Risk Management

Should the Chairman and CEO Roles Be Held Separately?

The percentage of companies where one person holds both posts has long been declining, but the topic remains controversial.
David McCannOctober 8, 2019

The question of whether the roles of chairman and chief executive officer should be held by separate individuals has long been a source of conversations, and sometimes conflicts, in boardrooms and among shareholders.

Zuckerberg: Faced ouster as chairman

Only last May, Facebook CEO and co-founder Mark Zuckerberg faced the prospect of losing his role as the tech giant’s chairman. The proposal to oust him was brought to Facebook’s annual shareholder meeting, where proponents, citing the company’s privacy scandals and other struggles, demanded that the company appoint an independent chairman.

Zuckerberg survived the attempted coup. However, the failed effort prompted renewed questions as to whether Facebook and other companies would benefit from having their chairman and CEO roles separated.

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According to data compiled by the Wall Street Journal and Stanford University, the proportion of S&P 500 companies whose chief executives were also chairmen fell to 46% in 2018, down from 49% in the year prior and 77% in 2001.

The trend is even more distinct in Europe, where only 9.2% of the Stoxx Europe 600 companies maintained a dual CEO-chairman role in 2018.

The shift away from combining the two roles stems from a philosophy of accountability and corporate responsibility. By separating them, a company can clearly distinguish management authority from board authority and empower the chairman and CEO to pursue their respective duties without concern that interests in one position might negatively influence the other.

The separation also enables each person to devote 100% of their time to their respective roles. And, as Blenyth Jenkins, a then-director of corporate affairs for the UK-based Institute of Directors, succinctly put it in a New York Times article way back in the 1990s, “One of the major functions of the board is to supervise management. If the chairman of the board is also in management, then he is in effect marking his own exam papers.”

With the positions separated, a chairman can be the primary liaison with the CEO, help oversee performance evaluations and executive compensation, drive the recruitment of new directors, and lead conversations on succession planning.

A CEO can address the company’s strategic and operational needs without needing to spend meaningful time on governance-related concerns and other board matters.

While the separation of roles may be beneficial, disentangling the two can be difficult. Consider Jamie Dimon’s continued status as chairman and CEO of JPMorgan Chase.

The company’s shareholders have twice made a case for why Dimon should be stripped of his chairmanship. Dimon, who has served in a dual capacity since 2006, has successfully resisted their efforts — once in 2012 and once the following year. Both votes failed.

Shareholders ultimately chose the security of the status quo, worrying that Dimon would resign if his role as chairman were taken away and left the company without a particularly proven executive leader.

Typically, companies wait until a new CEO steps into the role to separate the chairmanship. Researchers for a 2016 Stanford study found that succession prompted chairman-CEO separation 78% of the time. However, there can be change even when a CEO remains in place. Renault, for example, separated its chairman and CEO positions after its last dual executive, Carlos Ghosn, was arrested in Japan on charges of financial misreporting at Renault’s partner company, Nissan.

All that said, even extraordinary separations are not always permanent. Researchers for the Stanford study mentioned above also found that 34% of the companies in their sample recombined their chairman and CEO roles after “permanently” separating them during the 20-year review period. Disney, for instance, famously faced shareholder backlash when it recombined the positions for its current CEO, Robert Iger, after previously separating them under Michael Eisner in 2008.

The choice to maintain or even recombine the chairman and CEO roles tends to have roots in the economic environment. During the 2008 recession, for example, the proportion of S&P companies with combined positions temporarily plateaued at around 60% rather than continuing its downward trend. Boards likely feared that separating the two roles could cause change that would be particularly distracting during an economic downturn.

The chairman and CEO positions are different. If the CEO is also the chairman, it can look as though the CEO reports to himself or herself. However, every executive and situation are unique. Boards must carefully consider whether and when to combine or separate the chairman and CEO roles before they make a decision either way.

Jonathan Foster is co-founder and managing director of Current Capital Partners LLC, a financial services advisory firm. He has more than 25 years of experience working in top-tier financial services firms as a mergers and acquisitions adviser and a private equity investor in industrial services companies.