The decision of whether or not to separate the chair and chief executive roles remains a hot governance topic for public companies, boards, and shareholders. While the number of companies separating the roles of board chair and CEO has grown significantly over the past five years, it is not yet a majority practice in the US. According to The Conference Board’s 2011 Director Compensation and Board Practices Report, approximately 50% of nonfinancial services companies in the US separated these roles, with less than 65% of those companies having an independent board chair.
The Chairmen’s Forum, a group of prominent current and former chairs of corporate boards from the United States and Canada, recently issued a model statement regarding the separation of chair and chief executive roles. Under this model, boards are urged to adopt a policy requiring a separation, independent board chair. In its release, the chairman of the Chairman’s Forum, Bill McCracken, noted that “Corporate directors should prepare now for next-generation leadership, which involves building companies through strong and constructive boards led by independent chairs. . . . The Chairmen’s Forum sees succession as the inflection point in moving to a fresh model of board leadership. This policy language offers a clear way for directors to put this fresh model into practice and reflects an emerging standard.”
Shareholder representatives, including AFSCME (American Federation of State, County and Municipal Employees) and New York City Comptroller John Liu, who oversees NYC pension funds, are raising the profile of this issue by submitting shareholder proposals to require separation of the chair and CEO roles at companies like JP Morgan and Goldman Sachs. Despite AFSCME’s failure to garner majority shareholder support for a separation proposal last year at Exxon Mobil, ISS reports that the proposals for independent chairmen last year averaged 33 percent support at Russell 3000 companies, up from 28 percent the year before. AFSCME has announced the filing of 21 such proposals in 2012.
The issue of separation of board chair and CEO will continue to be subject of debate in the US. For more information about the debate and the rationale for separating these roles, check out The Conference Board’s Director Note, August 2011.