This article has been written by Pranab Banerjee pursuing a Training Program to Crack the Independent Directors’ Exam from Skill Arbitrage.

This article has been edited and published by Shashwat Kaushik.

Introduction

This document’s purpose is to understand the CXO’s roles and responsibilities and how efficiently any company/corporation hires an experienced and efficient CXO for their company to provide strategic direction to the company/corporation and help in the company’s growth in a controlled manner.

Overview

The abbreviation CXO stands for “Chief ‘X’ Officer,” where “X” represents a specific area of expertise or responsibility within an organization. The “X” can refer to various positions, including:

1. Chief Executive Officer (CEO): The CEO is responsible for the overall management and direction of a company. They set the company’s strategic vision, make key decisions, and oversee the operations of the organisation.
2. Chief Financial Officer (CFO): The CFO is responsible for managing the financial aspects of a company. They oversee the financial planning, budgeting, and accounting processes. The CFO ensures that the company’s financial resources are used effectively and efficiently.
3. Chief Information Officer (CIO): The CIO is responsible for managing the information technology (IT) infrastructure of a company. They ensure that the company’s IT systems are aligned with the business goals and that the company’s data is secure and accessible.
4. Chief Security Officer (CSO): The CSO is responsible for managing the security of a company. They develop and implement security policies and procedures to protect the company’s assets, data, and personnel from threats.
5. Chief Operating Officer (COO): The COO is responsible for overseeing the day-to-day operations of a company. They ensure that the company’s processes and systems are efficient and effective. The COO also manages the company’s supply chain and logistics operations.
6. Chief Technological Officer (CTO): The CTO is responsible for leading the company’s technological innovation efforts. They identify and develop new technologies that can enhance the company’s products, services, and processes.

As per Section 203 of the Companies Act, 2013, a Chief Executive Officer (C.E.O.) is considered as key managerial personnel. And below-given companies are required to appoint a Chief Executive Officer (C.E.O.): 1. Every listed company 2. every other public company having a paid-up share capital of ten crore rupees or more.

All CXOs hold imperative values in the company/corporation by providing their:

• Specialised experience in the respective domain.
• Thoughtful leadership quality.
• Strategic directives.
• Risk management and mitigation qualities.
• Cultural domination.
• Thorough insight on corresponding rules and regulations.

Terms and conditions of appointment of CXO are determined by the board of directors of the company in a general meeting in accordance with corporate governance articles and provisions. 

Qualifications and skills

The Company Act 2013 does neither define any such skills and qualifications nor roles & responsibilities, terms & conditions for C’X’O. Therefore, it is absolutely the discretion power of the respective company’s board members or key member professionals. But the appointment letter should contain all the details, including function, roles & responsibilities and terms and conditions. In general, the specific qualification of CXO may be majorly dependent upon the ‘X’ factor. In general, any C-grade officer should have a bachelor’s degree. In addition to that, a Masters of Business Administration in the respective ‘X’ domain along with a number of years of experience in the related domain is more preferred. In addition, the following skills should be possessed:

• Communication.
• Strategic decision-making.
• Strong leadership.
• Smart management.
• Problem solving ability.
• Time and cost management.

Functions of CXO

Each C’X’O has their own sets of responsibilities defined by their roles based on their domains to meet the company’s growth and objectives in a controlled & regulated manner.

Chief Executive Officer (CEO)

The CEO is mainly responsible for overseeing all operations & business activities of the company/organisation. Also, the CEO should be consistent in all strategic directives & missions for the company’s growth and better performance, maintaining the rules and regulations defined by regulatory authorities.

The CEO is also responsible for developing high-level business strategies and a proper road map for organisation growth and innovation and ensuring their alignment with short- or long-term objectives of the company. Also review financial and non-financial reports to provide solutions and improvements.

The CEO will be a single point of contact for all regulations and such functions would be on the board as a whole. The CEO also participates in all negotiations on behalf of the company when there are large and important deals with the vendors, lenders, and customers. The CEO also acts as a spokesperson for the company in front of the media or in any interview. CEOs may have various operational departments to run the CEO business. Few of them like Planning, HR, Legal, sales, etc.

Based on the functions of the CEO, the CEO will be reporting to the board of members, and eventually he/she will also be a member of the board and call for a meeting to discuss company growth, issues, or any important deal or schedule appointments of key management professionals.

Chief Financial Officer (CFO)

CFO refers to the Chief Financial Officer, which is a very crucial and significant role for any organisation in terms of managing the finances of the company. Sometimes CFO refers to the financial backbone of the company. CFOs majorly focus on financial planning and analysis, which includes budgeting and financial forecasting. They also need to ensure the financial health of any company/organisation by providing strong insights into financial performance and future prospects. In short, the CFO has to ensure adequate finances are available to execute the company’s plan and objectives expenses and, at the same time, is required to manage all the borrowings and capital expenditures of the company.

