SOMETIMES a species reaches the end of its natural existence. As its numbers dwindle, disappearance becomes inevitable and the last survivors of the doomed herd become objects of curiosity and pity. This is happening to chief executives who are also chairmen — but with none of the pity.
It is a slow process. Well over half of S&P 500 companies do not yet have independent chairs. Plenty of chief executives are also chairman. A few, like beribboned African potentates awarding themselves more medals, also add ‘president’ to their honours.
But around the world, the arithmetic is against title-hogging corporate leaders. Where they exist, they are simply not being replaced. Strategy&, the consultancy, says only one in 10 companies awarded joint titles to incoming chief executives in 2014, near an all-time low. As recently as 2002, more than half of incoming chief executives in Europe and the US held both titles.
The breed is, however, finding ever more inventive ways to protect itself. Cisco just gave John Chambers the title of executive chairman — a move that would set off governance emergency klaxons in the UK — as it eases a successor in as CEO. Bank of America handed the chairmanship to Brian Moynihan, its chief executive, last autumn, and patted itself on the back for taking ‘the next steps in our governance responsibilities’.
More like two steps back. Investors had persuaded BofA to split the roles in 2009, when the group was led by Ken Lewis. Last week, the bank headed off protest votes about the lack of consultation by conceding that the company’s owners should get a belated vote on Mr Moynihan’s coronation at next year’s annual meeting.
Strategy& says only one in 10 companies awarded joint titles to incoming chief executives in 2014, near an all-time low. And GMI Ratings has shown that long-term returns were higher at companies that separated the senior jobs
Such confrontations are not entirely helpful, because they put boards on the defensive and make chief executives feel as though they are being punished. Since Jamie Dimon, chairman and chief executive of JPMorgan, managed to see off an attack on his joint role a couple of years ago, big US banks (with the exception of Citigroup) have stuck to the idea that their leaders require full imperial honours to operate effectively. But it is a confused defence.
BofA split the job to deal with the aftermath of the financial crisis, which it argues Mr Moynihan has done. Mr Dimon’s adept navigation of the crisis was one reason JPMorgan gave for not giving in to shareholder pressure in 2012 to strip him of one of his titles following a trading scandal.
It would be better if investors focused on the positive. A chairman is a vital front-line supervisor and useful sounding board. One chief executive I talked to recently was besieged by directors emailing him with ‘just a quick question’. He was happy to have a chairman to relieve the pressure. Combining roles would “make my life simpler in some ways”, he said, but ‘more complicated in others’. GMI Ratings has shown that CEO-chairs at large North American companies are paid more and lag behind their better governed counterparts on environmental, social and governance measures. It also showed that long-term returns were higher at companies that separated the senior jobs.
Separation is no panacea. If the chairman and chief executive are at loggerheads, it can be disruptive; if one of them is unduly pliable, it can be ineffective. It is sometimes enough to appoint a lead or presiding director to hold over-mighty executives in check (though I am sceptical about their effectiveness faced with a CEO-chair who insists on charging ahead).
Ken Favaro of Strategy& says other exceptions to the norm could include companies where investors need reassuring about continuity — an argument in favour of Mr Chambers’ unusual new title. A second exception could be made for companies whose CEO-chair owns a large percentage of stock, aligning his or her interests with those of other shareholders: think of Warren Buffett at Berkshire Hathaway.
In the UK, companies must comply with guidance to split the senior jobs or explain to investors why they have not. In the US, only 3pc of the S&P 500’s constituents insist on separation. Boards are free, in other words, to give one person both titles. It makes sense to retain such flexibility. But directors should exercise that right only rarely and put a strict expiry date on the joint mandate. In most of the corporate habitat, top-heavy corporate dinosaurs, armoured with titles, are lumbering towards extinction. Nobody should mourn their passing.
Twitter: @andrewtghill
Published in Dawn, Economic & Business, May 18th, 2015
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