Who is the Boss for Major Decisions? Chairmen - Not CEOs - As Powerful Leaders

Abstract

Corporate governance studies typically assume that the CEO is the main locus of business power. However, when the CEO and Chairman positions are split, the de facto role of corporate leader may reside in the hands of a person who usually chairs the board but does not necessarily hold the CEO title. To investigate this situation, we develop an original method for comparing the relative power of Chairmen vis-à-vis CEOs and apply it to 204 firms in France and 215 firms in Brazil. Our results show that for approximately 70% of the companies with split Chairman and CEO roles in France and 75% in Brazil, the Chairman could be considered the more influential decision maker. Our results are validated by a content analysis of annual reports, which shows that Chairmen who are classified as “very powerful” tend to earn more, sign shareholders’ letters more frequently and receive more citations in public documents. They are also validated by clinical research based on interviews and relevant news published in the media. In addition, we find that corporate attributes such as family control, past performance and board tenure are positively associated with Chairmen’s power. Because the Chairman’s individual power has not been addressed in previous literature, we contribute by presenting a new perspective from which to analyze the decision-making process in publicly held companies.

Keywords: Corporate Governance, Concentration of Power, Business Leadership, CEO Power, Individual and Collective Decision Making

JEL Classification: G32, G34, G30, M19