Fewer Chiefs Also Serving as Chairmen
By Claudia H. Deutsch
New York Times
Friday, March 17, 2006
Disney did it. So did
Hewlett-Packard and Dell. Most companies in Britain do
it. And now, more American companies are doing it, too:
wresting board chairmanships away from chief executives.
According to executive recruiting firm Russell Reynolds
Associates, 29 percent of the companies in the S.& P. have
separated the jobs, up from 21 percent five years ago.
Some, like Disney, were forced by shareholders to decouple
the roles. Others, like Dell, did so to give a hard-working
president a promotion to chief executive. Many others want
to let a new chief executive grow into the job under the
watchful eye of the former one, serving as chairman.
The insurance industry may soon give companies a financial
incentive to split the top jobs, too. "We always ask, are
you considering dividing the titles, and if not, why don't
you?" said Lou Ann Layton, managing director in charge of
national directors' and officers' liability insurance at
Companies that do decouple the roles are starting to ask for
discounts. "Our clients ask us about this every day," said
Peter Tulupman, a spokesman for the
American International Group.
Many shareholders say such splits are overdue. "When the
same person fills both roles, the odds are much less that
the board will challenge inappropriate decisions," said the
New York State comptroller,
Alan G. Hevesi, who oversees New York's pension funds.
The Council of Institutional Investors, which counts most
large pension funds as members, has a policy that all boards
should have an independent director as chairman. Directors
themselves are jumping on the bandwagon. In a poll last
year by Russell Reynolds that asked the question for the
first time, 59 percent said they liked the idea of splitting
the job of chairman and chief executive.
"It is just harder to achieve independent oversight of a
C.E.O. who's also the chairman," said Patricia C. Dunn, who
became chairwoman of Hewlett-Packard when
Carleton S. Fiorina, then chairwoman and chief
executive, was ousted last year. Ms. Dunn retained the
title after Mark V. Hurd was named chief executive.
More boards are putting the concept on the table. In
February, John W. Rowe, who had been chairman and chief
Aetna, ceded the chief executive slot to Ronald A.
Williams. Mr. Rowe said he would lead a board review of
whether to keep the roles split permanently.
And a few chief executives, wearied by the amount of time
top jobs consume in this Sarbanes-Oxley era, welcome the
split. Steven A. Raymund, the chairman and chief executive
Tech Data, plans to give up the chief executive slot as
soon as the company finds a successor. "I want to stay
involved in the company," Mr. Raymund, 50, said. "But I'm
getting fatigued, and I want to do other things with my
Charles A. Tribbett III, a Russell Reynolds managing
director, said that more people aspiring to be chief
executives were willing to accept the split, though most
still found it unsettling. "Candidates still want both
titles, but it's just not the deal breaker it was five years
ago," he said.
Management specialists argue that too many corporate
disasters can be traced to concentrating power at the top.
James E. Schrager, a management professor at the Graduate
School of Business of the University of Chicago, is certain
that Ms. Fiorina's role as chairwoman and chief executive of
Hewlett-Packard enabled her to push through the company's
ill-starred acquisition of
Mr. Hevesi and other Disney shareholders say that
Michael D. Eisner, Disney's former chairman and chief
executive, used his dual role to get a huge severance
package for Michael S. Ovitz, whom he hired and then fired
as his No. 2. Disney has since amended its guidelines to
make separating the posts the norm.
No one suggests that splitting the roles by itself ensures
good governance. Chairmen who were once the chief executive
are hardly independent voices. According to Thomas J. Neff,
chairman of United States operations at the recruiting firm
Spencer Stuart & Associates, only 9 percent of S.& P. 500
companies have chairmen who had no previous ties to the
company. "C.E.O.'s still see moving up to chairman as a
career pinnacle," he said.
Many shareholders prefer to keep the roles combined.
Despite public outrage over the rich retirement package that
the board of
General Electric granted to
John F. Welch Jr., G.E.'s former chairman and chief
executive, G.E. shareholders voted to let
Jeffrey R. Immelt, who succeeded Mr. Welch, keep both
titles. Peter O'Toole, a G.E. spokesman, said that the
"presiding director" role of Ralph S. Larsen, who had never
worked for G.E., conferred enough independence.
Indeed, many companies now have "lead" or "presiding"
directors overseeing committees that deal with compensation
and other sensitive areas.
"If there's a lead director who has the final say on meeting
agendas or information flow, we're happy," said Patrick S.
McGurn, executive vice president of Institutional
Shareholder Services, which advises institutions on proxy
But that setup does not address perhaps the most compelling
push to decouple the top two roles: the need, as
corporations are under increasing scrutiny, to prove that
the company takes governance seriously.
Splitting the roles "sends a signal to the outside world
that the board really cares about governance," Ms. Dunn, the
Hewlett-Packard chairwoman, said, "and to the senior-level
staff that they are responsible for providing information to
the board, not just to the C.E.O."