bunch more tarantulas? Will you increase your capacity by buying another corporation with a strong tarantula handling track record? Will you start a breeding program? No matter what approach the corporation takes, it’s your job to make sure it gets done well. In any case, you can bet the board will be interested…

In most corporations, it’s the CEO’s job to hire senior executives. The CEO will need the board’s approval to create new senior executive positions, and will also probably want the board’s input on hiring and firing and compensation. Most of the time, the board is happy to stay out of it as much as possible unless there’s a problem.