Many advocates of improved corporate governance assert that the posts of CEO and chairperson should not be held by the same individual because such an arrangement concentrates too much power in the hands of a single executive, leading to potential CEO entrenchment and poor bottom-line performance. The many corporate scandals that have unfolded since 2001 have added impetus to this view, even though there were separate CEOs and chairpersons at WorldCom and Enron when wrongdoing engulfed those companies.
Figures show that a growing number of companies are dividing the jobs of CEO and chairperson, but the trend is not widespread. In March, the Corporate Library, a good-governance advocate, published the results of a survey showing that the same person holds both posts at most American companies -- 377 of the corporations in the Standard & Poor’s 500 index. That is 17 fewer companies than the year before.
“In terms of splitting the roles, there is no academic evidence to suggest that it’s a good thing,” says finance professor Andrew Metrick. “What we do have evidence for is that it’s important for the CEO to realize that he is reporting to the board and not controlling the board completely.” Many researchers have looked at this issue, Metrick adds, but it has been impossible to reach a firm conclusion that financial performance is improved by splitting the roles. “Most of the dynamics that we’d really like to capture are just not that easy to see in the data. People tend to focus on board independence, but board independence is a very squishy concept.
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