Wednesday, December 30, 2009

Splitting Chairman-CEO Role

Senator Charles Schumer has proposed mandating that public companies split the role of Chairman and CEO. Dennis Carey, a partner at executive search firm Korn Ferry, argues in the Wall Street Journal that such legislation would not be productive. Carey raises some interesting points, and I do agree that government should not be legislating any such change. However, I do not think that citing successful situations such as those at IBM or Proctor and Gamble necessarily provides a compelling argument for not splitting the role. One could easily cite plenty of counterexamples of firms where perhaps splitting the role would be beneficial. We have seen too many examples of all-powerful Chairman/CEOs who have had boards effectively in their back pocket.

What Carey hints at but does not address specifically is that, fundamentally, corporate governance will not improve simply by making structural or legal changes in the way Boards operate. Companies need to focus on the dynamics in the boardroom and the process of monitoring and control. In the end, the quality of the dialogue in the boardroom will drive performance more so than any structural change.

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