Ditch the Chairman!

There is a compelling logic to splitting the senior roles of CEO and chairman at global financial institutions, suggests columnist Andrew Hill in the Financial Times. At quite a few large banks, the addiction to the title of Chairman and CEO persists. JP Morgan Chase’s directors for example keep rejecting the investor proposal to split the role of chairman and chief executive, because they claim it could cause uncertainty, confusion and inefficiency

In a 2012 report, the G30 stated there was a “compelling logic” for splitting the roles at global financial institutions. “The pressures and breadth of responsibility borne by the CEO have grown almost beyond the capacity of a single person,” its working group wrote. It also estimated chairmen-CEOs at financial groups spent 35 per cent of their time on board matters. An independent chairman lets the chief executive devote that time to managing the business. Separation cuts conflicts of interest and promotes constructive challenge in the boardroom. In short, independent chairmanship should be the model for companies coming to market or planning a leadership succession. The non-executive chairman runs the board and the chief executive runs the business.

But why do JP Morgan and many others not follow suit? “For two bad reasons: clubbiness and fear,” argues the Financial Times. “The biggest problem in the US, however, is that the debate about which model to choose frequently turns into a test of machismo, in which activist investors vie to strip the chairman’s epaulettes from the humiliated executive’s shoulders. As long as the boss thinks of it as cruel and unusual punishment, directors will have an excuse to leave a vital tool of good governance in its box.”

(04|2013) Source: Financial Times