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

Latest News


Single Source Introduces New Advanced Quote Management (AQM)(TM ...
MarketWatch - 1 hour ago
All functions seamlessly integrate to the inherent back-office financials, inventory, purchasing and management reporting functionality of SM-Plus-meeting ...
KANA Recognized by Leading Industry Publications for Innovation ... Business Wire (press release)
all 15 news articles

CPI Financial

AIG sells wealth management unit to Abu Dhabi group
International Herald Tribune, France - 3 hours ago
NEW YORK: American International Group, the troubled insurance giant, said Monday that it had agreed to sell its wealth management provider AIG Private Bank ...
UPDATE 1-AIG to sell AIG Private Bank to UAE's Aabar Reuters
AIG to Sell Private Bank to Aabar Wall Street Journal
AIG Announces Agreement to Sell AIG Private Bank Ltd to Aabar ... WELT ONLINE
Capital FM
all 127 news articles

The Apogee Companies, a Leading Property Management Company ...
MarketWatch - 5 hours ago
"These upcoming new deals will broaden our abilities to grow throughout the US" The Apogee Companies is a leader in property and real estate management with ...

Stocks drubbed at open
CNNMoney.com - 1 hour ago
The Institute for Supply Management's monthly survey of purchasing managers is expected to decline to a reading of 38 in November from 38.9 in October, ...
WALL STREET WATCH Dallas Morning News
Stocks: Brace for a rocky week ahead CNN
Wall St. looks to extend rally; consumers in focus The Associated Press
all 127 news articles

Manufacturing index at 26-year low
CNNMoney.com - 43 minutes ago
based Institute for Supply Management said its manufacturing index declined to a reading of 36.2 from 38.9 in October. It was the lowest reading for the ...
November manufacturing activity falls, prices plummet MarketWatch
The week ahead in business, at a glance Los Angeles Times
Manufacturing index apt to bring more bad news Boston Globe
TMCnet - MarketWatch
all 151 news articles

Research and Markets: Software as a Service Human Resource ...
MarketWatch - 3 hours ago
Human resources management - or human capital management, to use the trendier term - was one of the first markets addressed by software-as-a-service (SaaS) ...

Mexico's Number One Security Provider Selects NavStar's Fleet ...
MarketWatch - 2 hours ago
The NavStar Fleet Management System will allow Grupo Diamante to track assets, and provide security and risk mitigation service solutions for wireless ...

Aberdeen Asset Management Full-Year Profit Rises 30 Percent
Bloomberg - 8 hours ago
1 (Bloomberg) -- Aberdeen Asset Management Plc, Scotland’s largest independent money manager, said full-year profit rose 31 percent, buoyed by new revenue ...
UPDATE 1-Aberdeen Asset Management's year profit up 0.8 pct Reuters
Aberdeen Asset Mgmt targets costs as FY profit up guardian.co.uk
all 5 news articles

WCBD

'12 Days of Christmas' items would cost $86609
The Associated Press - 3 hours ago
That's this year's cost, according to the annual "Christmas Price Index" compiled by PNC Wealth Management, which tallies the single partridge in a pear ...
Video: 12 Days of Christmas' Items Would Cost $86,609 AssociatedPress
Swans push up the cost of the 12 Days of Christmas guardian.co.uk
Video: True Loves to Face Most Expensive Christmas Ever as PNC ... PR Newswire (press release)
PR Web (press release) - LocalNews8.com
all 317 news articles

More Than Three Dozen Cable, Wire and Equipment Management ...
MarketWatch - 3 hours ago
... among the world's leading providers of cable, wire and equipment management-related products for use in business and at home, today announced that it ...

Resources