Board chair and CEO roles: legal and practical experience from Cambodia

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Sythan Prou[1]

Manulife, Cambodia


While the academic study of leadership roles found in a board of directors and management is not new, it is almost unheard of in Cambodia. Such nascent nature is not surprising, given the country’s entire corporate governance and economic structure are still at evolving.[2] Thus, this article aims to shed some light on Cambodian corporate governance by looking at the leadership structure in the board and management of the country’s large companies. The article aims to also add value to the existing scholarship on the subject in developing countries in Asia.

This article employs a legal qualitative analysis combined with a multi-disciplinary approach, drawing on legal, compliance and economic aspects. Twenty large companies were selected for the study, comprising securities firms, banks, state-owned enterprises (SEOs), subsidiaries of multinational enterprises (MNE) and local family-owned conglomerates.[3] The author contends that these large companies have more established corporate governance standards, which can be replicated by smaller enterprises. The author also took reference for the study from laws/regulations; public records; annual reports; books; international standards; journal articles; academic reports; published reports; and media reports, either printed or in electronic format.

Debate on duality or separation

Around the world, there is still no agreement among scholars or regulations whether duality or separation between the chairperson and chief executive officer (CEO) roles is best to achieve alignment of business goals or effective independent board oversight. In the last few decades in both Europe and the United States, the debate has still been heated among listed companies, boards, and shareholders.[4]After examining three academic studies on negative and positive impacts from the unified and separate structures, Tonello (2011)[5] suggested that such debate is likely to carry on, given that the conclusion is not settled. 

In explaining such an unsettled debate, the author wishes to look at key theories, international standards and Cambodia’s regulations on the subject.

Those who follow the agency theory of corporate governance propose that the chair of the board and the CEO should be separate.[6] This separation will achieve board independence in overseeing the performance of the management. The chair acts on behalf of the shareholders in recruiting, paying and, where appropriate, dismissing the CEO. Unifying the two roles is seen as a structure that will give rise to a potential conflict of interest and result in the board having a weak monitoring role.

On the contrary, the stewardship theory promotes combining the role of the chairperson and the CEO. In so doing, companies can reduce agency costs and improve the performance of stewards, maximising shareholder interest. The unity of command determines who is in charge and creates clear lines of responsibility and accountability for effective management[7]. This is particularly important for the success of organisations, giving them solid, unconfused, directive and steady leadership.

The G20/Organisation for Economic Cooperation and Development (OECD) Principles of Corporate Governance (2015) and OECD Guidelines on Corporate Governance of (2015) for State-Owned Enterprises provide examples of best international practice. They have been an influential reference in shaping corporate governance development in many countries around the world (Cambodia included). One of the focuses of the Principles and Guidelines is on board responsibilities, and they suggest the separation of the CEO and the chairperson. The board should set up key committees such as nomination, remuneration and audit committees, where independent directors are the chairs or play key roles to monitor and assess performance of the senior management.[8]

Cambodia does not have consistent regulations in the securities, insurance, banking and state-owned enterprise (SOE) sectors in regards to unified or separate structures. Cambodia’s Law on Commercial Enterprises (LCE), which was issued in 2005, provides generic guidelines on corporate governance and the election of the chairperson by a majority vote of the directors.[9]LCE does not elaborate significantly around the role and authority of the chairman. Cambodia’s insurance regulations require the chairperson to be a non-executive director.[10]This is the first clear cut rule in the country in prohibiting the duality role. Regulations in other sectors – namely banking, securities and SOEs – are silent on this separation.[11]

Findings: discussion and analysis

For the securities sector, six of the eight companies adopted the separation of roles approach. These six companies are the three bond issuers and three (out of five) of the stocks. The two listed companies with duality are both the SOEs operating and managing port businesses. Under the Law on the General Statute of Public Enterprises (1996),[12]the chair of the board and CEO can be the same person or a separate person (but only if necessary). As a matter of international best practice,[13]the chair should be separate from the CEO. This separation has become more urgent as the two enterprises are now publicly held companies. Its SOE peer, which operates a clean water business and is listed in the stock market, had already adopted the separation structure.

It is noteworthy that another SOE with a monopoly in the electricity sector had boasted in its 2017 annual report[14]that its chairperson and CEO were separate. The chairperson is a senior government official from the Ministry of Mines and Energy, a supervising agency. It is good to see that, even though it had not gone public like its peers, this SOE adopted international best practice in separating the roles.

