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Splitting the Roles of CEO and Chairman

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Traditionally, in American businesses, precisely the same person occupies the part of chairman of the board and ceo, though this is gradually shifting on the European model. In many European, British, and Canadian businesses, the roles are often split, in an effort to ensure better governance from the company, and in turn bring higher returns to investors.


Combining the roles comes with its advantages, such giving the CEO multiple perspectives for the company as a result of their multiple roles, and empowering these to act with determination. However, this enables for little transparency in the CEO's acts, and as such their actions will go unmonitored, it paves the way for scandal and corruption.

As outlined by Ira Millstein, an expert in corporate governance, an effectively independent board is a shareholder's best protection. Separating the roles enables the chair to check up on the CEO, and as a consequence the company's overall performance, on the part of the stockholders.

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

"We believe it is an appropriate segregation of duties. Like a business grows, the CEO can pinpoint the business and the chairman can deal with the ever-growing regulatory requirements," noted Lino P. Matteo, CEO to the Montreal-based management accounting firm Mount Real.

Ultimately, once the chair does not also occupy the role of CEO, they can govern the board within a more impartial manner, and thus investor returns might be higher.

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

A study by Christian & Timbers demonstrated that 97% of European executives feel that the roles needs to be split. However, stockholder returns were nearly 5% lacking in European companies that implemented the split, in comparison to companies that had precisely the same CEO and chairman.

In the united states, where only about 20% from the major public companies split the roles even if 86% of executives polled by Christian & Timbers considered that the roles needs to be split, returns were 4% lacking in companies with a separate chairman and CEO.

One of the reasons they gave for the higher returns from the companies with the same CEO and chairman was the as soon as the board commits to arranging itself doing this, they focus less on constant watchdog evaluation of the individual than making them or her successful.

Additionally, they 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 around 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 a great deal more influence over other directors," they noted.

Based on an article in the business journal McKinsey Quarterly, Americans will view the role of chairman with less respect than that of CEO, especially in companies the location where the roles are split.

Therefore, they ought to consider remarketing the job of chairman as a more respected career, 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 way of restoring trust and confidence in the increasingly corrupted corporate American landscape.

Whether or not the CEO is the chairman of the board or otherwise not, there is no way the company may be successful unless the administrators dedicate themselves to raising the CEO and other upper-management sustain a superior level of performance.


Posted Dec 28, 2015 at 7:09am