Corporate Governance: Separating the CEO and the Chairman Roles

Corporate Governance: Separating the CEO and the Chairman Roles - 4/14/2009

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Corporate Governance: Separating the CEO and the Chairman Roles
Kevin LaCroix

The D & O Diary. April 14, 2009
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EXCERPT: A growing chorus of voices is calling for public companies to make the separation of the Chairman and CEO functions the default governance structure. This movement, which may have the support of the new SEC Chair, appears likely to lead to some type of "adapt or explain" approach. Increasing evidence that the companies where the CEOs also act as board Chair are likelier to have "certain troubling governance characteristics" will likely encourage shareholder interest in the initiative as well. The idea of separating the two roles is hardly new, but it has gained significant support from a wide variety of sources recently. First, on March 30, 2009, the Chairmen’s Forum of the Millstein Center for Corporate Governance at Yale School of Management issued a report entitled "Chairing the Board: The Case for Independent Leadership in Corporate North American" calling on all North American companies to "voluntarily adopt independent chairmanship as the default model of board leadership," and if they chose to take a different course "to explain to their corporate shareholders why doing so represents a superior approach to optimizing long-term shareholder value." (The Chairman’s Forum is a group of more than 50 current and former board chairs, directors and CEOs convened at the Millstein Center.) The Millstein Center’s March 30, 2009 press release reports that while in the U.k. only 5% of the FTSE 350 companies combine the chairman and CEO roles, over 60% of the S&P 500 companies have boards that are chaired by their CEOs. The press release quotes one commentator as saying that the independent chair model "has been adopted successfully by many companies in many regions of the globe as a means to further ensure and empower board independence."

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