SHOULD THE CEO ALSO BE THE CHAIRMAN?

Many corporations have the same person serve as both the Chief Executive Officer and the Chairman of the Board.  But, when you consider that those two positions are basically diametrically opposed to each other, at least to me, that doesn’t make sense:

The role of the CEO is to be the senior executive of a corporation, to lead the company today and to formulate a strategic long-range plan, as well.  She or he should be totally focused on the corporation–both today and in the future.

The Board of Directors is led by a Chairman whose role is to oversea the operations of the corporation, second-guess the CEO when necessary and, most of all, to be the advocate of the company’s shareholders–and lead the Board in doing so.

Combining the two positions sounds, to me, somewhat like the Peter Sellers role in the movie “Dr. Strangelove: (or how I learned to stop worrying and love the bomb)”.  Dr. Strangelove was sitting in a wheelchair and his left hand was fighting his right hand. Isn’t this somewhat like what the two-headed monster–caused by a CEO-Chairman–essentially is.  Who does this bifurcation really serve?

Think of the two different roles–and the respective motivations:

As a shareholder, you and I should be looking for long-term growth.  So, that’s where the Chairman and the Board should be focused.  Sure, some income might be good; but, most shareholders are in for the long-term.

But, the CEO and the corporate executives have their Compensation–salary and bonus–mostly based on short-term goals.  So, if you are the CEO, and wish to do what’s best for your own livelihood and that of your key staff. what would your focus be?

Back in the 1970s and 80s, when Japan was cleaning our clocks, they focused on long-term market share.  They figured that they could always increase their profits, once they began to control the markets.  Over time, things have changed, and Japan has faded into the sunset; but, America’s corporate leaders still have not learned their lesson.  Perhaps, that’s just more of the “Me, and More” generation!

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  1. #1 by Bill Gelwick on September 25, 2013 - 9:12 PM

    Question: If the Japanese were looking toward the long term, and American companies were not, then why has their economy stalled while ours has continued to grow (obvious set backs not withstanding). But back to the original question, I really do not see the harm in combing the roles. As a matter of fact, it makes sense to not have yet another bureaucrat thrown into the mix. Margaret Thatcher was quoted as saying, “Ruling by committee is not ruling at all”. Even in a democratic society, or in this case business, there needs to be someone with whom the ultimate responsibility lies. Trimming fat by combining two high level positions not only limits the odds of dissension, but it’s one less giant salary/bonus going out each year.

  2. #2 by cheekos on September 25, 2013 - 9:48 PM

    Mr. Gelwick, a country’s Central Bank and its Finance Ministry manage the Economy, through Monetary and Fiscal Policy, respectively. Corporations just exist in the environment that the Government creates. (Japan’s problems with an aging population, a closed society and the good ole boy system would be for another discussion.)

    Perhaps you missed the point that the functions of the CEO and Chairman are somewhat at opposite ends of the question. One manages the corporation and the other protects the owners–the Shareholders. So then, who is truly in charge?

    Also, in many cases, the combined CEO/Chairman recommend other CEO/Chairmen to the Board. If two friends are supposedly charged with “supervising” each other, you know that each will get everything–and as much leeway–as they ask for.

    Merely having a Chairman who understands their true role doesn’t create a bureaucracy. It merely means that the two roles would be separate. The subject corporation in the Blog Post is an excellent example why.

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