Worth Reading…Separation of CEO and Chair

The issue of whether or not to separate the roles of CEO and Chair has certainly stirred lots of conversation in board rooms across the United States, especially as shareholders and Congressmen have called for it in proxies and federal legislation.

The argument made by proponents is that having two separate leadership positions, where chair is independent, is that such a transition is evolutionary for U.S. companies and a best practice around the world. Those opposed argue that there are no proven studies that show separating the two leadership positions leads to better shareholder performance.

The Conference Board Governance Center last week released its first in a series of research digests called Board Book. The first issue’s focus is Board Leadership and CEO/Chair Separation. The publication cites a handful of papers, articles, speeches and research that analyze CEO duality. If you are a Governance Center member, you can access Board Book here (username and password needed).

In addition to the Board Book, I have compiled some more research on the subject:

• The Value of Independent Directors: Evidence from Sudden Deaths, Bang Dang Nguyen and Kaspar Meisner Nielsen, Chinese University of Hong Kong, May 19, 2009, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1484707. Key findings: A look at the contributions of U.S. independent directors to shareholder value from 1994-2007. Overall, authors found that independent directors provide a valuable service to shareholders.
• 2009 Proxy Season Highlights No. 5: Companies With Combined CEO and Chair of the Board Positions, Annalisa Barrett, The Corporate Library, March 23, 2009, www.thecorporatelibrary.com/news_docs/932032509splitceochair.pdf (There may be a fee to download this paper.) Key findings: In a study of more than 3,000 North American companies, TCL found 52 percent combined both positions, 21 percent were led by an independent director and 12 percent have boards led by a former CEO. Companies with dual roles have “troubling” governance characteristics.
• 2009 Spencer Stuart Board Index, Oct. 26, 2009, http://content.spencerstuart.com/sswebsite/pdf/lib/SSBI2009.pdf . Key findings: Half of all boards have only one insider, the CEO, up from 44 percent last year. And 37 percent split the chairman and CEO roles, versus 20 percent a decade ago. Of the 184 companies that split the roles, 81 have an independent chair (versus 75 last year) and 91 have a non-independent chair (down from 105 last year).
• 2009 Postseason Report: A New Voice in Governance: Global Policymakers Shape the Road to Reform, RiskMetrics, Oct. 16, 2009. http://www.riskmetrics.com/docs/2009-postseason-report.
• Corporate Governance Commentary: Proxy Access Commentary No. 1, The Battle for Shareholder Access — The Current State of Play, Latham & Watkins, May 19, 2009. http://www.lw.com/upload/pubContent/_pdf/pub2633_1.pdf. Key findings: Sen. Charles Schumer of New York proposed a bill that in addition to issuing a shareholder proxy access rule and Say on Pay would call for independent board chairs. At last check, that bill had been referred to the Senate Committee on Banking, Housing and Urban Affairs.

- Gary Larkin