All of the seven banks and microfinance institutions (MFIs) had separate CEOs and chairpersons. The chairs are non-executive, either shareholders themselves or representatives of the shareholders or retired senior executives. The author considers that such a kind of separation is the result of soft law enforcement by the regulators. The regulators expected separation as part of their approvals during fit and proper checks on the board chair and CEO appointments. Detailed information on the chairpersons and CEOs is publicly available in the audited annual reports that are published on the company websites. From the author’s experience in dealing with different regulators in Cambodia, the banking regulators are known to be the most stringent regulators in the country.

A banking subsidiary from Malaysia had a separate chairperson and CEO. The chairperson is a non-executive position and a senior employee from its head office. Such practice is common for large international companies. An interesting composition found on this board is that the CEO was not a director of the company. No other executive was part of the board. It is unusual to see that no senior management was represented in the board of directors. This local subsidiary states that its corporate governance model follows Cambodia’s relevant regulations and its group’s corporate governance model.

The author could not gain much public information on the three local conglomerates[15]. They each had a dozen subsidiaries operating in vast sectors in the economy (banks, insurance, property development, hospitality, beverages, telecommunication, education, etc.). With the information available to the author, it was clear that the founders or their family members chaired most of the companies within the three groups. At least one founder held a dual role in his holding company. The owners normally hired professional executives to run their day-to-day business operations. There were a few cases where the owners’ relatives were the CEOs of the subsidiaries.

Despite such separation, the author contends that the founders or their family members might still maintain significant influence and in fact are key decision makers. This can be explained by media reports and public appearances which portray them as playing a central role to the businesses. In Cambodia, they hold the title ‘Oknha or tycoon’, bestowed by the King for their huge financial contributions to the country’s development. Even though this is an honorary title, it can yield substantial influence and respect. Such practice is common in Asia where the spheres of family and business are reported to be ‘culturally inseparable’.[16] Family members usually chair the holding companies and subsidiaries and hire outside CEOs, having the discretion to then accept or ignore their professional opinions. The downside to this practice is that there are barriers to receive outside investment, and constraints for the board and senior management to perform their functions independently.[17]

Looking across the region, there is no aligned practice as yet. In the Philippines,[18]the chairpersons and CEOs of many local large companies and well-run corporations are still shared among family members. Consequently, this practice has weakened the governance role of the boards of Filipino companies.[19]Similarly, there are issues with a high percentage of managers being affiliated with the controlling shareholders among local conglomerates in four other ASEAN countries. In Indonesia and Malaysia, this strong affiliation stood at about 85 per cent while in Thailand and Singapore, it stands at approximately 70 per cent. This can result in challenges in recruiting professional managers who are able to run the business effectively.[20]

India mandated its largest 500 companies (many of which are locally owned) to separate the roles of chair and of the CEO by 1 April 2020.[21]In 2018, Ernst & Young reported that 60 per cent of Standard & Poor’s 1500 companies have separate chairpersons and CEOs, an increase of 33 per cent since 2000.[22]


It was clear that the board chair and the CEO positions were held by different people in the banking sector and MNE subsidiary and to some extent in the securities companies and in the SOE. Such a clear separation, despite being not mandated by local regulations, can be attributed to the expectation of the regulators[23], that is, to soft law. The regulators expect strict adherence to the legal and regulatory requirements and international best practices. Any non-compliance or weak controls can be easily identified through their annual audit[24] and can result in heavy fines or penalties.[25]

Based on existing scholarship,[26] limited disclosure – as practised by the three conglomerates studied – can pose certain risks. The known inherent risks for family businesses include that they may struggle to survive in the long term due to a weak and unsustainable institutional governance structure. Most family businesses struggle to survive after their founding stage and around 95 per cent of family businesses fail to continue during the third generation of ownership. One of the principal reasons for such failures is the lack of adaptation to a changing environment. In this regard, these businesses should go through an educational process so that they can respond and adapt appropriately to the evolution of the business context, which ultimately will lead to corporations having enhanced governance structures.

As a concluding observation, the author contends that the separation rule and practice will be on the rise in Cambodia, alongside the country’s growing economy and foreign direct investment, and its outward-looking regulatory regime. It will continue its unitary board system with binding laws and regulations.

