Splitting Chairman/CEO Roles is Overkill
U.S. pay czar Kenneth Feinberg believes CEOs should not serve as board chairman, which is now the situation in 63 percent of American companies. The idea behind this seems sound, and UK and Canadian companies are moving in this direction. An independent chair, it is reasoned, is better able to monitor performance of company execs.
Not so fast, argues Harvard Business School professor Robert Pozen, who is also the Chairman of MFS Investment Management. In Should CEOs Be Allowed to Be Chairmen?, he points to numerous studies that show there is no difference in a company's share price or net income if there is a unified CEO/Chairman.
In addition, according to a recent report on board activities during the fiscal crisis by HBS professor Jay Lorsch, many firms have adopted the practice of employing an independent "lead director" whose duties include presiding over executive sessions when management is out of the room. Pozen agrees with this idea:
"Choosing a lead director is a less dramatic way of fulfilling this listing standard than appointing an independent board chair," Pozen writes.One point in favor of combining the two roles is that, ironically, many boards are increasingly packed with independent directors. The problem, and it's a real one: These directors often lack the necessary in-depth knowledge of the company and industry for which they they are making key decisions.
Lorsch's report suggest boards spend less time thinking about the split chairman question and more about achieving clarity about their role "in relation to that of management: the extent and nature of the board's involvement in strategy, management succession, risk oversight, and compliance."
All companies are different, of course. Some certainly benefit by having a CEO as chairman of the board; for others this is too cozy a relationship. What do you think?