CFO also play an important role by building a strong relationship with investors and making a strong presence in the investment community. The CFO also directly reports to the board of members and is responsible for providing the financial status of the company and funding/investment capability proposals to the board.

Therefore, any major financial risk to the overall company and a proper mitigation plan for such risks lie with the CFO, who should convene and explain such activities to the board of directors of the company. 

Chief Operating Officer (COO)

Chief Operating Officers majorly focus on the day-to-day administrative and operational function of the business and ensure the implementation of the company’s tactical and strategic planning in an efficient manner.

In general, the COO works under the guidance and supervision of the CEO to execute the strategic & tactical decisions of the company and ensure a smooth operation of the company. The COO is held responsible for overseeing the smooth operation of human resources, recruitment and implementation of financial implications, and execution of business strategies. The COO is also responsible for reporting to board members and convening or discussing significant planning or strategic moves for the company. 

Checklist and procedures for the appointment of C-Grade officers or CXOs:

Pre-appointment phase:

1. Identify the need:
   • Assess the company’s current and future needs for C-grade officers or CXOs.
   • Determine the specific skills, qualifications, and experience required for the position.
2. Develop a recruitment plan:
   • Outline the recruitment process, including sourcing channels, advertising, and screening criteria.
   • Identify potential candidates from internal and external sources.

Candidate evaluation phase:

1. Initial screening:
   • Review resumes and conduct preliminary interviews to shortlist potential candidates.
   • Assess candidates’ technical skills, qualifications, and general suitability for the position.
2. In-depth interviews:
   • Conduct comprehensive interviews with shortlisted candidates to evaluate their professional and behavioural skills.
   • Assess their leadership qualities, strategic thinking, and decision-making capabilities.
3. Reference checks:
   • Contact previous employers and colleagues of the candidates to verify their skills, performance, and work ethic.
   • Gather insights into their character and suitability for the role.
4. Psychometric assessments:
   • Administer personality and aptitude tests to assess candidates’ emotional intelligence, cognitive abilities, and leadership potential.
   • Identify any areas for development or concerns.

Selection and appointment phase:

1. Final selection:
   • Based on the evaluation results, select the most suitable candidate for the CXO position.
   • Prepare a draft resolution for the candidate’s consideration, followed by the proper meeting for the board meeting.
2. Board meeting:
   • Send/intimate the board meeting request to all board members along with the agenda.
   • Hold a meeting of the board of members of the company and discuss the agenda.
   • Decide on the name of the proposed CXO and pass the board resolution.
3. Consent and declaration:
   • Obtain signed consent and declaration from the respective CXO, acknowledging their acceptance of the terms and conditions of the appointment.
4. Digital signature:
   • Obtain the digital signature of the respective CXO to formalize their acceptance.

Post-appointment phase:

1. General body meeting:
   • Call for a general body meeting of the company.
   • Convene the general body meeting and pass a resolution for the appointment of the new CXO.
2. Letter of appointment:
   • Issue a formal letter of appointment to the CXO outlining the terms and conditions of their employment.
3. Onboarding and integration:
   • Develop an onboarding plan to help the new CXO integrate into the company’s culture, understand their roles and responsibilities, and establish key relationships.
   • Provide ongoing support and guidance to ensure their success in the role.

Procedures for the CXO appointment

Further detailed procedures for the CXO appointment in accordance with the provisions listed below:

• Sections 173, 178, and 203 of the Company Act, 2013.
• Rule 8 of the Companies Rule 2014.
• Regulations 30, 44, and 46 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Checklist and procedures

• Preparation of draft resolution:
  • Draft a resolution for the appointment of the Chief Executive Officer (CEO) of the company.
  • Ensure the resolution includes the name of the proposed CEO, their qualifications and experience, and the effective date of their appointment.
• Preparation of notice and agenda for board meeting:
  • Prepare a formal notice for the board meeting, mentioning the date, time, and venue of the meeting.
  • Attach the agenda for the meeting, which should include the discussion and voting on the CEO’s appointment.
• Circulation of notice and agenda:
  • Circulate the notice and agenda to all board members/directors well in advance of the meeting to allow them sufficient time to review and prepare.
• Conducting the board meeting:
  • Assemble the board members/directors for the meeting.
  • Discuss the resolution to appoint the CEO, considering the candidate’s qualifications, experience, and suitability for the role.
  • Conduct a vote on the resolution, ensuring that the majority of the board members/directors concur with the appointment.
  • Conclude the meeting with positive notes, summarizing the decisions made and any further actions required.
• Publication of board meeting report/minutes:
  • Prepare a detailed report or minutes of the board meeting, including the discussion, voting results, and resolutions passed.
  • Publish the report/minutes on the stock exchange where the company is listed to inform shareholders and other stakeholders of the CEO’s appointment.
• Issuance of letter of appointment:
  • Draft and issue a formal letter of appointment to the newly appointed CEO.
  • Include the terms and conditions of employment, such as salary, benefits, job responsibilities, and reporting structure.
• Filing of forms with the ROC:
  • Within 30 days of the CEO’s appointment, the company must file Forms MGT-14 and DIR-12 along with the resolution with the Registrar of the Company (ROC).
  • Ensure the forms are accurately completed and submitted to comply with legal requirements.
• Proper entry in company registrar or MoM books
  • Make the necessary entries in the company registrar or minutes of meetings (MoM) books to document the CEO’s appointment, including the date, resolution, and other relevant details.

