Tipping Point for Combined Chairman and CEO?
"We acknowledge both arguments and believe that every situation probably warrants its own consideration," said Keller, adding a separation of chairman and CEO roles may not be practical or prudent for some firms. "You have to look at the circumstances."
Many mega-cap firms, for example, maintain that the dual role results in more effective communication between management and the board of directors, largely because the CEO has in-depth knowledge of the company's daily operations and is thus best suited to set the boardroom agenda.
In a 2012 proxy statement ahead of its annual shareholder meeting, for example, ExxonMobil noted the unique challenges and opportunities in the energy industry make it critical that the company retain decision-making authority over how best to organize the capabilities of the directors and senior managers to meet those needs.
Its shareholders agreed.
In May, they rejected the proposal by Spinnaker Trust (then called Ram Trust) for the 11th consecutive year to split the chairman and chief executive officer role held currently by Rex Tillerson.
Proponents of the dual role also argue that it fosters more cohesive leadership. And they suggest the balance of power shareholders seek can still be achieved by designating an independent lead director of the board.
Lead directors typically lead the CEO evaluation process and executive sessions, help set the agenda, review materials sent to the board by management, and act as a liaison between non-executive directors and the chairman.
"We believe this is best left for each board to determine based on the companies' circumstance," said Peter Gleason, managing director of the National Association of Corporate Directors. "However, we believe the key is that each board has an independent leader to lead the work of the board."
That leader can be a separate chair, he notes, or, if the board determines that a combined chair and CEO is best, the independent leader position can be accomplished through the appointment of a lead director.
Jeffrey Sonnenfeld, senior associate dean and head of the Yale School of Management's Chief Executive Leadership Institute, adds there is "zero research" that suggests public companies that separate the chairman and CEO are better run — or less risky to shareholders.
"Lawyers, investors, economists and pundits love to fall into this debate because it's easy to measure but it's misleading," he said. "Every disaster involving a public company, including Enron and Worldcom, had separate chairmen and CEOs. It's a canard. What really matters is the character of who's there. If they're asleep at the switch, it doesn't matter what titles you put together."
That said, many corporations are re-evaluating their leadership structure in response to shareholder activism. That trend is likely to continue, said Davis.
A study of 860 public company directors earlier this year by PriceWaterhouseCooper's Center for Corporate Governance found that among the companies that still have a combined chairman and CEO, nearly half of their boards are discussing splitting the role at their next CEO succession.
"The old assumption that the combined chair and CEO model is universal best practice in the U.S. is dead," said Davis. "We're getting close to the tipping point where almost half of American corporations have a separate chair and that's a fundamental shift. My guess is that this is the beginning."