UPFRONT Doing the governance splits

Forced by shareholders, encouraged by insurance companies keen to mitigate risk, and voluntarily relinquishing the increasingly weighty responsibilities of two major roles, fewer leaders of corporate America are now holding the roles of both CEO and board chair.
A recent survey by recruiters Russell Reynolds found majority of directors in North and South American companies favour splitting the CEO/chair roles and notes the trend is gaining momentum. Last year 29 percent of the S&P500 and 45 percent of the NASDAQ 100 had split the roles – up from respective 21 percent and 41 percent since 2001.
Connections have been made between concentration of corporate power at the top and behaviour that leads to loss of company value or to overly generous executive payouts and some recent splits have been prompted by shareholder pressure.
Reasons given for role split include communication – separate chair provides conduit for board members to express their views; guidance – separate chair can provide the CEO with guidance or feedback; division of labour – the chair focuses on shareholder interests while the CEO concentrates on managing the company; plus more objective eye on governance issues; longer term strategy setting and succession planning.
However, there are also critical reasons for combining the roles – including issues of recruitment (it’s easier to get someone who wants both roles), the potential for power struggle between the two roles and the advantages of having singular, rallying vision for the company.

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