The difference between a Managing Director and a CEO

This article tells you about The difference between a Managing Director and a CEO. Although many people believe that a Managing Director and a CEO are the same positions, in fact they are not. In some organizations, they certainly can be, depending on the job descriptions and articles of the company but, there are real differences between a managing director and a chief executive officer.

The difference between a Managing Director and a CEO

A managing director is so called because he/she holds a seat on the board of directors. He/she is a director of the company. Further, the managing director is one who works in the day-to-day operations. He/she is involved in the daily routine usually for one of three reasons:

  1. Ownership – Being called a managing director may be a result of owning shares in the company which means that he/she is part owner. Many times, more than one person starts a company because the group as a whole is quite solid. Each individual has his/her own talents, but as one, they are not as strong. Normally, because the strength of the corporation lies in the combined talents, each will own a piece of the company and will be directly responsible for the area that closely pertains to his/her area of expertise. You will find in many companies that one owner is better at sales and thus, as a managing director, he/she may also be the Vice-President of Sales and Marketing. Another may be better suited to the leadership role of President, while the third may be an accounting wizard and therefore, takes the position of Vice-President of Finance. As you can see in this example, all are managing directors with their own departments. Each of their vested interests are protected.
  2. Trust – The board may wish to have someone involved in the daily operations to oversee the operation. The position may not necessarily be that of CEO, but members of the board who own shares, as well as other major shareholders may want someone they can trust to see what is going on.
  3. Experience – The shareholders of a company may decide that instead of hiring a top-level position, a person on the board may suit a specific job. Because of his/her field of expertise, he/she may be better qualified to head an area of the company and sit on the board. It does work more often in reverse, however, where when a senior management position is hired, the candidate is awarded a seat on the board as a perk of the job.

Managing directors are also different in terms of being employees. When they work in the day-to-day business, they are paid like other employees, but they also have further duties that are stipulated by the articles of the corporation. Depending on where the company is incorporated, there will be legal rules which govern the actions of this employee in regards to the board.

In fact, in start-up companies, this position can be conflicting for the person himself/herself. Should he/she not own any shares or own a minority position, sitting on the board may be nothing more than the owner’s way to meet the requisites of a corporation. The managing director in this case would report to the owner, regardless of title.

Moreover, “managing director” is generally a term used in the UK, other countries in Europe, India, Australia and New Zealand. It is very rarely used in the US and Canada. A CEO title in America, generally implies that there is a board and shareholders. It also implies that there is a traditional corporate structure or hierarchy with employees underneath. A managing director, on the other hand, is best suited to one-person operations where the owner holds all the titles of the corporate entity.

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