Checklist of documents required for CEO appointment:

• Board meeting resolution copy.
• Intimation letter to stock exchange where company is listed.
• Profile of newly appointed CEO.
• The newly appointed CEO’s signed consent letter.
• Appointment letter from the company.

Chief Financial Officer (CFO)

• Mandatory requirement: A CFO shall not hold office in more than one company except in its subsidiary companies.
• CFO reports to CEO in any company but the recruitment process is almost the same:
• Prepare a draft resolution mentioning the appointment of the CFO of the company. Also prepare the notice along with the agenda for the board meeting.
• Circulate the notice along with the agenda to all board members/directors.
• Assemble for the board meeting, discuss and pass the resolution concurring with the majority decisions and conclude with positive notes.
• Publish the board meeting report/minutes to exchange where the company is listed.
• Issue the letter of appointment to the new CFO.
• Within 30 days of the appointment of the CFO, the company has to file Forms (MGT-14 and DIR-12) along with resolution with the ROC (Registrar of the Company).
• Making necessary entries in the company registrar or MoM (minutes of meetings) books.

Checklist of documents required for CFO appointment:

1. Meeting resolution copy.
2. Intimation letter to stock exchange where company is listed.
3. Profile of newly appointed CFO.
4. Newly appointed CFO’s signed consent letter.
5. Appointment letter from the company.

Recommendation

To make the right CXO hiring decision, here are a few key tips to consider:

1. Categorise candidates:
   Categorise candidates based on various factors such as their academic records, certifications, and experience. Assess their reputation and influence in the industry, as well as their goodwill in the market and their personal brand on social platforms.
2. Verify previous engagements:
   Investigate the candidate’s contributions in their previous roles. Evaluate their value add and the percentage of growth achieved during their tenure.
3. Domain expertise:
   Determine the candidate’s understanding and experience in the business domain of the current organisation. Assess their knowledge of the industry, competitors, and market trends.
4. Situational judgement:
   Evaluate the candidate’s situational judgment skills. Assess their ability to analyze and make sound decisions in complex and challenging situations.
5. Compensation and benefits:
   Consider the candidate’s compensation and benefits expectations. Ensure they are aligned with the organisation’s budget and compensation philosophy.
6. Strategic innovation:
   Align the candidate’s mindset with the company’s focus on innovation. Assess their understanding of how innovation can be leveraged to generate revenue and drive business growth.
7. Cultural fit:
   Evaluate the candidate’s cultural fit with the organisation. Assess their values, leadership style, and communication skills to determine if they align with the company’s culture and values.
8. Emotional intelligence:
   Assess the candidate’s emotional intelligence and ability to manage themselves and others effectively. Evaluate their interpersonal skills, empathy, and conflict resolution capabilities.
9. Continuous learning:
   Determine the candidate’s commitment to continuous learning and professional development. Assess their willingness to stay updated with industry trends and technologies.
10. Reference checks:
    Conduct thorough reference checks with previous employers and colleagues to verify the candidate’s performance, skills, and work ethic.

Conclusion

Every listed company, as defined by the Companies Act of 2013, is required to have a Chief Executive Officer (CEO) and/or a Chief Financial Officer (CFO) to oversee the daily operations and financial management of the company. This mandate is imposed to ensure that listed companies are managed by qualified and experienced individuals who can make informed decisions and take responsibility for the company’s performance.

The presence of a CEO and/or CFO is crucial for several reasons. First, it provides a clear line of authority and accountability within the company. The CEO is responsible for the overall management of the company, while the CFO is responsible for the financial aspects. This division of responsibilities ensures that there is no confusion about who is ultimately responsible for decision-making.

Second, a CEO and/or CFO bring a wealth of knowledge and expertise to the company. These individuals are typically highly skilled and experienced professionals who have a deep understanding of the industry in which the company operates. Their insights and guidance can be invaluable in helping the company make strategic decisions and achieve its goals.

In conclusion, the requirement for listed companies to have a CEO and/or CFO is essential for ensuring good governance, accountability, and investor confidence. Companies that comply with this requirement are more likely to be successful and sustainable in the long run.

For smooth operation of the company and to oversee the overall growth of the organisation, it is highly required to have those key managerial personnel on the role of the company.

And as per the Company Act 2013, all key managerial personnel (CXO) have to be onboarded or appointed following defined rules, regulations, and procedures mentioned above.

References

• https://bau.edu/blog/how-to-become-a-cfo/
• https://taxguru.in/company-law/ceo-appointment-companies-act-2013.html