Separating the Chairman and CEO Jobs
from
What Directors Think 2003
by Sasha Issenberg
William Hasler knows about boards where the CEO is chairman. “There’s a feeling that they have a decision made ahead of time and just want to run the drill and force the decision on the directors,” he says. Hasler now has a role to play in making sure that directors are encouraged to speak up. In early 2003 he was named chairman of Solectron, an electronics company in San Jose, California, where he had been one of eight outside board members. The CEO job went to somebody else: Michael R. Cannon, formerly president and CEO of Maxtor, a California hard-drive producer. Both positions had previously been held by Koichi Nishimura, who retired.
Hasler, co-CEO of the international biotech firm Aphton and a former dean of the Haas School of Business at the University of California, says this isn’t one of those cases where the younger person—he’s 61, Cannon is 50—is in a holding pattern, waiting to take over both top jobs once he accumulates some experience. “The company made a determined decision to split the roles,” he says.
As chairman, “I want to make sure everyone’s heard during meetings,” says Hasler. “If you see someone who is all bottled up and upset, you might want to call on them.” The Hasler boardroom sounds more cooperative, more open, perhaps a little more slow-moving than some others, but it is not a throwback to a time when the country looked westward to cluck at people who wore headbands, gathered at be-ins, and shrugged at life with the code word “whatever.” “I realize we’re in California,” he says, “and there’s a different style in how Californians do business, but we’re not laid-back.”
Boards around the country are thinking about naming outside directors as chairmen, though only a relative few have yet done so. Among those endorsing the idea is the National Association of Corporate Directors, which states, “Boards should designate an outside independent director to provide oversight of key governance practices. This director could be the chairman of the board, chair of the governance committee, lead director,” or hold some other title.
Those recommendations not only threaten the corporate status quo but also mark an aggressive assault on the “cowboy culture of the American CEO,” contends Nell Minow, editor of the Corporate Library, a research firm that analyzes corporate governance issues. Only 15 Fortune 500 companies have independent chairs—boards headed by true independent directors, defined by the New York Stock Exchange as people who have no significant relationship with the company beyond board duties. Former executives, members or former members of the company’s law firm, and directors getting generous corporate donations to their pet charities are not among them.
The idea that a CEO should also serve as chairman is well grounded in the mythology of executive power. In a hierarchy of both power and accountability, the CEO is the person ultimately responsible for a company’s success and ostensibly most familiar with its operations. Why should someone else run the board? The nation’s founding fathers rejected the idea of co-presidents on the same premise. “If there’s a different chairman and CEO, in our culture most people will ask the question ‘Who’s in charge?’” says Paul Lapides, director of the Corporate Governance Center at Kennesaw State University.
When William J. Pratt, a founder, board chairman, and longtime top executive of RF Micro Devices, decided to cut back his role in late 2002, he made a deliberate effort to seek a chairman outside management ranks. The job went to Albert E. Paladino, who had come to the board as a founding investor in the early 1990s, joining a group of venture capitalists enlisted as directors. He had chaired a board committee at RF Micro Devices and had previously served as outside chairman at the computer-hardware manufacturer Telaxis Communications, now part of YDI Wireless. Pratt stayed on as chief technical officer, and Robert A. Bruggeworth, who had been president, became CEO. Paladino says that relations between the board and management—on issues such as the amount of money that should be devoted to research-and-development projects—have been smooth. That can be attributed to Pratt and Bruggeworth’s cooperation and Paladino’s experience at RF. “I certainly wouldn’t move into another company and take on the chairmanship on day one,” says Paladino. “You’ve got to learn about the other directors. And you’ve got to spend some time with the people at the company and know their personalities.”
Of course, not all CEOs are so conciliatory. As companies are learning during searches, many CEO candidates insist that the chairmanship be part of their package. Tyco is among those that have caved in to such demands, a decision Lapides questions. “With troubled companies, investors want evidence that the board is doing its job,” he says. “What better statement than having someone other than the CEO to oversee the board?”
At Solectron, Hasler’s first major chore as chairman was to steer the CEO selection process. “When talking to the candidates, we let them know that the board would have a separate, independent chairman,” he says. None of the finalists complained. If one had, says Minow, “then he’s the wrong person for the job.” But she also urges boards, “Let’s not lose sight of the forest for the trees by arguing over titles.” In other words, making sure there’s some check on the CEO’s boardroom authority—perhaps by way of a lead director—is what matters.
