A recent article from Reuters reported that an influential public-sector union in the US has called for the separation of the roles of CEO and Chairman in nine big companies such as Goldman Sachs and JP Morgan.
The US, of course, is notorious for role duality at the top (a subject I have explored in great detail in my book“Leading the Board”.)
Given it is CEOs who call the real corporate shots it is no surprise that many CEOs chose to combine the two roles. But what long term value can be realised through this arrangement?
The problem is that Chairmen need to be able to fulfil two distinct roles. The first is to mentor the enterprise, that is to say befriend the management and support them through crises or complex market problems, which is no mean task even when the corporate governance system is in place and working well. The second duty is tomonitor those in charge, to ensure transparency, to identity risks, defend the reputation of the corporation and police the management. One person doing both well on themselves in particular is a hugely demanding task.
What we are witnessing, however, in the case of dual CEO and Chairman roles, is that ‘monitoring’ is slowly being eroded and being replaced by ‘mentoring’.
I argue that a business cannot thrive if such a balance is not in place. Whilst an excess of monitoring makes it difficult to do business, the complete lack of monitoring which occurs when power is concentrated in one pair of hands leaves a company vulnerable.
It is true to say that the combined role can be made to work: look at Steve Jobs’ leadership at Apple. He was the founder of the company, was disliked, left, saw Apple falter, return and saw it rise to phenomenal global success. Yet the truth is that outstanding leadership is a rare phenomenon.
What management research has consistently shown is that when corporate power lies with one person, strategy can become idiosyncratic to that individual, leaving the business vulnerable when they depart or if their idiosyncrasies prove to be out-of-touch with market realities.
My view is that the roles of CEO and Chairman must be split. The CEO must be the leader of the corporation and the Chairman must be the leader of the governance process and the board.
Although idiosyncrasies will still exist, interests will be balanced and no one personality will be able to overwhelm the strategic thinking/implementation process and the balance between monitoring and mentoring will still be kept intact.