The practice of separating the two top jobs is common in the United Kingdom and elsewhere, but it is not necessarily an improvement over the U.S. model of combining the two positions.
As a result of recent corporate scandals, reformers and investors have increasingly called for U.S. companies to separate the chairman and CEO jobs — a model of corporate governance that is prevalent in the United Kingdom (as well as in most European countries, not to mention Australia, Canada and New Zealand). At first glance, splitting the two positions makes sense. After all, the same person acting as chairman and CEO looks suspiciously like the proverbial fox guarding the chicken coop. But most large U.S. public corporations continue to combine the two top jobs, generally splitting them only as a temporary measure (for example, to facilitate a CEO’s upcoming retirement).1 All of which raises the following question: Does separating the chairman and CEO jobs necessarily result in more effective leadership and better governance?
To answer that, we examined both British and U.S. boards, interviewing more than 50 directors in major public companies in the two countries.2 We found that the U.K. model is not the panacea that its advocates suggest. This is not to say that the emerging consensus that U.S. boards need independent leadership3 is wrong. In fact, it’s dead-on right. But achieving such leadership by splitting the two positions has its own characteristic problems, and this arrangement is not necessarily a clear improvement over the U.S. model.4
The British Model
Of the 100 largest British companies, all but a handful separate the CEO and chair positions.5 Of those that do, about three-quarters have chairs who are nonexecutive or part-time. Most nonexecutive chairs are former CEOs, usually from a different company. They may devote as many as 100 days per year to a company. In addition to leading the board, they generally chair the nominations committee and may also serve on (but typically do not chair) the compensation and/or audit committees. These nonexecutive chairmen also help determine the board’s agenda and the information the directors need. The CEOs’ interactions with boards between formal meetings are largely through their chairmen, who see themselves both as bridges to the nonexecutive directors6 and as principal representatives of the shareholders, to whom they are ultimately accountable.
The simple conventional wisdom in the United Kingdom is that the chairman runs the board while the CEO runs the company. The reality, though, is more complicated.