The issue of the separation of the CEO and Chairman roles at public companies is a contentious one that has received much attention over the last several years in conjunction with to strengthen and document director independence and pay for performance. Labor union, American Federation of State, County and Municipal Employees (AFSCME) has just come out strongly in favor of separation of roles and in particular in reference to specific companies including JPMorgan and Goldman Sachs but this is a decision that is very personal to each company and situation.
Over the last several years we have seen a trend towards separation of the roles and there are a number of initiatives driving this. It is expected that this will be a hot topic in company shareholder meetings this year. The Chairman's Forum, which represents current and former chairmen in the US, is endorsing the policy of appointing an independent chairman when an incumbent in a combined role leaves and support the combined role only in "special circumstances" and temporarily. In December the group urged NYSE and NASDAQ officials to consider adopting rules that would require separation.
I had this example on hand of a company that specifically was asking for the roles to be combined and the reasons why. The below is an excerpt from Provident Financial's 2099 proxy. This proposal was supported and role is now combined though the company has indicated that "it is in the best interests of Provident not to have a policy regarding the separation of these roles, allowing the Board greater flexibility to establish a leadership structure that fits the needs of Provident at any particular point in time."
Board Leadership Structure and Risk Oversight
The board of directors believes that combining the Chairman and Chief Executive Officer positions, together with the appointment of an independent Lead Director, is the appropriate board leadership structure for Provident. The board of directors believes that the Chief Executive Officer is most knowledgeable about Provident’s business and corporate strategy and is in the best position to lead the board of directors, especially in relation to the oversight of corporate strategy formation and execution. Management accountability and the board’s independence from management is best served by maintaining a super majority of independent directors (following the Annual Meeting, Mr. Martin will be the sole management director), electing an independent Lead Director and maintaining standing board committees that are comprised of independent members and leadership. The Lead Director plays an important role on the board of directors and has the following responsibilities:
The entire board of directors is engaged in risk management oversight. At the present time the board has not established a separate standing committee to facilitate its risk oversight responsibilities, but the board will continue to assess whether such a committee would be appropriate. Consistent with New York Stock Exchange listing requirements, the Audit Committee assists the board of directors in its oversight of Provident’s corporate-wide risk management organizational structure and the process established to identify, measure, monitor, and manage risks, in particular major financial risks. The board of directors receives regular reports from management, as well as from the Audit Committee and other standing committees regarding relevant risks and the actions taken by management to adequately address those risks.
There are many academic articles and other pieces that discuss the pros and cons of combined vs separated roles in the US, UK, Australia and elsewhere including this one from the Sloan School at MIT and from the UCLA school of Law here. there is a strong case that can be made for both but the end message seems to be that this is a case by case decision based on a specific company at a specific time.