The Conference Board Governance Center Blog


CEO-Board Chair Separation: Promises and Pitfalls

By Ryan Krause, PhD Candidate,  and Matthew Semadeni, Associate Professor of Strategy, Indiana University Kelley School of Business

If you choose to demote your CEO, make sure you have a reason other than “It’s best practice”.

The debate over whether the CEO and Board Chairperson titles should be held by one or two individuals has raged for at least twenty years and shows no signs of slowing down. Companies like News Corp. and Wells Fargo recently faced shareholder proposals demanding they split the top jobs. CEOs and many corporate directors argue that separating the CEO and Board Chairperson roles risks losing unity of command, which is especially important in fast-changing environments. On the other hand, many in the corporate governance community argue that a CEO who also chairs the board enjoys unchecked power that he or she could potentially use toward nefarious ends.

It seems that many boards are heeding governance experts’ advice. Since the turn of the century, public companies have witnessed a sizable shift in board leadership practice, with the percentage of large firms separating their CEO and Board Chairperson positions rising from 20 percent to 40 percent, and the percentage of firms with truly independent Board Chairs (i.e. not the former CEO) has risen from 9 percent to 20 percent.

With more and more calls for companies to follow suit and separate their top jobs, it is important that we take a step back and consider what such a change really entails. In a study of S&P 1500 firms from 2002 to 2005, forthcoming from the Academy of Management Journal, we identified the three possible types of CEO-Board Chair separation. Apprentice separations, the most common, occur when the former CEO/Chair retains the board leadership position but ushers in a new CEO. Departure separations, the second most common, occur when the CEO/Chair exits the firm, replaced by two new individuals. The least common type is what we call Demotion separations, in which the CEO remains chief executive, but an independent director is appointed as the new Chairperson.

Ironically, while demotions are the least common form of separation, they are typically what corporate governance activists mean when they call for a CEO-Board Chair split. They argue that unless an independent Chairperson is appointed to oversee the CEO, no real change can occur. Interestingly, the results from our study back them up. Apprentice and departure separations have virtually no effect on firm performance other than what we would expect from any CEO succession. Demotions, however, have a sizable impact on future firm performance.

There’s a catch, though. Whether that impact is positive or negative depends on how the firm was performing when the board split the two leadership roles.

For firms performing poorly, demoting the CEO can be a real boost. We found that a CEO demotion reverses a firm’s annual stock return by 140 percent. So, if the firm’s value declined by 4 percent and the board subsequently demoted the CEO, we would expect to see a shareholder gain of 6 percent the next year.

A recent example of this phenomenon occurred last year at Chesapeake Energy. After seeing the firm’s stock price drop by 47 percent in a year, Chesapeake’s board elected to appoint an independent Chairman rather than completely oust their embattled CEO and founder. Since then, Chesapeake’s stock has rebounded by 40 percent from its low, and continues to climb. While this example is purely anecdotal, it seems to suggest that a reversal of fortune is in store for firms that demote their CEO.

Of course, reversal of fortune is not always desirable. We found that if a firm was performing well, demoting the CEO sent the stock into a tailspin. It may seem like the board of a high-performing firm would have no reason to demote its CEO, but more and more companies are choosing to go down this road, irrespective of firm performance. The latest such company is security vendor Symantec, who announced the appointment of an independent Board Chairman this January on the heels of a 30 percent shareholder return the previous year. We’ll have to wait and see how that move pans out.

So why are firms demoting their CEOs without a pressing performance need? From our end, it appears that boards are acquiescing to outside pressure from activist investors or corporate governance watchdogs to separate the CEO and Chairperson positions because it is “best practice”. Based on the evidence from our study, we believe this approach is a mistake. CEO-Board Chair separation can be beneficial if conducted in the right way and under the right circumstances; otherwise, it can be very detrimental. In our view, boards should look at their choice of leadership structure as a strategic concern, one to be assessed in the context of the firm’s internal and external needs. We believe that this approach, rather than complete and unconditional submission to the supposed gatekeepers of good governance, constitutes best practice in board leadership.

About the Guest Bloggers:

Ryan, Krause, PhD Candidate, Indiana University Kelley School of Business

Ryan, Krause, PhD Candidate, Indiana University Kelley School of Business

Ryan Krause is currently completing his PhD at Indiana University’s Kelley School of Business and has accepted a position as assistant professor of strategy at Texas Christian University’s Neeley School of Business. 

Ryan’s work has been published or is forthcoming in the Academy of Management Journal, the Strategic Management Journal, and the Academy of Management Proceedings, and has been featured in the Wall Street Journal, BusinessWeek, and the Financial Times.  His research interests include boards of directors, executive succession, and stakeholder management.


Matthew Semadeni, Associate Professor of Strategy Indiana University Kelley School of Business

Matthew Semadeni, Associate Professor of Strategy Indiana University Kelley School of Business

Matthew Semadeni is associate professor of strategy in the Management Department of the Kelley School of Business at Indiana University.  

Matt’s work has been published in the Strategic Management Journal, the Academy of Management Journal, Organization Science, the Journal of Management, and the Journal of Business Venturing, and has been cited in media outlets such as the Wall Street Journal, BusinessWeek, the Financial Times, and the Washington Post.  His research interests include competitive strategy, corporate strategy, knowledge creation/innovation, and top management teams. 

You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

4 Responses to “CEO-Board Chair Separation: Promises and Pitfalls”

  1. The roles of the Chairman and CEO have to be splitted as they have really two different objectives and one is in charge of controlling the other. First of all the Chairman is elected in order to be accountable of the Governance of the Enterprise in front of the shareholders. The CEO is appointed (not elected) by the Board to define the strategy, make it validated by the Board and ensure the strategy will be followed by the staff and achieve the needs of the shareholders. His role is typically about management. The CEO will monitor the Strategy for the board and is controlled by the board. Thus there is definitely a segregation of duties here. It is not only a question about good practices, it is a question of control of the Enterprise end to end through principles and policies, processes, organizational structures, culture, ethics and behavior, based on the Corp values, Information management, ICT and people, skills and competencies.

  2. […] separate chairmen and CEOs benefit shareholders. Splitting the two may even be harmful. A recent study out of Indiana University found that the shares of low-performing companies benefited when the […]

  3. Well-written and balanced write-up. Undoubtedly, the separation of the CEO and the Chairman roles is the way to go. Over-concentration of powers in an individual is a dangerous thing. The unity of command argument is weak because the CEO is the leader of the management team and should exercise adequate authority over the management team to enable the team achieve the targets set by the board. The Chairman is the head of the board of directors which, as a body, is not involved in the day-to-day running of the company.

    I like the categorisation of the approaches to CEO-Chairman duality into Apprentice, Departure and Demotion Separations. Well done!

  4. […] In light of the foregoing, there are both pros and cons in requiring the separation of the CEO and Chairman positions.  Generally, despite the apparent benefits of CEO and Chairman independence, separation of the CEO and Chairman positions may not be a one size fits all solution. When making the decision in this arena, therefore, each firm must evaluate its particular strategic environment, and take into account all costs and benefits associated with separating the positions as they relate to the firm’s parti…. […]

Leave a Reply