Rethinking the CEO-Chairman Split

Traditionally, in American businesses, the same person occupies the role of chairman of the board and chief executive officer, though this is gradually shifting to the European model. In most European, British, and Canadian businesses, the roles are usually split, in an effort to ensure better governance of the company, and in turn bring higher returns to investors.

Combining the roles does have its advantages, such giving the CEO multiple perspectives on the company as a result of their multiple roles, and empowering them to act with determination. However, this allows for little transparency into the CEO's acts, and as such their actions can go unmonitored, it paves the way for scandal and corruption.

According to Ira Millstein, an expert in corporate governance, an effectively independent board is a shareholder's best protection. Separating the roles allows the chair to check up on the CEO, and in turn the company's overall performance, on behalf of the stockholders.

Separating the roles also allows the CEO and chairman to focus on different, equally vital aspects of the company's performance.

"We think it is an appropriate segregation of duties. As a business grows, the CEO can focus on the business and the chairman can help with the ever-growing regulatory requirements," noted Lino P. Matteo, CEO for the Montreal-based management accounting firm Mount Real.

Ultimately, when the chair does not also occupy the role of CEO, they are able to govern the board in a more impartial manner, meaning that investor returns could potentially be higher.

However, a new survey by three consultants for the international management consulting firm Booz Allen Hamilton found that the companies that divided the roles actually had smaller shareholder returns, leading some to rethink the CEO-chairman split.

A survey by Christian & Timbers showed that 97% of European executives believe that the roles should be split. However, stockholder returns were nearly 5% lower in European companies that implemented the split, when compared with companies that had the same CEO and chairman.

In America, where only about 20% of the major public companies split the roles despite that 86% of executives polled by Christian & Timbers believed that the roles should be split, returns were 4% lower in companies with a separate chairman and CEO.

One of the reasons they gave for the higher returns in the companies with the same CEO and chairman was the once the board commits to arranging itself that way, they focus less on constant watchdog evaluation of that individual than making him or her successful.

They also pointed out that CEO-chairman might be able to withstand pressure better, especially when short-term changes don't pay off, than non-CEO chairman.

Thirdly, they attribute the surprising results to lack of authority on the CEO's behalf. "Clearly, a CEO who is not a chairman is the board's hired hand; a chief who is also chairman has far more influence over other directors," they noted.

According to an article in the business journal McKinsey Quarterly, Americans tends to view the role of chairman with less respect than that of CEO, especially in companies where the roles are split.

Therefore, they should consider remarketing the job of chairman as a more respected career path, as it is in British companies, where 95% of companies have separate people occupying the roles of CEO and chairman. The remarketing could then function as a way of restoring trust and confidence in the increasingly corrupted corporate American landscape.

Regardless of whether the CEO is the chairman of the board or not, there is no way the company can be successful unless the directors dedicate themselves to helping the CEO and other upper-management sustain a superior level of performance.

About The Author

Jessica Klein is a member of the 'Mount Real Research Team', whose aim is to seek out and distribute business information to the virtual public. She is a freelance writer based in Montreal, Canada who loves writing about anything from accounting to zebras.

For more info about Mount Real, visit http://www.mountreal.com.

jessica@redchilimedia.com

---

Tales from the Corporate Frontlines: Human Resources at Work

This article relates to the Human Resource Functions competency, commonly... Read More

Reflections in the Glass Ceiling

The recent news about one of America's most powerful woman... Read More

A Leadership Lesson: Two Guys With Guns

PERMISSION TO REPUBLISH: This article may be republished in newsletters... Read More

Give Yourself a Boss? Day Gift

Become a better boss and reap the benefitsAnother interesting study... Read More

Employers - Protect Yourself from Custody Battles that Hold Your Company Hostage

Child custody? How'd that get to be an employer's concern?When... Read More

Employee Performance - If You Want the Best, Get Personal!

This is a story about a man and three dogs.I... Read More

How to Help Your Company Become a World Class Company

Most people think real change in an organization occurs as... Read More

Tales from the Corporate Frontlines: Adapting Human Resource Functions

This article relates to the human resource functions competency, commonly... Read More

Succession Planning for Your Business - 7 Key Benefits

A core activity in many successful businesses, Succession Planning is... Read More

Factoring Financing: How to Grow Your Business Without Debt or Loans

What is factoring?Accounts receivable financing, also known as factoring, is... Read More

Avoid These Seven Deadly Dangers Of Outsourcing

Here are seven dangers of outsourcing your software development. They... Read More

Quick Tip - Effective Meetings Begin With Goals

Goals are critically important for the success of a meeting.... Read More

Protect Your Computer System with a Comprehensive Security Policy

The most difficult part of creating a Security Policy for... Read More

6 Simple Steps to Dealing with Difficult Managers

The challenge of managing difficult managers can be rather daunting,... Read More

The Significance of the Mundane

This article begins with a tip of the hat to... Read More

Bosses Are Out ? Managers As Coaches Are In

There is a new trend taking hold in business today... Read More

Five Tips for Analyzing an Income Statement

In today's article, we'll be looking at the income statement,... Read More

The Top 5 Signals That Your Business Is Running You

Starting your own business is a great undertaking but running... Read More

Telephone Techniques: Boost Your Productivity With Effective Phoning

One of the things that most impacts people's productivity is... Read More

Interviewing Applicants Can Be Hazardous to Your Wealth

1st Fact: Interviewing applicants is the most common way companies... Read More

New Leadership For A New War

Military analysts call this "asymmetrical" war (as if war has... Read More

Training and ROI (Return On Investment)

Statistics consistently reinforce that the biggest challenge in today's contact... Read More

Future Business Success - What Does Good Look Like?

When you know you need to shift up a gear,... Read More

Poly Bags and Pallet Shrouds - Just Get it Right

For many companies, procuring the right packaging, such as Poly... Read More

The Top 10 Requirements for Your Business to Become and Remain Profitable

We live in a relentlessly competitive world. The daily pressure... Read More

Successful Managing Through Delegation

Managers should avoid the tendency to constantly delegate to the... Read More

Delegating Responsibility

Too many managers waste both time and energy performing tasks... Read More

Five Steps to Increase the People Power in Your Business

Take some bold steps and help your employees and business... Read More

Problem Solving the Problem Solving Meeting

We go to meetings to share information, to report on... Read More

Create Your Dashboard for Success

Driving down the road our eyes frequently scan the vital... Read More

Building A Stellar Business One Employee At A Time

Top businesses that continually lead their industry clearly understand a... Read More

Change Behaviors, Change Performance

Every organization is looking for the holy grail of performance... Read More

What 80% of Businesses Don?t Know: Tips for Improving Your Working Capital Management

What is the number one way to prevent failure in... Read More