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Wednesday, 11 February 2015 04:04

Chairman-CEO Structure - Always Combined Featured

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Sixteen corporations had the roles of Chairman and CEO combined since the beginning of 2000, and in some cases much longer. They include some of the largest U.S. companies, notably the three largest in the energy sector.

These companies tend to have long-tenured CEOs. Seven of them have had no top leadership transitions since 2000, seven have had but one transition, and only two have had two transitions. They average less than one CEO change. In several of the companies – Amazon, Berkshire Hathaway, FedEx, State Farm – a founder or long-time leader remains in charge. Next to Warren Buffet at Berkshire (1970), the longest-serving Chairman and CEO is Edward Rust at State Farm (1987). Berkshire’s governance guidelines include the note that “The Company does not anticipate that the Chief Executive Officer will retire other than due to disability.”

These organizations also tend to have deliberate succession planning and grooming of successors, sometimes with an “heir apparent” and sometimes with a competition among strong candidates. For example, succession at General Electric is followed closely in the press, and the “losers” generally go on to become CEOs at other major companies. In all the leadership changes in these companies since 2000, an insider was promoted to be the new Chairman and CEO.

Table 1: Always Combined

*     Medco Health had a single CEO-and-Chairman from the time it was spun of by Merck in 2003 until it was acquired by Express Scripts in 2012.
**  Rotating Presiding Director, no designated Lead Director.

In keeping with prevailing practice and governance recommendations, most of these companies have independent Lead Directors, as specified in corporate governance guidelines. The exceptions are Berkshire Hathaway, Plains All American, State Farm, and UPS. Berkshire has a high proportion of ownership by insiders, Plains is structured as a limited partnership, and State Farm is a mutual insurance company (policyholders are shareholders). Plains and UPS designate Presiding Directors for purposes of presiding at the meetings of independent directors, with the role rotating.

What the Governance Guidelines Say

The corporate governance guidelines of these companies show a variety of stances toward combining the Chairman and CEO roles.
General Electric’s guidelines state simply: “The CEO serves as the chairman of the board. The independent directors have appointed the chairman of the management development and compensation committee to serve as the presiding director.”

Three of the companies state the preference for combined roles but officially leave the decision to the board:
  • ExxonMobil’s guideline is concise and representative: “At this time, the Board believes it is appropriate and efficient for ExxonMobil's Chief Executive Officer (CEO) also to serve as Chairman of the Board. However, the Board retains the authority to separate those functions if it deems such action appropriate in the future.”
  • FedEx adds reference to the founder: “The Company's bylaws provide that the Chairman of the Board shall be the Chief Executive Officer, unless the Board of Directors decides otherwise. The Board believes that the Company has been and continues to be well served by having the Company's founder serve as both Chairman of the Board and Chief Executive Officer.”
  • American Express makes specific reference to transition periods and investor concerns: “Ordinarily and in normal circumstances, the Chief Executive Officer shall also serve as Chairman of the Board. During difficult transition periods or in periods of reduced investor confidence, it may be appropriate to have a non-executive Chairman as a symbol of the Board’s responsiveness to shareholder concerns.”
The most common approach is to specify without preference that the board determines whether to combine the roles, but these guidelines vary in emphasis:
  • Prudential puts the options concisely: “The Independent Directors will annually elect a Chairman of the Board, who may or may not be the Chief Executive Officer of the Company. If the individual elected as Chairman of the Board is the Chief Executive Officer, the Independent Directors shall also elect a Lead Independent Director.”
  • Abbott emphasizes the need for flexibility: “The board of directors believes that it is important to retain the flexibility to allocate the responsibilities of the offices of chairman of the board and chief executive officer in any manner that it determines to be in the best interests of Abbott. The board of directors specifically reserves the right to vest the responsibilities of chairman of the board and chief executive officer in the same individual and currently believes that it is in Abbott’s best interests for the chief executive officer to serve as the chairman of the board.”
  • Goldman Sachs is explicit about not having a policy on leadership structure: “The Board does not have a policy on whether the role of Chairman and CEO should be separate or combined and, if it is to be separate, whether the Chairman should be selected from the Independent Directors or should be an employee of the Company.”

Two companies – Amazon and AT&T – simply affirm their leadership structures in their proxy statements. Here is Amazon’s: “The Chair of the Board is selected by the Board and currently is the CEO, Jeff Bezos. The Board believes that this leadership structure is appropriate given Mr. Bezos’ role in founding and his significant ownership stake. The Board believes that this leadership structure improves the Board’s ability to focus on key policy and operational issues and helps the Company operate in the long-term interests of shareholders.”

UPS in its proxy statement details its approach to Presiding Directors: “We do not have a lead director, but our Corporate Governance Guidelines provide that our non-management directors will meet in executive session without management present as frequently as they deem appropriate, typically at the time of each regular board meeting. The chairs of the independent board committees rotate as presiding director, and the presiding director acts as a liaison between the non-management directors and the Chairman and Chief Executive Officer after each executive session.”

The Plains All American proxy states: “The non-employee directors will meet in executive session without the CEO or any other officer of GP LLC after each regular meeting. Unless otherwise determined at any such executive session, the chairmanship of such sessions will rotate among the non-employee directors in alphabetical order of last name.”

Berkshire Hathaway and State Farm make no mention of leadership role structure in their posted governance guidelines. Berkshire’s proxy statement simply declares that “The Board of Directors has not named a lead independent director.”

Read 354 times Last modified on Wednesday, 24 June 2020 17:56
Dora Vell

Dora Vell is the Managing Partner of Vell Executive Search, a boutique executive search firm in Boston focused on recruiting technology executives and board members. Vell has successfully completed numerous board member and C-level executive searches, including CEOs, COOs, CIOs, and Vice Presidents - at both public and private companies.

Prior to founding the firm in 2005, Vell was a Partner at Heidrick & Struggles' Technology practice for seven years.  Before her career in executive search, she worked at IBM for 11 years, managing software engineering organizations of 100 people and software sales organizations with revenues of $150 million. She has also served as an executive assistant to the CEO of IBM Canada for one year.

Vell holds seven worldwide software patents. She has published several Business of Leadership reports on governance and leadership and has been quoted in numerous articles including The Wall Street Journal, Forbes, Business Week, Fortune, Agenda Week, MSNBC, Mass High Tech, the OPUS for the World Economic Forum, Boston Business Journal, The Globe & Mail, CIO Magazine, and IEEE. She also has been a featured speaker on leadership at numerous conferences and at Columbia University's MBA program.

Vell is a member of the National Association of Corporate Directors (NACD), the Boston CEO Roundtable. She has served on the boards of Framingham State, Entrepreneur's Organization, Goodwill, Mary Centre for developmentally handicapped adults,, and RBC Capital Partners.

She has received an MBA from the University of Toronto, a Master in Computer Science from the University of Waterloo, and a Bachelor in Computer Science from Carleton. She has also completed the MIT Entrepreneurial Master’s program.

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