Whatever the direction, the real focus should remain with the effectiveness of the board chair. The board should not be a rubber-stamping structure but should aim at bringing a real and long-term value to the shareholders and key stakeholders. Significant roles for company founders and/or family members in the board and management will not go away in the foreseeable future. However, this practice will diminish over time when corporate governance regulations and standards become more established and such companies need external funding to expand their business empires. Cambodia’s entire corporate governance framework will continue to evolve significantly in the coming decades.

[1]The author is a 2020 graduate of Executive LLM from King’s College London. This article is part of his Executive LLM dissertation titled Corporate Governance in Cambodia – More Nurturing Needed from Regulations to Compliance, supervised by Professor Dionysia Katelouzou. The author would like to thank Sherman Chan, Regional Head of Corporate Governance, Manulife Asia, for proofreading this article. A recipient of Asian Legal Business’s 40 Under 40 (2018), Sythan Prou is the Chief Legal and Compliance Officer of Manulife Cambodia and a licensed lawyer from Cambodia. All information, facts and opinions included in this article are of those of Sythan Prou and do not represent or reflect in any way those of any organisations he is affiliated with.

[2]In 2015, the Organization for Economic Cooperation and Development (OECD) reported that most of Cambodia’s 513,760 commercial enterprises were small and unregistered businesses. The adoption of good corporate governance remains a major challenge because of the many small and informal businesses, coupled with the country’s nascent stock market.

[3]A breakdown of the twenty samples finds eight in the securities sector (three bond issuers and five listed companies), seven banks and microfinance institutions (MFIs), one state-owned enterprise, one subsidiary of a MNE and three local conglomerates.

[4]Matteo Tonello, Harvard Law School Corporate Governance Forum ‘Separation of Chair and CEO Roles’ 2011, https://corpgov.law.harvard.edu/2011/09/01/separation-of-chair-and-ceo-roles/, accessed 23 October 2020.




[8]OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris, 51.

[9]While generic corporate governance regulations existed between the 1990s and 2005, detailed corporate governance regulations (codes) were introduced for the first time through four separate ministerial guidelines (the Khmer name is Prakas) for the banking, insurance, and securities sectors. A real focus on the theme has taken shape since Cambodia launched its first stock in 2012. The birth of the securities market has naturally brought more attention towards the governance of corporations in a country where most businesses were small and unregistered. Compliance with laws and regulations is a must or companies will face severe sanctions for directors or senior officers or entities.

[10]Prakas on Corporate Governance of Insurance Companies, 2008, art 7.

[11]From the author’s experience, the role and authority of the chairpersons are normally stated in the articles of incorporation.

[12]Article 28.

[13]OECD Guidelines on Corporate Governance for State-Owned Enterprises (2015), 26.

[14]No annual report for 2018 or 2019 was available for this SOE.

[15]The author has abbreviated these companies as A, B and C. The three local companies were founded in the 1980s and early 1990s as family businesses, mostly trading during the socialist economy period and the start of the free market economy.

[16]Deloitte and Singapore University of Management, Asian Business Families Governance: Crossing the Chasm for Inter-Generational Change, 2015, 6.

[17]Asian Corporate Governance Association, Asia Corporate Governance Watch 2018, 46.

[18]Ibid 294.

[19]Ibid, 346, 175, 294.

[20]Ho Khai Leong, Reforming Corporate Governance in Southeast Asia (ISEAS Publications 2005), 21.

[21]Asian Corporate Governance Association, Asia Corporate Governance Watch 2018, 175.

[22]Ernst & Young, ‘EY Center for Board Matters - Today’s independent board leadership

Landscape’, 2018, 1.

[23]In its 2019 Annual Report, NBC had 1,667 staff, making it the country’s largest regulators, even after combining the securities, insurance and tax regulators altogether. From the author’s experience in dealing with the NBC, they are among the most sophisticated and knowledgeable regulators in Cambodia.

[24]Given their large size and competence, the author contends that they are the only regulators in Cambodia conducting on-site audit on every bank on an annual basis.

[25]Such rule-based compliance is similar to the American corporate governance model (Tricker 2015, 149-150) which adopts a ‘comply or penalise’ approach. This stands in sharp contrast to the ‘comply or explain’ principle used in the United Kingdom, for instance, where corporate governance roles are more of private matter and self-regulated.

[26]OECD, Practical Guide to Corporate Governance: Experiences from the Latin American Companies Circle, Chapter 5 - Governance Challenges for Family-Owned Businesses, 2009, 11.