CEO and Board Chair Roles Held Jointly or Separately: Much Ado About Nothing?

Executive Overview CEOs who jointly serve as board chairs have been the focus of considerable controversy of late. Powerful organizational constituents including the California Public Employees Retirement System (CalPERS) and the New York City Pension Fund have targeted firms that rely on the joint structure. These shareholder groups prefer a non-executive director serving as board chair. Governance activists have made similar recommendations, most notably in the Cadbury Report, a governance reform document written in the United Kingdom. The central concern of reform activists is that joint service as CEO and board chair erodes the corporate system of checks and balances and compromises independence between directors and firm officers. Not surprisingly, CEOs rarely share this concern. More than 80 percent of large firm CEOs also serve as board chair. They believe the joint leadership structure provides a unified focus and communicates strong leadership to the external community. Accordingly, we pose the question: Does board leadership structure matter? Specifically, we focus on the extent to which chairs who jointly serve as CEO are more, or less, independent than their separate counterparts. Our analysis leads us to conclude while there may, at times, be compelling reasons for formally separating the CEO and board chair positions (e.g., financial distress; weak board of directors), to do so as a matter of policy for the purpose of institutionalizing independence between the board of directors and firm management is likely to be a misdirected effort.