The Board Blog: Will Mandating an Outside Chairman Solve Anything?
Posted September 28, 2009 12:27:05
The quick answer to this blog’s headline is “Yes.” It will satisfy the interested parties who feel that this is a big issue that will improve board governance. There are governance issues… and then there are meaningful governance issues. Mandating the split of the roles of CEO and board chair is just a governance issue.
On this topic, there is plenty of rhetoric, both pro and con, to help us get a good night’s sleep for months to come. The Corporate Library, a compensation and governance research firm in Maine, says dual-titled CEO/chairmen “tend to have less shareholder-friendly governance practices.” Likewise, folks at the Millstein Center at Yale are using their voice to encourage NYSE and Nasdaq to alter their listing requirements to mandate that when a dual-titled CEO leaves that post through retirement or other means, the roles must be split. From the other end of the spectrum, the Wharton Center for Leadership and Change Management states that after reviewing available studies separating the CEO and chairperson roles, it believes the split “has no bearing on corporate financial performance.” What’s a prudent capital markets investor suppose to believe? The fact is, investors really don’t care about who holds what titles as long as the company achieves long-term (or sometimes short-term) shareholder value growth. If splitting the titles means better performance and a higher stock price, than split away! Will it prevent fraud or mismanagement… right now I don’t think so, since two of our most storied corporate debacles, Enron and WorldCom, had separate CEO and chairman roles.
So as not to be left out of this so-far baseless debate, I too have an opinion to add to the fray. My less-than-expert opinion comes from my service as a president and director of a public company as well as my years of conducting director retreats and board evaluations for many various-sized corporations. It is as follows:
Do whatever you want with the splitting of the CEO and board chair roles, because it technically won’t change a thing.
Here’s why. If you as a board didn’t take command of your duties before you had an outside chair, then why would you think a mere title change is going to make things better? The reality is that the CEO and/or GC/corporate secretary completes most of the agenda, addressing what needs to be covered at the next meeting. Someone in the position of board leadership (titled or nontitled) should review the agenda and ensure that appropriate issues are on that list. As a director, I don’t need to be the board chair or lead director to make sure my board reviews the agenda and performs its other duties correctly. Furthermore, don’t ask me, or any other competent director candidate for that matter, to serve on a board if it isn’t going to fully perform its function of representing the shareholders—whether that entails requesting (or sometimes telling) the CEO what needs to be on the agenda, or exercising any other right I have as a corporate director overseeing the company’s operations. Hello…..this is not about titles… this is about action. So if your lead director couldn’t do it before, what makes you think this new title will provide him or her a new suit of courage to become more involved? So go ahead, mandate the split of the CEO/chairman roles and see what it truly gets you. Maybe I’ll be surprised and this whole scenario will mimic the Wizard of Oz when the cowardly lion was given a badge of courage and off he went to rule the forest. Come to think of it, forget mandating the title split—maybe we should just follow the yellow brick road.
One last point that sticks in my craw. These debates seem to promote a “we” versus “they” mentality, often pitting management against the board in a struggle over control. In my mind, both parties need to look at any governance challenge as an “us” issue. The best boards at the best-performing companies have directors and managements that work well together, pulling in the same direction. Too many times, outside activists paint CEOs as greedy and controlling. I’m not naïve enough to think those CEOs don’t exist, but they are clearly a minority. If both sides respect each others’ duties and roles, I think some amazing things can happen to the company’s bottom line and stock price.