CEO, Chairmanship Split: Pressure Growing To Change Rules

More than 50 high-profile corporate executives, investors and think tanks pushed for splitting the role of CEO and Chairman on Monday.

A new report, supported by, among others, the founder of KB Home and SunAmerica, Eli Broad; the Chairman and CEO of MBIA, Jay Brown, and the Chairman of Thomson Reuters, Niall FitzGerald, calls for all American companies to appoint a separate chairman and CEO. It was first reported in the Wall Street Journal.

The push comes in the wake of a surge in shareholder activism over the issue, including, most recently, the nonbinding proposal by shareholder activist Robert Monks to split the CEO and Chairmanship at Exxon Mobil Corp.

According to RiskMetrics Group Inc., so far this year, investors submitted 39 resolutions seeking an independent board chairman, five more than in all of 2008, the Wall Street Journal reported.

Here are the requirements for a good Chairman, as laid out by the report:
-Clearly spell out duties of the CEO and chairman to staffers and shareholders
-Pick a separate chairman with the experience, attributes and time required
-Chairman should be a consensus builder
-Chairman needs the courage to ask hard questions
-Chairman should possess a certain humility -- and not see post as path to executive leadership

Harry Pearce, a retired General Motors Corp. vice chairman who is chairman of MDU Resources Group Inc. and Nortel Networks Corp., told the Wall Street Journal that by splitting the two roles a company "would perform better overall -- and not just in shareholder returns."

The Millstein Center for Corporate Governance and Performance at Yale University's School of Management and the Chairmen's Forum published the report. It is considering asking the New York Stock Exchange and Nasdaq to adopt the separation of the two positions among its listing rules.

According to the Wall Street Journal, citing a report from the Corporate Library, 37% of companies in the Standard & Poor's 500-stock index have separate chairmen and CEOs, up from 22% in 2002.

Chairing The Board - Free Legal Forms

Comments

[bayhuntr]

YEs, It's very nice to see that corporate America is going in full throttle with the whole job-stimulus thing, finally creating new jobs.

[loki]

Great, now we will have twice as many ivy greed people raping the worker and the American public. Hurray!!

[Ranta]

Nomi Prins, in her book, Other Peoples Money( 2004), states that of the Fortune 500, 425 had a CEO and chairman as being one and the same.
CEO and chairman one and the same. That's the perfect formula for thievery.

[munki]

over due and executive malpractice protection!

[jerrypl]

There needs to be significant reforms and this is just one of them. The bigger one is to use the Anti-Trust laws and break up mega-corporations that act as monopolies. Too big to fail must be changed to never too big to fail.

http://eye-on-washington.blogspot.com

[BushBites]

That's a good first step.

[phasor]

It's a no brainer.

Of course, the chairman of the board should be, must be separate from the CEO.

Further, the chairman should be a fiduciary for the stockholders. The chairman position should be nominated and elected annually by shareholders. The chairman should not be allowed to sit on the board of more than 3 companies.

[DASChicago]

Most board members are the biggest F'in lobbyist.

[KMAz]

Two overpaid crooks are better than one.

[petman2001]

It's nice to see that corporate America is going in full throttle with the whole job-stimulus thing, finally creating new jobs.

[petman2001]

OK, so the beleagured corporate executives want to split every CEO/ Chairman position in two, dividing up the responsibilities for this role into two separate jobs . Does that also mean that they are advocating spliting up the SALARY of that one job to cover both new jobs? Didn't think so.

[jsarets]

Way to miss the forest for the trees...

Effective corporate governance is vastly more important than executive compensation. Your populist rage is misguided and counterproductive.

[jukesgrrl]

And perhaps you would like to expand on YOUR remark, because as it stands it's nothing more than meaningless labeling.

[petman2001]

I'll match my populist rage with your elitist smugness any day. As far as this populist rage being misguided and counterproductive, give us all a break: we are JUST getting started! Wait until it reaches criitcal mass!

[Beka13]

Sounds like another excuse to give more money to rich people.

[Read Books]

The theory is that the chairman, as well as the board, represents shareholder interests, not management interests.

Shareholder and manager interests are different. Shareholders want growth, efficiency, and accountability. While managers theoretically want this too, they also value job security. Executives often use their power to benefit themselves, rather than the company.

Separating the chairman role from the CEO role provides a check on CEO power. Companies with this separation perform better, on average, in the long run.

[JnrNorman]

Obama give $30 to the bankers and 1$ to the people in the stimulus bill.

[Beka13]

Well if Georgie Porgy didnt give all those tax cuts to the rich and start a nonsense war in Iraq ....WE WOULD NOT BE HAVING THESE PROBLEMS RIGHT NOW.

[jsarets]

Bush did plenty of things wrong that led to the financial crisis, but the two things you mention aren't among them. If you're going to bash Bush, do it right. Don't be an idiot.

[neumann]

And one other thing, if public companies were more interested in paying a meaningful dividend to their longterm stockholders than they were in the price of the stock on a moment to moment basis traded by speculators, a lot of these issues would not arise.

When capitalism started going off the rails was when the stock market ceased to be a means of raising CAPITAL for corporate expansion and investment and became a keno game. Forty years ago every decent stock paid a dividend and the notion that appreciation in stock price was the only mechanism to increase value to shareholders was unheard of. Now a dividend seems quaint.

Not quite so "quaint"? I own a stock that paid about 3.5% in dividends in 2008. And it only dropped by about 10% in value when everything was down 30%. They also make actual products sold to actual customers. Not too bad.

[neumann]

Requiring a separate non- executive Chairman and CEO is a good idea for all PUBLIC companies. If it is private do what you want.

Commenting on comments:

philosopherkingtomas: "all bonuses should be tied to stock performance !"
neumann says: That is what got us into this mess, equating short term moves in stock price with corporate success. I constantly see executives jacking the price for a week or two. Cash out options? Stock price is just one indicator. How about bonuses based on profitability?

flatus : "Does anyone really deserve more than a million dollar salary? Why?"
neumann says: Sure if you turnaround a company that is failing into one that is making hundreds of millions of dollars a year why not? Besides most of these execs don't get huge salaries, they get huge non-salary compensation (stocks, options, golden parachutes etc). What has gone wrong is that first they started chasing these artificial forms of valuation (this quarter's revenues or this afternoon's stock price) and then they got these performance bonuses even if they didn't perform (see AIG FP) see http://neumann103.wordpress.com/2008/10/01/iceberg-dead-ahead-pay-me-more-or-im-outta-here/

[OtayPanky]

Separating the two offices will only have an impact if everyone agrees that the we're not going to tolerate the live and let live, hands off attitudes that have characterized so many boards.

Otherwise, it's just a re-arrangement of deck chairs on the Titanic...another iteration of the back-scratching country club mentality we've gotten too much of already.