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Wall Street Journal, March 30, 2009 article


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THEORY & PRACTICE   |   MARCH 30, 2009

Chairman-CEO Split Gains Allies

Corporate Leaders Push for Firms to Improve Oversight by Separating Roles

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.

Participants include 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 of 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 Breakups?

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 consensus builder

  • Chairman needs the courage to ask hard questions

  • Chairman should possess a certain humility -- and not see post as path to executive leadership

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.


In a report prepared 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 here.)

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 regulators.

[ceo chairman split duties]  

At 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 cast.

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 management.

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 International.

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 at

Printed in The Wall Street Journal, page B4


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