Twenty-one companies had Chairman and CEO roles combined (officially or de facto) at the start of our analysis period and, after a single structure change (but perhaps several leadership changes), have the roles split today. Shareholder pressure to split roles played a part in a few of them, notably Hess and Bank of America.
- Microsoft. In the earliest structure change in our analysis period, the company announced on January 13, 2000, that Steve Ballmer would succeed founder Bill Gates as CEO, while Gates remained as Chairman. That arrangement lasted over 13 years.
- Oracle. In 2004, founder Larry Ellison relinquished the Chairman role to then CFO Jeffrey Henley.
- Google. Eric Schmidt relinquished the CEO role to co-founder Larry Page in 2011. Schmidt remains Executive Chairman. Schmidt had joined Google from Novell when the Chairman and CEO role was created in 2001. Google founders Larry Page and Sergey Brin had been running the company as co-Presidents.
- Apple. The company had no Chairman from Steve Jobs’s return as CEO in 1997 until Jobs relinquished his CEO role to Timothy Cook and assumed the Chairman title shortly before his death in 2011. Arthur Levinson, who had been co-Lead Director, succeeded him as Chairman.
- Best Buy. When founder Richard Schulze stepped down as CEO in 2002, Bradbury Anderson assumed that role, while Schulze retained the Chairman role until 2012. In May 2012, Schulze stepped down after an investigation found that he knew (but did not alert the audit committee) that then-CEO Brian Dunn was having a relationship with a female employee. Later in 2012, Schulze attempted to buy the company. In March 2013 he reaffiliated with the company with the title Chairman Emeritus but did not join the board; however, two former executives and Schulze allies did.
- Hess. Under pressure from investors, including the contesting of board seats by a dissident hedge fund investor, the board split the roles in May 2010. John Hess, son of the company’s founder, CEO since 1983 and Chairman since 1995, gave up the Chairman role. Mark Williams now serves as Non-Executive Chairman. At the same time, three new board members were elected, essentially breaking up what had been a very entrenched board.
- International Asset Holdings Corporation (IAHC) acquired FCStone Group in 2009 to form INTL FCStone. Though it was billed as a merger of equals, the transaction was structured as an acquisition and the leadership of IAHC – CEO Sean O’Connor and Non-Executive Chairman (but IAHC founder) Diego Veitia – assumed those roles for the combined entity. Our analysis traces the lineage of the acquiring company, and IAHC had split the roles in 2002 when Veitia relinquished the CEO role to O’Connor, who joined the company from Standard Bank.
A half dozen of the splits were driven by leadership crises with the underlying causes the financial crisis, business performance, or executive conduct problems.
A dramatic split occurred at Fannie Mae in 2004 when Chairman and CEO Franklin Raines was forced to resign by Federal regulators amid multiple criminal and civil investigations into financial reporting irregularities, plus class-action lawsuits by investors. The primary regulator had been in the process of proposing governance improvements including a split of roles, but the split occurred immediately upon Raines’s resignation. Daniel Mudd became CEO, Stephen Ashley Non-Executive Chairman. The split in no way guaranteed effective governance. In the run-up to the subprime mortgage crisis Fannie Mae purchased or guaranteed $270B of risky mortgage loans. In 2008, both Mudd and Ashley were dismissed and Fannie Mae went into government conservatorship. The case against Raines was dismissed in 2012.
The situation at Freddie Mac was similar, but the structure change was timed differently. In mid-2003, Chairman and CEO Leland Brendsel and other senior officers resigned in the wake of regulators’ investigations of financial reporting irregularities. The roles were temporarily split for the rest of the year until a new Chairman and CEO, Richard Syron, was appointed. In 2008, triggered by the subprime mortgage crisis, Fannie Mae also went into government conservatorship. Syron was immediately removed and the roles split: David Moffett became CEO, John Koskinen Chairman. Moffett’s tenure was brief, and there have been subsequent management shake-ups, but the roles remain split.
