Splitting the Roles of CEO and Chairman

Traditionally, in American businesses, exactly the same person occupies the role of chairman of the board and chief executive officer, though this can be gradually shifting to the European model. In the majority of European, British, and Canadian businesses, the roles are generally split, in order to ensure better governance in the company, and as a result bring higher returns to investors.

Combining the roles does have its advantages, such giving the CEO multiple perspectives about the company as a result of their multiple roles, and empowering them to act with determination. However, this enables for little transparency in to the CEO's acts, and as a result their actions may go unmonitored, it makes way for scandal and corruption.

According to Ira Millstein, an authority in corporate governance, an effectively independent board is really a shareholder's best protection. Separating the roles allows the chair to confirm high on the CEO, and as a consequence the company's general performance, on the part of the stockholders.

Separating the roles also allows the CEO and chairman to target different, equally vital elements of the company's performance.

"We believe that it is a suitable segregation of duties. As a business grows, the CEO can focus on the business as well as the chairman can sort out the ever-growing regulatory requirements," noted Lino P. Matteo, CEO to the Montreal-based management accounting firm Mount Real.

Ultimately, if the chair does not also occupy the role of CEO, they could govern the board inside a more impartial manner, and therefore investor returns could potentially be higher.

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However, a brand new survey by three consultants to the international management consulting firm Booz Allen Hamilton found out that the companies that divided the roles actually had smaller shareholder returns, leading some to rethink the CEO-chairman split.

A survey by Christian & Timbers revealed that 97% of European executives feel that the roles ought to be split. However, stockholder returns were nearly 5% lower in European businesses that implemented the split, when compared with companies that had the identical CEO and chairman.

In The United States, where no more than 20% of your major public companies split the roles despite that 86% of executives polled by Christian & Timbers thought that the roles needs to be split, returns were 4% lower in companies using a separate chairman and CEO.

One of the reasons they gave for the higher returns from the companies with the same CEO and chairman was the as soon as the board commits to arranging itself like that, they focus less on constant watchdog evaluation of that individual than making her or him successful.

Additionally, they remarked that CEO-chairman might be able to withstand pressure better, particularly when short-term changes don't repay, than non-CEO chairman.

Thirdly, they attribute the surprising leads to absence of authority about the CEO's behalf. "Clearly, a CEO who is not much of a chairman will be the board's hired hand; a chief who is also chairman has much more influence over other directors," they noted.

Based on an article in the business journal McKinsey Quarterly, Americans is likely to observe the role of chairman with less respect than that of CEO, especially in companies in which the roles are split.

Therefore, they should consider remarketing the job of chairman being a more respected career, as it is in British companies, where 95% of companies have separate people occupying the roles of CEO and chairman. The remarketing could then function as an easy way of restoring trust in the increasingly corrupted corporate American landscape.

No matter whether the CEO is the chairman from the board or perhaps not, there is not any way the company may be successful unless the directors dedicate themselves to improving the CEO and other upper-management sustain a top-notch amount of performance.