Break the board!

Namita Chhetri | July, 2012

It’s common in Britain, the organic growth of dual position in public companies of chairman and CEO forming the basis of executive positions of the top management. The flowing trend of this is yet to form majority in United States, even though it’s growing and it is being widely held by the governance experts. The increased ferocity of the collapsing financial system in a number of US firms like Tyco (TYC), Marsh & McLennan (MMC), AIG (AIG), Fannie Mae (FNM), and Walt Disney (DIS) has necessitated changes in governance structure to placate the stakeholders by introducing separate chairman and CEO. Though the number is growing in United States it is still just 37% of S&P 500 companies. The creation of a separate Chairman will provide another answer to the management solutions and do away with unchallenged decision of the CEO.

A changed mind-set to split the management between chairman and the CEO is reflected in an ever ubiquitous pattern that has already formed a majority practice among the Standard & Poor 1500 composite index in United States. In UK, the independent director is a rarity, where they are increasingly adopting a new plan viz. appointing an outside independent director as a non-executive chair. A convention in 2004, organized by the National Association of Corporate Directors (NACD), embraced 50 experienced CEOs, board members, and FIIs, who revealed: one-third favouring a split, one-third in favour of an independent director, and the remaining for non-executive chair. It strongly corroborated a tectonic shift of business governance in America! The instances of high profile firms adopting a split are plenty. The CEO and Chairman of Siebel Systems, Tom Siebel is surrendering his CEO post to ex-IBM fix-it man J. Michael Lawrie. Walt Disney’s top executive, Michael Eisner, who was holding both the top posts is relinquishing his chairman title to the former US senator George Mitchell. George Mitchell on the other hand will place in his CEO post in Dell Computer to his subordinate, Chief Operating Officer, Kevin Rollins. Then, Larry Ellison of Oracle allowed his CFO Jeff Henley to take former’s chairman position while retaining the CEO title. And most publicized case of Bill Gates turning over his CEO post in Microsoft to Steve Ballmer in 2000, have been the cases of American firms adopting the split for greater good of the organizations.

The splits also have been a long-running struggle to insulate firms from the financial scandals. This is also a saviour to comply with the governance guidelines drafted out by New York Stock Exchanges and National Association of Security Dealers and to count the organizations against the troubling finances. The founder making way for an experienced CEO allows the founder to think strategically and allow the executive to run the show albeit both remaining involved. Therefore should we adopt British corporate governance system in the heart of 21st century? The answer should be – Yes!