Should Your Organization Divide its CEO and Chairman Roles?
Chief Executive Officers who are also the chairman of their board are becoming an increasing rarity. In fact, according to the Wallstreet Journal, the percentage of S&P 500 CEOs serving in the dual role has diminished to an all-time low of 45.6%, as of 2018.
Not only is that a historically low number, but it also means more high-profile corporations are splitting the positions into two separate entities than not.
One example of this transition that sent shockwaves around the world was Tesla’s CEO, Elon Musk, being ousted as chairman to settle a lawsuit. Musk went off, half-cocked on Twitter, making what could be construed as misleading statements that ruffled the feathers of the Securities and Exchange Commission.
Even CEOs holding onto their positions as chairman are fending off attempts to fracture their role.
A recent example saw Jamie Dimon of JPMorgan Chase successfully hold onto his dual role. He was challenged by public employee unions and the New York City Comptroller.
So, how come dual CEO-chairman are having to look over their shoulders in today’s corporate landscape?
A Series of Checks and Balances
First and foremost, it’s necessary to look at this from a very human perspective.
Yes, CEOs should be hired based on their upstanding moral fiber and keen business sense. And one could assume they’re only going to be making decisions and public statements that serve the best interests of an organization.
However, as someone like Elon Musk proves, matters such as human error, ego, and hubris come into play. Being granted the position of chairman – on top of CEO – is enough authority and governance for anybody to lose perspective.
Or, there are more extreme situations like with former dual CEO-chairman of Renault, Carlos Ghosn. He was arrested in Japan due to allegations of financial misreporting.
As a result, the company decided to divide the role, so it will be filled by two separate successors.
Essentially, by removing that level of governance from a CEO, it acts as a mitigating force to these kinds of activities. A chairman that’s independent of the chief executive officer provides a layer of protection for the organization for ill-disciplined behavior (like Musk’s) or outright illegal actions (like Ghosn’s).
Also, if the CEO is the chairman, it’s a conflict of interest when it comes to the hiring and firing of that very position.
If a CEO-chairman is fending for their job, they have more power to obfuscate and influence the proceedings. Whereas an independent chairman provides a fresher, more balanced point of view.
What Are the Pitfalls of Separating the Chairman and CEO Roles?
When Jamie Dimon kept his dual role intact, one of the deciding factors was when analysts pointed to declining profits at the Walt Disney Company in the years after separation.
Splitting the roles doesn’t necessarily guarantee superior results in leadership. Alternatively, many experts believe unifying the positions offers more organizational knowledge because a CEO is more interwoven in the fabric of the company.
Both dual and separate CEO/chairman roles have their plusses and minuses. Where do you stand on the issue?