The effort to separate the roles of
chairman and chief executive at U.S. public companies is gaining prominent
new allies. More than 50 corporate leaders, investors and governance
specialists Monday will urge companies to bolster board oversight of
management by splitting the roles.
MBIA Inc. CEO Jay Brown, former American Express Co. head Harvey Golub,
KB Home co-founder Eli Broad and former UAL Corp. CEO Stephen M. Wolf,
as well as representatives of big pension funds.
Businesses with separate chairmen "would
perform better overall -- and not just in shareholder returns," contends
Harry Pearce, a retired General Motors Corp. vice chairman who is chairman
MDU Resources Group Inc. and
Nortel Networks Corp. Mr. Pearce heads the Chairmen's Forum, a group
of independent board chairmen that helped organize the new campaign.
Rx for Boardroom
How to successfully
split CEO and chairman roles:
Clearly spell out
duties of the CEO and chairman to staffers and shareholders
Pick a separate
chairman with the experience, attributes and time required
Chairman should be a
Chairman needs the
courage to ask hard questions
possess a certain humility -- and not see post as path to
Source: "Chairing the
Board," report issued by Millstein Center for Corporate
Governance and Performance at Yale University's School of
Management and The Chairmen's Forum.
by the Millstein Center for Corporate Governance and Performance at Yale
University's School of Management, the Chairmen's Forum proposes that
companies appoint a separate chairman after an incumbent CEO-chairman
leaves -- or explain why not to shareholders. The group is considering
asking the New York Stock Exchange and Nasdaq to adopt listing rules that
would require separate chairmen. (Read the report
More U.S. companies are dividing the roles,
but the trend is spreading slowly because many CEOs resist sharing power.
About 37% of companies in the Standard & Poor's 500-stock index have
separate chairmen and CEOs, up from 22% in 2002, according to the
Corporate Library, a research firm in Portland, Maine.
Outside the U.S., the split is much more
common. All German and Dutch companies have two-tier boards that divide
the roles. About 79% of the biggest British businesses identify an outside
chairman in their annual reports, the Yale report found.
In a separate study
released last week, the Corporate Library said businesses with a single
CEO-chairman tend to have less shareholder-friendly governance practices,
including long-tenured leaders, infrequent board meetings and "classified"
boards that serve staggered rather than annual terms. "A board that
retains the dual role out of reluctance to challenge a powerful chief
executive may not be a strong protector of shareholder interests in other
respects," the research firm said.
The push to separate
the CEO and chairman roles comes amid increased shareholder activism over
the issue. So far this year, investors have submitted 39 resolutions
seeking an independent board chairman, five more than in all of 2008, says
proxy adviser RiskMetrics Group Inc.
Since 2002, RiskMetrics says, such
resolutions have won majority support at 10 companies, including
Washington Mutual Inc. last year. Weeks after the April annual meeting,
WaMu directors stripped Chief Executive Kerry Killinger of the chairman
title he had held for 17 years. He was forced out as CEO in early
September, shortly before the Seattle thrift was seized by federal
Exxon Mobil Corp., shareholder activist Robert A. G. Monks filed a
binding independent-chairman proposal that's expected to come up during
its May annual meeting. This is Mr. Monks's seventh attempt to split
Exxon's top roles. Last year, his nonbinding measure won 39.5% of votes
Exxon spokesman Rob Young says directors
believe that leaving Rex Tillerson as both CEO and chairman is "the most
effective leadership structure" for the oil giant. Exxon has a presiding
director, International Business Machines Corp. CEO Samuel J. Palmisano,
who chairs board sessions in Mr. Tillerson's absence, among other duties.
Supporters of splitting the roles say the
setup lets the CEO run the business while the chairman leads the board,
recruits new members, and manages CEO succession. Former Northwest
Airlines Corp. Chairman Gary Wilson, a member of the chairmen's group, has
seen directors speak more openly when a chairman, rather than a lead
director, conducts executive sessions of outside board members without
Critics say separating the chairmanship can
trigger power struggles and confuse staffers, especially when outside
chairmen get involved in daily operations. Most CEOs prefer to chair their
boards because "they think having one boss at the helm is better than
having two," says Dennis Carey, a senior client partner at recruiters Korn/Ferry
That's not the case at MDU. Mr. Pearce
became chairman in 2006, when President Terry Hildestad was named CEO of
the Bismarck, N.D., natural-resources company. As lead director for the
prior five years, Mr. Pearce mainly conducted executive sessions. Now, he
says he insists on debates by the full board about key issues such as risk
management. A board with an outside chairman is "better equipped to assure
appropriate risks are assessed," he says.
Mr. Hildestad likes sharing power. Freed of
running the board, he says he has more time to run the complex company. If
he were also chairman, he says, "I might have a bit of bias toward my
management" during board meetings.
Write to Joann S. Lublin
Printed in The Wall
Street Journal, page B4