At Bank of America, the roles were split to increase board oversight and rein in an overreaching CEO. Kenneth Lewis was Chairman and CEO until 2004 when Bank of America merged with FleetBoston. The roles were then split briefly to accommodate the respective leaders. Lewis remained CEO of the combined corporation, and Clark Gifford, FleetBoston’s Chairman and CEO, became its chairman. Gifford retired eight months later, and Lewis added the Chairman role. During the subprime mortgage crisis Bank of America made two risky acquisitions in Merrill Lynch and Countrywide Financial.
Upset over the purchase of Merrill Lynch, shareholders voted in 2009 to separate the roles of Chairman and CEO. The board immediately met and elected Walter Massey, President of Morehouse College, as Chairman but voted to retain Lewis as CEO. At the end of the year, and under threat of indictment for withholding crucial information from shareholders, Lewis retired. He was replaced by Brian Moynihan, who serves as CEO today. In 2010, the board affirmed its preference for an independent Chairman. Charles Holliday was appointed to replace Massey and continues as Chairman today.
In 2006, William McGuire, longtime (since 1991) Chairman and CEO of UnitedHealthcare, was forced to resign amid allegations of backdating stock options. The roles were split. Stephen Hemsley, formerly President and COO and already a board member, became CEO. Richard Burke, a founder and former Chairman and CEO of the company, assumed the duties of Non-Executive Chairman.
Gary Forsee succeeded William Esrey as Chairman and CEO of Sprint in 2004. Esrey and COO Ron LeMay had been ousted in the wake of a scheme to avoid income taxes on their stock options. After engineering the 2005 merger with Nextel and seeing the company’s performance decline dramatically (including taking a $31B write-off associated with the merger), Forsee was ousted by the board in 2007 (with a generous severance package) and went on to run other telecommunications companies. He was replaced by current CEO Daniel Hesse, who has received awards for corporate responsibility, and James Hance as Chairman. When Softbank acquired Sprint in 2013, its CEO, Masayoshi Son, became Chairman.
News Corp founder, Chairman, and CEO Rupert Murdoch relinquished the CEO role to Robert Thomson, formerly editor-in-chief of Dow Jones & Company and managing editor of The Wall Street Journal (News Corp subsidiaries), in January 2013 amid ongoing scandals regarding unethical journalism practices, including phone hacking.
- Delta Airlines. Chairman and CEO Leo Mullin retired in early 2004 after seven years in the roles. Gerald Grinstein, then 71, former airline CEO and long term Delta board member, succeeded him as CEO, and John Smith, the Presiding Director, became Non-Executive Chairman. Unlike major rivals, Delta had been unable to win labor contract concessions from its pilots union, and losses were running higher than expected. Grinstein oversaw major restructuring of Delta and fought a takeover bid. When he retired as CEO in 2007, he was succeeded by Richard Anderson, who also has extensive airline management experience.
- Sysco. In 2007, independent directors initiated a system of rotating presiding directors. In 2009, when Richard Schnieders retired from his roles as Chairman and CEO, he was replaced as CEO by William DeLaney, the CFO, and Manuel Fernandez was appointed as the company’s first Non-Executive Chairman. In 2012, he was elected Executive Chairman, and Jackie Ward was chosen as Lead Director. When Fernandez retired in 2013, Ward, now 75, became Non-Executive Chairman. Interestingly, both Fernandez and Ward are technology industry executives.
- Ingram Micro. Kent Foster stepped down as CEO in 2005 but remained as Chairman until 2007. Several executives had resigned in 2004-2005 in surprise moves. Gregory Spierkel, who had been running European operations, succeeded Foster as CEO. When Spierkel retired in 2012, a former executive, Alain Monie, who had served in several capacities including President, was appointed CEO. Dale Laurence, an independent director and former Occidental Petroleum executive, succeeded Foster as Chairman in 2007 and serves in that role today.
- The pattern at Walgreens had been to split roles temporarily while the Chairman-and-former-CEO helps the transition of the new CEO-and-eventual-Chairman. But Jeffrey Rein retired in 2008 after only a year in both roles. Some analysts speculated that Rein may have left involuntarily because of differences with the board. Sales had been soft and there was fallout over how Walgreen attempted to acquire Long’s. Following a brief interim arrangement, the roles were split and remain so. The motivators may have included lack of a candidate to fill both roles, compounded by lack of the traditional transition period.
