Risk & Compliance

Splitting Top Jobs and the Bottom Line

When ''every ship has two captains,'' how well does the stock price stay on course?
Dave CookApril 13, 2004

On the evening following last month’s tumultuous annual meeting of Walt Disney Co., the board of directors removed chief executive officer Michael Eisner from his role as chairman of the board. That initiative, and many similar proposals, have been driven by shareholders who worry that too great a concentration of power may enable bad governance — or even lead to corporate misconduct.

Quite the contrary, maintained Edward C. Johnson III, the chief executive of Fidelity Investments and the chairman of its 280 funds. “Mandating an independent chairperson is akin to requiring that every ship have two captains,” wrote Johnson in a Wall Street Journal op-ed in February.

Does either side have numbers to back up its arguments?

Forbes magazine commissioned Audit Integrity, a provider of financial analytics, to take a look at the stock-price performance of companies that split the roles of chairman and CEO. Forbes limited the review to U.S.-traded companies with a market value above $4 billion that split the top jobs since 1997.

Five of the 11 companies that met those criteria outperformed the S&P 500 (as of March 15) after they said they would split the roles, according to Forbes: Nextel Communications (the top performer in the group), Omnicom Group, Intel, Nationwide Financial Services, and Walt Disney.

Six companies underperformed the index, found Forbes: Bank of Montreal, Dell (which announced the split in early March, effective July 16), Oracle, Lafarge (which trades in the United States as American Depositary Receipts), Microsoft, and JDS Uniphase (the bottom performer in the group).

The magazine also noted that as a group, the companies outperformed the S&P 500 by 11 percent following their announcements that they would split the top jobs.