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CEO/chairman role shows does your country trust you

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Ted Blackwater ▼ | July 10, 2017
CEO and chairman
Corporate governance   The school of thought and performance

There is a question that will never go away: Should CEO and chairman be two separate roles? With arguments for and against, it all comes down to the school of thought and performance.

Let's us see three standard argument for the split CEO/chairman roles.

First, the board's roles is to monitor the operations of the company.

Since the CEO has executive power, the board is here to make sure the company is going in the right direction, both for the shareholders and employees. If the chair of the board is an independent person, it is much easier to control the CEO.

Second, in some countries, the audit committee must consist of only external board members.

Since the committee is a sub-group of the board, that means it reports to the CEO and its independence is questionable. Again, if the chair is independent, so it the the audit committee.

Third, it's on the board to set the CEO's salary, so it's obvious there may be a conflict if the CEO is deciding about her own salary. It seems, again, it's good to have those roles separated.

So, why then there are companies - an countries - that doesn't require the separation?

It all comes down to two things: the school of thought and performance.

While in some European countries the roles of top management must be separated, in the U.S. and some other countries it's on the company to decide.

So, what happens if one person is both the CEO and the chairman? That depends on the person.

There are numerous examples of shareholders jumping in protest when somebody mentioned the role splitting and the reason is just one: performance.

If the company performs well, there's no academic research that will convince shareholders to split the roles. They are interested in earnings and dividend and couldn't care less is the company led by one or twenty persons, who cares?

This is mainly the reason why in the U.S. there are argument for separate roles but you can find CEO/chairman even in the biggest companies.

If the leadership make mistake they'll be removed anyway, so why bother ahead of time? The CEO may be just removed, but she can be fined, sent to jail in a case of serious misconduct, so everything is covered.

On the other hand, in Europe there is a school of thought "It's better to prevent" and in some countries those roles simply must be separated. That effectively tells the top manager "We don't trust you fully" and that is not a good message to send.

Law and rules aside, what is better? Hard theory and research aside, there is a simply answer to that: It all comes down to the person on top.

If the CEO and chairman is a serious businessman, doing her job well, there is no reason to force role splitting.

In fact, since the two most important functions are in domain of one person, she is able to act faster and make decision without consulting the chairman. That can be welcome advantage in the age of the fast moving business environment.

You can find many examples of an excellent CEO/chairman performance, so there is no need to split the roles if everything works well.


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