Many governance specialists have advocated for the CEO and board chair roles to be held by two different people. Public companies are moving in this direction, but privately owned businesses tend to be slower to adopt this practice. We posed this question to several directors: Does your board split the chair and CEO roles? If not, do you have a lead director? Either way, what is your rationale for your decision?
Separating roles facilitates candid discussions
I have served on 12 boards, some public and some private. In this service, I have learned that it is extremely important to make it easy for all board members to say exactly what they want in ways that are easy for them. As a result, on every board I have served on, we have had chairs who were separate from the CEOs and lead independent directors where the chair was not totally independent.
For example, one board I serve on is a family company board. The CEO is not a family member. The chair of the board is a family member. I am the lead independent director. We have separate executive sessions without the CEO, and we have independent director sessions without any family members or members of management.
I believe these meetings are necessary for good corporate governance because there are settings in which all board members can say whatever they want in a nonthreatening environment. We report the proceedings of the independent director session to the family in an executive session of the board and to the CEO only or the total executive management team as appropriate.
On the public company boards I have been on, I have insisted on having chairs who are separate from the CEO because, again, it is necessary for all directors to feel comfortable saying whatever they want. CEOs should not be able to push their own agenda on a board, and an independent chair who is a good leader and can stand up to the CEO is very important. I have chaired public company boards and been lead independent director on other public boards where the chair was not independent. I personally believe the best corporate governance of any board is separate CEO and chair and a strong lead independent director where the chair is not independent.
— W. Steve Albrecht
Albrecht is a board member of Larry H. Miller Group of Companies and SkyWest Airlines.
Split roles require clear job descriptions
None of my boards have the CEO serve as the chair. The two roles are fundamentally different. A CEO’s role is to lead the company’s execution of its strategic plan and oversee its daily operations. A chair’s role is to lead the board in overseeing the CEO/management, strategy, performance, risk and controls. When a board has an independent chair, a lead director is not required, and companies rarely have both.
A Farient Advisors study found that 97% of countries surveyed accept separate chair and CEO roles as a best practice, and the 2021 U.S. Spencer Stuart Board Index noted that 59% of S&P 500 boards have split the chair and CEO roles, up from 30% in 2005. Of course, not all companies have split these roles proactively, and crises have often forced the change at prominent companies, such as Wells Fargo in the wake of the unauthorized customer accounts scandal, Boeing with the 737 MAX fatal crashes and AT&T under activist hedge fund Elliott Management’s pressure. Calls by shareholders to split the chair and CEO roles have become more prevalent in recent years.
Splitting the chair and CEO roles strengthens the board’s independence, enabling better oversight of management, risk and succession planning. At the same time, it curbs the conflict of interest that is unavoidable in a combined role that effectively makes the CEO their own boss. It also ensures the feedback from the board’s executive sessions delivered to the CEO carries weight. However, simply splitting the roles isn’t a silver bullet. To ensure effective board leadership, the focus needs to be on a clearly defined job description for the separated chair role to avoid turf issues with the CEO and both developing a strong trusted relationship.
— Abhi Shah
Shah is a board member of AML RightSource and Class Valuation.
A dual role with healthy board dynamics
One of the boards I serve on is a family-controlled private corporation with outside investors. The board is composed of five members: the chair/CEO, two investors and two independent directors. The five of us have overlapping human capital and entrepreneur skill sets, and we all have specialized focus areas. The chair/CEO is more of an industry and product expert; the two investors collectively bring operator, financial and investor expertise; and the two independent directors bring technology, marketing, industry and strategic growth aspects to the board.
Currently, we do not have a lead director because of the size and dynamics of the board. Although the chair/CEO operates in her two distinct roles throughout the board meeting, we have executive sessions without the chair/CEO. Thus far, we do not believe we need to have our executive sessions led by a lead director, and the four of us seem to alternate who debriefs the chair/CEO post-meeting. This model enables every board member to frequently interact with and deliver constructive feedback to the chair/CEO.
— Keith Dorsey
Dorsey is a board member of Vimly Benefit Solutions.