Traditionally, in American businesses, the identical person occupies the function of chairman from the board and chief executive officer, though this is gradually shifting to the European model. In many European, British, and Canadian businesses, the roles are generally split, in an effort to ensure better governance with the company, and in turn bring higher returns to investors.
Combining the roles does have its advantages, such giving the CEO multiple perspectives around the company as a result of their multiple roles, and empowering the crooks to act with determination. However, this enables for little transparency in to the CEO's acts, and as such their actions can be unmonitored, it paves the way for scandal and corruption.
According to Ira Millstein, an expert in corporate governance, an effectively independent board is often a shareholder's best protection. Separating the roles allows the chair to check up on the CEO, and in turn the company's overall performance, on the part of the stockholders.
Separating the roles also enables the CEO and chairman to spotlight different, equally vital facets of the company's performance.
"We still find it an appropriate segregation of duties. Like a business grows, the CEO can focus on the business and the chairman can sort out the ever-growing regulatory requirements," noted Lino P. Matteo, CEO to the Montreal-based management accounting firm Mount Real.
Ultimately, when the chair does not also occupy the function of CEO, they are able to govern the board within a more impartial manner, which means that investor returns could potentially be higher.
However, a whole new survey by three consultants to the international management consulting firm Booz Allen Hamilton discovered that the companies that divided the roles actually had smaller shareholder returns, leading some to rethink the CEO-chairman split.
A study by Christian & Timbers established that 97% of European executives feel that the roles needs to be split. However, stockholder returns were nearly 5% reduced European companies that implemented the split, when compared with companies that had the same CEO and chairman.
In the usa, where only about 20% of the major public companies split the roles even though 86% of executives polled by Christian & Timbers believed that the roles needs to be split, returns were 4% lower in companies with a separate chairman and CEO.
One of the reasons they gave for the higher returns within the companies with the same CEO and chairman was the after the board commits to arranging itself like that, they focus less on constant watchdog evaluation of these individual than making them or her successful.
Additionally they pointed out that CEO-chairman might be able to withstand pressure better, particularly if short-term changes don't pay off, than non-CEO chairman.
Thirdly, they attribute the surprising results to lack of authority on the CEO's behalf. "Clearly, a CEO who isn't a chairman may be the board's hired hand; a chief that is also chairman has far more influence over other directors," they noted.
According to an article in the business journal McKinsey Quarterly, Americans will view the role of chairman with less respect than that of CEO, especially in companies the place that the roles are split.
Therefore, they should consider remarketing the job of chairman like a more respected profession, as it is in British companies, where 95% of companies have separate people occupying the roles of CEO and chairman. The remarketing could then function as a way of restoring trust in the increasingly corrupted corporate American landscape.
Whether or not the CEO will be the chairman of the board or otherwise not, there is no way the company can be successful unless the administrators dedicate themselves to helping the CEO and other upper-management sustain an excellent level of performance.