Division of CEO and Chairman roles
Traditionally, in American companies, the same person holds the position of chairman of the board of directors and CEO, although this is gradually moving to the European model. In most European, British and Canadian companies, roles are often divided, in an effort to ensure better governance of the company and, in turn, generate higher returns for investors.
Combining the roles has its advantages, such as giving the CEO multiple perspectives on the company as a result of his multiple roles and empowering him to act decisively. However, this allows little transparency into the CEO’s actions and as such his actions may go unnoticed, paving the way for scandal and corruption.
According to Ira Millstein, an expert in corporate governance, an effectively independent board of directors is the best protection for a shareholder. Separating the roles allows the chairman to control the CEO, and in turn the overall performance of the company, on behalf of the shareholders.
Separating the roles also allows the CEO and president to focus on different and equally vital aspects of company performance.
“We think it’s a proper segregation of duties. As a company grows, the CEO can focus on the business and the president can help with ever-increasing regulatory requirements,” said Lino P. Matteo, managing director based in Montréal. Monte Real accounting office.
Ultimately, when the chairman is not also in the role of chief executive, he can govern the board in a more impartial way, meaning that returns to investors could potentially be higher.
However, a new survey by three consultants from the international management consulting firm Booz Allen Hamilton found that companies that split the roles actually had lower shareholder returns, prompting some to rethink the split between director executive and president.
A survey by Christian & Timbers showed that 97% of European executives believe roles should be divided. However, returns to shareholders were nearly 5% lower in European companies that implemented the split, compared to companies that had the same CEO and chairman.
In the United States, where only about 20% of major public companies split roles despite the fact that 86% of executives surveyed by Christian & Timbers believe roles should be split, returns were 4% lower in companies with a separate president and CEO.
One of the reasons they gave for the higher returns at companies with the same CEO and chairman was that once the board commits to organizing in that way, they focus less on constantly monitoring and evaluating that individual than on actually doing it. successful.
They also noted that the CEO-chairman could better withstand pressure, especially when short-term changes don’t pay off, than the non-CEO chairman.
Third, they attribute the surprising results to a lack of authority on the part of the CEO. “Clearly, a CEO who is not a chairman is a hired employee of the board; a boss who is also a chairman has much more influence over other directors,” they noted.
According to an article in the business magazine McKinsey Quarterly, Americans tend to view the role of chairman with less respect than that of CEO, especially in companies where the roles are divided.
Therefore, they should consider re-marketing the job of chairman as a more respected career path, as is the case in UK companies, where 95% of companies have separate people filling the roles of chief executive and chairman. Remarketing could then function as a way to restore trust in the increasingly corrupt American business landscape.
Regardless of whether the CEO is the chairman of the board or not, there is no way for the company to be successful unless the directors are dedicated to helping the CEO and other top managers maintain a superior level of performance.