According to a recent NYT article (click here), 29% of S&P 500 companies have split their CEO and Board Chair roles, up from 21% five years ago. The reasons for doing so are varied:
Some, like Disney, were forced by shareholders to decouple the roles. Others, like Dell, did so to give a hard-working president a promotion to chief executive. Many others want to let a new chief executive grow into the job under the watchful eye of the former one, serving as chairman.
Conventional wisdom is that separating roles will reduce agency costs. Hence, various shareholder activists have pushed for separation. As New York’s comptroller put it: “When the same person fills both roles, the odds are much less that the board will challenge inappropriate decisions.” Whether separation is warranted is debatable. An empirical piece authored by three business school professors “provides preliminary support for the hypothesis that the costs of separation are larger than the benefits for most firms.â€? Click here for the abstract (unfortunately, the paper is not available online).
Some of the possible disadvantages of splitting roles include making it more difficult to recruit CEO candidates, inviting power struggles, hampering strategic vision, and complicating succession planning.
The NYT article closes with the assertion that the most compelling reason to split roles may be “the need, as corporations are under increasing scrutiny, to prove that the company takes governance seriously.� I would hope a board decision to split would be based on more than just giving the appearance of good governance.
Note that the NYT article cites a survey on the issue conducted by Russell Reynolds Associates. This press release has more details from the survey.