- After ten years holding both roles at World Fuel Services, Paul Stebbins relinquished the CEO role to Michael Kasbar, the company’s long-time President and COO, at the beginning of 2012 and transitioned to the role of Executive Chairman. The company was doing very well financially. The two men had founded Trans-Tech, a company that had been acquired in 1995 by World Fuel Services.
- At CVS Caremark, the roles had been combined in each of the companies prior to their 2007 merger. Except for brief transition periods, the roles remained combined until 2011, when Thomas Ryan retired at age 59. That surprised Wall Street given his relatively young age and the fact that he was architect of the company’s new strategy. However, he facilitated the transition to a new leadership team of Larry Merlo (formerly COO) as CEO and David Dorman as Non-Executive Chairman.
- At Safeway, longtime CEO (since 1993) and Chairman (since 1998) Steven Burd retired in 2013. He was replaced as CEO by Safeway President Robert Edwards, and as Chairman by Gary Rogers, the independent Lead Director.
- Louis Camilleri had been Chairman and CEO of Philip Morris from the time of its spin-off from Altria Group in 2008. He had also held those roles at Altria. In May 2013, he relinquished the CEO role to Andre Calantzopoulos, who had been the COO since the spin-off. Corporate governance guidelines revised at the time of the change state: “The Board currently believes that it is in the best interest of the Company to separate these positions as part of the Company’s leadership transition.” According to The Wall Street Journal, the company’s performance had been very good, but it recognized the challenges of continued global expansion, especially in Asia.23
In nine of these 21 companies, a Chairman-and-CEO was succeeded by a pair of executives in the respective roles. In nine others, a Chairman-and-CEO relinquished the CEO role. And in three – Oracle, Hess, and Bank of America – a Chairman-and-CEO relinquished the Chairman role. For Oracle and Hess, that means there was a split of roles but no CEO changes since 2000.
At the point of splitting roles, 15 companies promoted insiders to be CEO, and four appointed outsiders (though Delta’s was already a board member). Since the point of splitting, there have been eight CEO changes at these companies – four insiders and four outsiders. But the ratio is skewed by Freddie Mac, which has appointed outsiders at all four of its CEO changes since 2000, two of them since splitting the roles in 2008.
These companies have had the same average number of CEO changes (1.8) since 2000 as the Always Split companies. But that of course includes CEO changes prior to their splitting roles.
Six of the eight companies where the Chairman is an insider have independent Lead Directors. The exceptions are Oracle and Sprint. UnitedHealthcare has company founder and former Chairman and CEO Richard Burke now designated as independent and serving as Non-Executive Chairman.
Table 5: Single Split
* Founder and former Chairman and CEO is designated as independent Chairman.
** Not counting interim CEOs.
The following chart summarizes our assessment of the primary drivers at the time of the actions to split roles in these companies. The most common driver is an effort to improve the leadership team and reward a capable executive with promotion. The other common drivers include sudden executive departure, poor business performance, and scandals involving management. The board’s desire to improve governance and increase its independence is perhaps a stronger force than meets the eye, since boards are naturally reluctant to publicize that need or intention.
Figure 3: Drivers of Splits
What the Governance Guidelines Say
Having split the Chairman and CEO roles, half of these companies revised their corporate governance guidelines to affirm the change. Fannie Mae’s guidelines state simply, “The positions of Chairman of the Board and CEO are separate and the Chairman is an independent director.” Guidelines at Freddie Mac, Hess, Safeway, and UnitedHealthcare read similarly.
- Delta Airlines: “The roles of the Chief Executive Officer and the Chairman of the Board are separate at Delta. . . . Since 2003 Delta has elected an independent, non-executive chairman separate from the Chief Executive Officer. Delta believes the non-executive Chairman of the Board plays an important governance leadership role that enhances long-term stockholder value.”
