The Guardian recently revealed new problems from Travis Kalanick’s tenure as WeWorks CEO and chair of the board. Combining the two roles often leads to disaster. It is actually an old storyline:
- Boeing. A tragic failure of board oversight characterizes Dennis Muilenburg’s tenure as both board chair and CEO of Boeing.
- Facebook. On-going controversies point to the need for a change in leadership.
- Tesla. Elon Musk’s impulsiveness cost the company $40 million and the SEC required a new board chair.
Boards and investors want CEOs who hunger for improving the company. Boards want to hire winners. But the chair serves a different role, representing the shareholders and other stakeholders. Only an exceptional leader could fill both the role of CEO and chair. Surprisingly, a combined CEO and chair position led over 40% of S&P 500 companies in 2021. Too many boards, like the residents of Lake Wobegon, seem to think their CEOs “are all above average.”
One person holding both titles brings about conflicts of interest. The board guides, evaluates, and compensates the CEO. Legal & General’s Clare Payn describes it this way: “the CEO role is a full-time strategic role; the chair role is to manage the board.” She continues, “It’s like marking your own homework if you hold both roles.”
In our view, the best practice is that the chair should be an independent director. Most well-governed entities have checks and balances in place to ensure accountability and not vest excessive authority in one person or office. Throughout history, we have seen what happens when one person or institution is delegated too much power.
The practice of a combined chair and CEO is uncommon in Europe. In fact, UK Corporate Governance Code recommends that a CEO should not become chair of the same company. Without the formal guidance, investors must make the push in the U.S. Separate chair and CEO resolutions were the second-most voted proposal type in the 2021 proxy season (with 44 voted proposals in the January 1-June 30 period).
For the 2022 proxy season, SGI members co-filed this resolution at Exxon Mobil, Meta (Facebook), and Bristol-Myers Squibb. And the Conference Board suggests that it is making a difference outside of the S&P 500: “The trend toward CEO-board chair separation, previously more pronounced among smaller businesses in the Russell 3000, is extending to the S&P MidCap 400.”
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Photo credit: Mark Zuckerberg F8 2018 Keynote | Anthony Quintano | FLICKR (CC BY 2.0)