Risk & Compliance

Fidelity Chief: Don’t Split Top Jobs

''Mandating an independent chairperson is akin to requiring that every ship have two captains,'' says the mutual fund's chairman and CEO.
Ed ZwirnFebruary 19, 2004

Edward C. Johnson III, the chief executive of Fidelity Investments and the chairman of its 280 funds, would rather fight than split.

In an op-ed piece in The Wall Street Journal, Johnson stated his opposition to a proposal by the Securities and Exchange Commission that the chairman of the fund and 75 percent of its board would have to be outsiders who didn’t work for the fund itself. At present, only two-thirds of the board must be outsiders, not necessarily including the chairman.

The commission’s January proposal largely follows one made last summer by Richard C. Breeden, a former SEC chairman now serving as court-appointed monitor for the former WorldCom during its emergence from bankruptcy. Breeden made 78 recommendations to improve corporate governance at the company, now known once again as MCI. Conspicuous among the proposals, which Breeden said should be used as a model for all publicly traded companies, was the recommendation that all board members other than the CEO should be outsiders.

Implicit in Breeden’s suggestion is that companies gain more in better governance, by avoiding conflicts of interest, than they lose through confusion or lack of direction due to splitting the roles of chairman and CEO.

On the contrary, wrote Johnson in the Journal, “mandating an independent chairperson is akin to requiring that every ship have two captains.” Extending the naval metaphor, he said that turbulent times required an experienced captain, “and if he owned the ship, so much the better.”

“I have a vested interest,” stated Johnson, a 73-year-old billionaire investor whose family is said to own half of Fidelity. “Far from constituting a conflict, these dual roles mean that my personal, professional, and financial interests are directly aligned with those of Fidelity shareholders.”

Fidelity will file a comment letter that would reflect Johnson’s position, a Fidelity spokeswoman said, according to Reuters.