Separation of Powers in a Corporate Environment

Corporations are associated with a number of governance problems, chief among which revolving around how to separate powers among the several stakeholders and still maintain a unified front in pursuing their core business. However, there seems to be a conflict of interest between shareholders and Directors in a large number of Nigerian companies, with a majority of Directors being the main shareholders hence limiting involvement of the minority shareholders.

Splitting the roles of chairman and chief executive may be done to ensure that an independent board will patrol management or to allow a leader to focus on strategy. However many academics and analysts who have studied the issue say there is little proof that it makes a difference in corporate performance. In cases where it seems to work, no pattern is clear: sometimes the chairman is independent but often he is the former chief executive.

Separation of powers is most closely associated with political systems, in which the government is divided into parts and provided with different sets of responsibilities. The number of groups created by a separation of powers arrangement vary across political systems, and are often based on the complexities associated with managing the functions of government.

While separation of powers is most closely associated with politics, this type of system can also be used in other instances. For example, a corporation may be comprised of a chief executive officer (CEO), board of directors, management teams, and non-management professionals. Each group has a different set of responsibilities, which allows a group to focus on efficiently and effectively undertaking its duties without also having to focus on doing the work of other groups. This type of approach works best in larger organizations, though smaller businesses may also separate powers.

A principle related to the separation of powers is checks-and-balances, a system in which the powers of one branch is limited by the powers of another branch. Hiring different people for the position of Chief executive and chairman can allow the chief executive to concentrate on running the business while the chairman and the board think strategically. The C.E.O. is a very operational role, and sometimes it’s difficult to see the forest through the trees, in such cases the chairman and chief executive can work as a team in order to achieve the best interests of the company.But having two egos fill these two central positions can be tricky and the outcome from keeping the two positions separate is dominated by a large number of uncertainty.

A lead director who is truly independent may accomplish the same thing as splitting the roles of chairman and chief executive. This may be achieved by imbuing the said director with power to supercede the chief executive and chairman in the event of a conflict between both parties. The lead director may also operate as a mediator in the event of any dispute arising between the chairman and the chief executive.

Milton & Cross Solicitors provides corporate governance advisory services to individuals desirous of establishing sustainable organisations. We have successfully advised corporates operating in the oil and gas, FMCG and technology sectors in creating and reorganising their corporate structures. Please contact us on +2348036258312 or by email at miltoncrosslexng@gmail,com

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