Chairperson and CEO Roles Should be Separate

An important consideration for not having one person holding  the dual role of chair of the board (Chair) and chief executive officer (CEO) in a corporation is because such an arrangement collects too much power in a single director within the board.  It generates numerous conflicts of interests, agency problems and enables the CEO to manipulate and/or control the direction of the board. In the U.S a notorious case was Enron and its Board Chair and Chief Executive Officer (CEO) Kenneth L. Lay, not surprisingly, the highest paid CEO in the U.S. In his dual role he awarded himself massive amount of compensation through a complacent board that approved inner dealings, dubious accounting practices and high risk investments with known conflicting interests. A study conducted by the U.S. Congress determined among other things that part of the failure of the board was the lack of independence. The board was compromised by conflict of interests arising from financial ties between officers and board members. Other studies conducted by different scholars reflect different view, some suggesting that there is no black and white evidence as to the benefit of splitting the position and that there is no difference in performance having a separate chair from the CEO.

Whatever these studies may say, in the end, boards represent the interests of shareholders and part of this responsibility is to provide directors continuous counseling and supervision and to have them made accountable for their actions. For that, the board needs to be independent. It is the Chair’s responsibility to lead the board towards the fulfillment of these duties. That is difficult to do if the supervisor is the supervised. However, changing this structure would not work if, as it happens often, boards are complacent, and are detached from the mission, vision, and performance of the corporation.

Since shareholders are generally voiceless, institutional investors and those who do get engaged and are active, would surely prefer a board directed by an independent individual so that the balance of power is split and not overwhelmingly against shareholders. Divide and conquer is an old saying.