With the collapse of MF Global, we're confronted yet again by a company without serious governance. Jon Corzine, who spearheaded the company's wrongheaded investment strategy, was both CEO and Chairman. This makes a mockery of any attempt at serious governance - but combining the roles is still remarkably common. At Goldman Sachs, Lloyd Blankfein is both CEO and Chairman; likewise Jamie Dimon at J.P.Morgan Chase. In fact, more than half of the Fortune 25 corporations are both managed and overseen by the same executive. Exxon, Chevron, Conoco, GE, Procter & Gamble, Wells Fargo, GE, General Motors, McKesson, Verizon, Cardinal Health, Valero and Kroger: all have Chief Executives chairing their boards.
This is dangerous. Why? For one thing, it means the CEO has no boss, mentor or oversight. If, as a non-executive director, charged with oversight on behalf of shareholders and stakeholders, you have concerns about the direction a firm's strategy or direction, where do you take that? If you worry that the CEO is misguided, confused, unethical or out of touch, what would you do with those concerns? It ought to be that you raise them to the Chairman of the board - but when that is the CEO, you have only two choices: either shut up or talk among other directors in what will look like a coup. That appearance alone will militate against raising issues.
Structurally, combining the roles of CEO and Chairman represents an enormous risk. Challenging, even questioning, the Chief Executive becomes difficult, if not impossible. Many will argue that's why the CEO likes it that way. But truly thoughtul leaders appreciate that they are smarter and ultimately more secure to the extent that their strategies are robustly tested.
Creating a structure in which it is virtually impossible to challenge a CEO renders the rest of the board impotent and blind. We badly need board meetings to be occasions for challenge and debate. Healthy boardrooms should not be country clubs or conflict-free, but environments in which strategy and execution can be subjected to the most rigorous tests. Otherwise they are a waste of time and money. In their inability effectively to discharge their duties, they're effectively fraudulent, appearing to offer levels of oversight that are effectively impossible.
If you want to do corporate governance seriously:
1. You don't combine the roles of Chairman and CEO.
2. You do create an ethos in which board directors are encouraged to question, challenge and proble.
3.You don't construct a board which is all pale, male and stale, with directors holding more directorships than they can discharge thoroughly. You engage people with time and a broad range of experience who take their duties seriously. You don't pack the board with your pals.
4. You articulate and demonstrate the proposition that conflict is thinking -- and you make sure everyone knows how to do conflict well. And you don't keep people who can't, or won't, do it.
Smart CEOs who don't imagine themselves Masters of the Universe know this too. At a time when the theory and legal construct of corporate governance have been rendered risible by the freedom CEOs have to flout them, we should by now have reached a stage where no serious business operates such a corrupt and crippled structure.
But who is going to tell the Chairman?