In view of the ongoing - if not intensifying - controversy over split vs. combined CEO/Chairs in the context of the absence of proof (despite numerous studies) that separation of the roles causes improved company performance or governance quality, this recently published Stanford Closer Look Series paper: "Chairman and CEO: The Controversy Over Board Leadership Structure," which examined in detail the board leadership structures of the 100 largest and 100 smallest companies in the Fortune 1000 over a 20-year period and the circumstances under which they have changed, is noteworthy.
Key findings include:
- Board leadership structures aren't stable: Only about 1/3 of companies made no changes during the entire 20-year period.
- Most separations (78%) occur during an orderly succession process - with the former CEO, founder, or other officer continuing to serve as chair on either a temporary or permanent basis.
- Over 90% of role combinations involve an orderly succession at the top: In 90% of the cases, the current CEO is given the additional title of chair; in 10%, a new CEO is recruited to become dual chair/CEO.
- Slightly over 1/3 of companies "permanently" separated the roles and later recombined them during the 20-year period.
- Pressure to separate the roles (via shareholder proposals) reportedly seems to focus almost exclusively on large companies, suggesting "that the companies that shareholders target to advocate for independent board leadership might not necessarily be those with the most egregious governance problems but instead those that are the most visible public targets."
As to why this matters, the authors note - among other observations and inquiries:
"Many governance experts and shareholder activists believe that the CEO of a corporation should never serve as chairman of their own board. The research literature, however, contains little evidence that chairman/CEO duality is on average detrimental to future performance or governance quality. Why do activists advocate that corporations—especially large corporations—strictly separate the chairman and CEO roles? How much of this activism is publicity-seeking rather than an attempt to improve corporate governance?"
Companies continue to be unfairly (in my view) pressured by investors, proxy advisors and other self-characterized governance pundits to separate the CEO and chair roles under the guise of "best practices"; as we noted in last week's Society Alert, independent board chair proposals were the second most prevalent proposal type - after proxy access - voted on for meetings between January 1 and June 15, 2016.
Yet the evidence fails to support any meaningful differentiation in performance as a result of the leadership structure, and - in my experience and based on the data - boards reasonably determine the preferred structure over time and at any given point in time based on the company's then-unique facts and circumstances. Until there is other evidence to the contrary, this should be viewed as one of many governance practices where "one-size-fits-one."