- World Fuel Services: “The Board believes that no one structure is suitable for all companies and that different Board leadership structures may be appropriate for the Company at different times. At this time, the Board believes that the current leadership structure is the best structure for the Company as it enables the Board to continue to benefit from Mr. Stebbins' [who relinquished the CEO role and remains Executive Chairman] vast experience, skills, expertise and knowledge of the Company and the industry.”
- Ingram Micro: “The positions of Chairman of the Board and Chief Executive Officer of the Company have been separated since June 2005. We believe this leadership structure is appropriate at this time because it allows the Company to fully benefit from the leadership ability, industry experience and history with the Company that each of these individuals possess.”
The Board does not believe that any particular leadership structure is inherently superior to all others under all circumstances. Rather, it believes that it is important to retain its flexibility to allocate the responsibilities of the positions of the Chairman of the Board (the “Chairman”) and Chief Executive Officer in the way that it believes is in the best interest of the Company under the then prevailing circumstances. The Board currently believes that it is in the best interest of the Company to separate these positions as part of the Company’s leadership transition.
The Board selects the Company’s CEO and Chairman in the manner that it determines to be in the best interests of the Company’s shareholders. The Board does not have a policy as to whether the Chairman should be an independent director, an affiliated director, or a member of management. When the Chairman is an affiliated director or a member of Company management, or when the independent directors determine that it is in the best interests of the Company, the independent directors will annually appoint from among themselves a Lead Independent Director.
Sysco’s guidelines indicate a preference: "The Board shall elect from its members a Chairman of the Board, who need not be an independent director; however, in selecting the Chairman of the Board, the Board shall give due consideration to the potential benefits of having an independent director serve in that role."
Oracle emphasizes that it has no policy: "While the Board recognizes the potential value of splitting the roles of Chairman and Chief Executive Officer (the “CEO”) and of requiring a lead director, we currently have no policy mandating this. The Board believes that a number of non-management directors fulfill the lead director role at various times depending upon the particular issues involved."
Google’s guidelines call for a super-majority of independent directors in order to elect an insider as Chairman (as it now has): "The Board will select the chairman of the Board and the chief executive officer in compliance with Google’s Certificate of Incorporation and Bylaws, which provides that the chairman of the board will not be a current employee of Google, or someone employed by Google any time within the prior three years, unless the appointment is approved by two-thirds of the disinterested directors."
Guidelines at Bank of America and News Corp make no mention of Chairman-CEO role structure, but they affirm their current structures in their annual proxy statements, Bank of America quite strongly: "Our Board believes that its current leadership structure, in which the positions of Chief Executive Officer and Chairman of the Board are held by two different individuals, is appropriate for our company at this time because our Chief Executive Officer and our Chairman of the Board fulfill separate and distinct roles."
Apple’s proxy statement also stresses the difference in role: "The Board also believes the current separation of the Chairman and CEO roles allows the CEO to focus his time and energy on operating and managing the Company and leverages the Chairman’s experience and perspectives. The Board periodically reviews the leadership structure and may make changes in the future."
With regard to Lead Directors, the guidelines at most of the companies with independent non-executive chairs simply specify that the Chairman presides at meetings of independent directors or doubles as the Lead Director.
The governance guidelines at Philip Morris and World Fuel call for unconditional appointment of Lead Directors. Seven more companies specify the appointment of a Lead Director whenever the Chairman is not independent: Best Buy, CVS/Caremark, Ingram Micro, News Corp, Safeway, Sysco, UnitedHealthcare.
Walgreens guidelines make the election of an independent board leader optional: "The Board may designate a non-executive Chairman or Lead Director from among its independent directors. The Chairman or Lead Director’s role is to strengthen the communications between the Board and the Chief Executive Officer, and to enhance the Board’s oversight role."
Apple’s guidelines reference the possibility (as had been the case) of not having a Chairman: "If a Chairman of the Board has not been elected, the Board will appoint a Lead Director or Co-Lead Directors to conduct executive sessions and for such other purposes as the Board finds appropriate. If more than one Lead Director is appointed, the Board may prescribe different responsibilities to each Co-Lead Director."
Finally, Google’s guidelines make a single passing reference to the “Lead Independent Director” without specifying what the role entails or when it is needed.