Seperating Chairman and CEO role

Business Articles
In the wake of the financial crisis, calls to separate the Chairman of the Board and CEO roles in
corporations have become common. Most recently, Jamie Dimon of JPMorgan Chase successfully
fended off a challenge of his dual role from public employee unions and the New York City
Comptroller. The shareholders of JPMorgan Chase voted overwhelmingly to retain the unified
structure, with analysts pointing to declining profits at companies such as the Walt Disney Company in
the years following separation of the roles as a motivating factor.
Concerned shareholders often urge that a unified role leads to a lack of oversight and diminishes the
independence of a board. Executives and other corporate associations advise that a unified role ensures
strong, central leadership and increases efficiency, pointing to the relative success of companies like
JPMorgan Chase. Of the major banks, only Citigroup and Bank of America do not have a unified
CEO/Chairman. Prior to the financial crisis, several failed banks such as Lehman Brothers and Bear
Stearns employed unified Chairman and CEOs, a fact which has led to criticism of the unified role.
Several international jurisdictions, such as the United Kingdom and South Africa, encourage separating
the roles in their best practice codes and guidelines. As of February 2010, the SEC requires listed
companies to disclose their board structure and to explain why that structure is appropriate. However
tempting it may be to separate the CEO and Chairman roles, such a split does not guarantee adequate or
superior oversight. Unified Chairman/CEOs may provide advantages in both leadership and oversight
in light of their superior knowledge of the organization due to their managerial roles.
The positives of separating the chairman and CEO roles are appealing. The board is directly
responsible for the hiring and firing of the CEO, and is charged with general oversight of the
corporations affairs and its management. As a result, installing the CEO the one person directly
responsible for that management as Chairman could indicate a conflict of interest.
This is further complicated by the fact that the CEO is hired and fired by the board. An independent
Chairman of the Board can create an independent source of authority with tangible authority to address
the concerns of the board. This independent perspective creates an opportunity for the board to more
effectively address any abuses that may occur, and to address any concerns about the performance of
the CEO. But when an independent Chairman of the Board lacks information, authority or respect of
the management, any perceived value in independence for independences sake diminishes. An
independent chairman may have less access to the facts and insufficient industry knowledge or
institutional respect because of his lack of day-to-day involvement in running the corporation, thus
impinging on the ability to provide informed, effective feedback and oversight.
While the advantages of an independent CEO and Chairman of the Board appear obvious, the
advantages of the unified position are just as obvious when considering the day-to-day operations of a
corporation.
The CEO, as the manager of the corporation, has a superior knowledge of the operations of the

business. When that role is unified with his role as Chairman of the Board, one person
occupying both of these roles may better be able to lead the corporation and to identify any problems
that may arise. This can provide superior knowledge to the board and increase the information available
to it. This unified leadership structure creates efficiency by allowing the unified executive to operate in
both capacities at once. The other board members can have confidence that their Chairman/CEO is
fully aware of the corporations strengths and weaknesses, along with what issues need to be addressed
moving forward.
On the other hand, the potential conflicts of interest described above can create opportunities for abuse,
as the Chairman in his CEO role may abuse his position and conceal from the board potential problems
and any issues created by his management.
Whether a corporation chooses to unify or separate the Chairman and CEO roles, it remains essential to
have an independent, engaged and inquisitive board that actively involves itself in the business in order
to safeguard shareholder interests.
The needs of individual corporations at different stages of development will vary. Some corporations
may require a strong, unified executive able to effectively combine the roles and provide dynamic
leadership to the organization. On the other hand, shareholders, wary of combining power in one
individual, may feel it is necessary to separate the roles and create two complementary power centers.
As with many questions, there is no bright line rule dictating an answer. This is consistent with other
corporate governance issues such as the business judgment rule. While it depends may not be a
satisfying answer, the increasing relevance of this issue should encourage corporations to at least
examine the roles in their organizations and determine the best way forward for them and their
shareholders.

Michael Stockham is a Partner in the Dallas office of

Thompson & Knight LLP and focuses his complex business litigation practice on
corporate and shareholder rights, director and officer litigation, securities
litigation, class actions defense, merger litigation, partnership disputes, and
representation before government agencies such as the Securities and Exchange
Commission. He has also participated in internal investigations arising from
Sarbanes-Oxley and the Foreign Corrupt Practices Act. Mr. Stockham earned his
law degree, with honors, in 2002 from Cornell Law School, where he served as
Editor of the Cornell Law Review.