Peter Browning and William Sparks
Is it better to separate the role of chairman from that of CEO? Does the separation really enhance board governance and effectiveness?
The answer to these questions may lie in a lack of understanding of how boards function. Do some Chairman/CEOs or CEOs try to control and manage their boards and refuse to share important information? The short answer is “yes,” but there are exceptions to consider. However, whether the CEO is chairman of the board or not, today boards are much more involved and engaged in the board’s agenda, committee functions, and operations, and in assuring that the board’s responsibilities and ﬁduciary duties are satisfactorily fulﬁlled. As noted earlier, the world of board governance changed when the independent directors were required by the new NYSE Listed Company Manual rules to meet alone periodically, without the CEO being present. This requirement allows the independent director to address any and all concerns that he or she may have about the CEO and the CEO’s team and strategy, or any other critical issue, including succession planning.
As noted by David F. Larcker and Brian Tayan in the March 14, 2013 Stanford Closer Look Series article, “Where Experts Get it Wrong: Independence vs. Leadership in Corporate Governance”: “Independence, as beneﬁcial as it may sound, may have less value than we all assume. Many observed structured features of corporate governance have little or no relation to governance qualities. For example, there is little systematic evidence that it beneﬁts a company to have an independent chairman.”
Along with arguments on both sides, the largest manager of securities is now weighing in. BlackRock, the largest of such companies, has provided the following statement in their “Proxy Voting Guidelines for U.S. Securities dated February 2015.
We believe that independent leadership is important in the board room. In the U.S. there are two commonly accepted structures for independent board leadership: 1) an independent chairman; and 2) a lead independent director. We assess the experience and governance track record of the independent chairman or lead director to understand capability and suitability to effectively and constructively lead a board. Our expectations of an individual in this role include, but are not limited to: being available to serve as an advisor to the CEO, contributing to the oversight of CEO and management succession planning, and being available to meet with shareholders when they have highly sensitive concerns about management or corporate governance issues. We generally consider the designation of a lead independent director as an acceptable alternative to an independent chair, has a term of at least one year and has powers to: 1) provide formal input into board agendas; 2) call meetings of the independent directors; and 3) preside at meetings of the independent directors. Where a company does not have a lead independent director that meets these criteria, we generally support the separation of chairman and CEO.
Excerpted with permission of the publisher, Wiley, from The Directors Manual: A Framework for Board Governance by Peter C Browning and William L Sparks. Copyright (c) 2016 by Peter C Browning and William L Sparks. All rights reserved. This book is available at all bookstores and online booksellers.