Corporate Governance And Separating The Board Chairperson From The Chief Executive Officer

1853 words - 7 pages

Corporate Governance and Separating the Board Chairperson from the Chief Executive Officer

Numerous reports on corporate governance have emphasised the desirability of increasing the number of outside directors on boards. An equally important and related issue is a growing insistence that the role of chairman and chief executive should be separate, though on this issue there is less unanimity in the U.S. than in other countries.

Choosing the right Chief Executive officer is the key task for the board of directors. Pressure on chief executives to perform in ever decreasing time frames makes it essential that the CEO and the Board work closely together. An effective chief Executive will drive company strategy, lead the top team and fulfill shareholder ambitions . A good CEO will transform Board dynamics by keeping an open line of communication, placing a high value on Board input, and promoting the belief that management and the Board is working toward common goals.

The average Board size is between eight and nine members. It used to be that Boards were constructed of executives with one or two non-executives; but trends are swiftly driving executives out of the boardroom as even the CEO’s familiar role as chairman has been called into question. There has been a notable shift from executive director to non-executive director in the boardroom.

The supposed advantages to these changes are to provide greater board independence from management, greater objectivity, and a representation of multiple perspectives. Bosch believes that the fundamental principle underlying this composition is accountability; if you have strong independent directors, a separation of the Chair/ Chief executive role will safeguard accountability . An opinion widely held is that separating the role of chairman from chief executive- would secure a board sufficient power to challenge CEO dominance. Although in many cases that rationale holds true, there are considerable benefits to CEO duality.

Researchers have suggested that chairman/chief executive duality is a double-edged sword . While some stockholders are put off by the absence of board control and checks and balances, others are reassured by the presence of unity of command and the absence of potentially acrimonious conflict between strong-minded individuals. Finkelsein and D’Aveni found that a major factor in divining the success of this duality was the level of CEO informal power.

‘Either perceptual or objective data can be used to measure informal CEO power. Although some researchers have used perceptual measures of power, power is a sensitive subject for many managers. In using perceptual measures, a researcher assumes that social actors are knowledgeable about power within their organizations; informants are willing to divulge what they know about power distributions; and such a questioning process

II Advantages of CEO Duality

When it comes to insiders versus outsiders on the board, a...

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