Chairman and CEO - One Job or Two?

Abstract:     

Companies in the United Kingdom and the United States are often credited with having the world's best corporate-governance systems, but the two countries have starkly different views on separating the roles of chairman and chief executive. About 95 percent of the UK's largest publicly traded companies split the roles, while 80 percent of big public companies in the United States don't. Combining them empowers a chief executive to act decisively, but a nonexecutive chairman is in a better position to monitor the company's - and the CEO's - performance.

While there are strengths to both models, separating the roles creates a stronger governance model and keeps executives more accountable to shareholders. To encourage the separated model, US companies may need to remarket the job of chairman by making it a respected career path, as in the United Kingdom.

At a time when trust in corporate America is low, reinforcing the independence of corporate boards by separating the positions of chairman and CEO could help rebuild it.

Number of Pages in PDF File: 6

Keywords: corporate governance, separation of chairman and CEO roles

JEL Classification: G34