Unchallenged authority: beyond Sarbanes-Oxley (1): authority, power and responsibility generally increase as you climb the career ladder in any organization. The Chief Executive Officer is on the highest rung and typically holds the greatest authority within the organization.

• Author: Otte, Paul
• Position: Academic perspective

And while authority is needed at every level to carry out an organization's mission, it can be abused. To reduce risks associated with the misuse of authority, organizations create internal controls over procedures and processes. In addition, those in higher positions are expected to challenge the individual ideas, decisions and actions of their subordinates.

Challenging the top dog

So, who is in a position to challenge the authority of the CEO? A quick response would be the Board of Directors, or Trustees in a nonprofit organization, since the final authority for corporate governance rests with the Board. Whether or not Boards exercise their authority depends on a wide range of factors, such as whether the organization is publicly or privately owned. It also depends on the CEO and Board relationship. And it depends on the willingness of the Board, both individually and collectively, to challenge the CEO.

In recent years, public company Boards have been under great scrutiny for their perceived lack of financial and strategic oversight. Sarbanes-Oxley (SOX) has led to many changes in the Board/CEO relationship and in how organizations govern themselves. SOX has also added emphasis on internal controls as well as internal and external auditors.

The long-term effectiveness of SOX, compared to its short-term costs, is still unknown. And no matter how effective SOX is judged to be, the CEO and senior management will still be held responsible for many operational decisions. Who challenges the CEO in privately owned companies? That can depend on whether the CEO is also an owner. Increasing numbers of privately-held companies are creating Advisory Boards to provide guidance to the CEO. However, as their name implies, these Boards can only advise the CEO. Their ability to challenge depends on the individual courage of their members.

What about nonprofit (community) organizations? Boards of Trustees often have unique relationships with their CEOs, as Board members frequently see their purpose as serving both the community and the organization. Unlike advisory and public company Board members, nonprofit Board members are generally not compensated for their service. Quite the opposite. Frequently, Board members are major fund raisers for the organization. In addition, nonprofit boards are often larger than those in for-profit business organizations. As a result, individual board members may be unable or unwilling to challenge the decisions of the CEO.

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