Separating CEO From Board of Directors’ Chairmanship Shouldn’t Be Mandatory

In the world of corporate governance, American companies espouse certain managerial practices found almost nowhere else in developed economies. A prime example of this disparity lies with the dual roles of Chairman of the Board of Directors and Chief Executive Officer (CEO) often being bestowed upon a single individual. As The Economist magazine recently reported, a Norwegian pension fund operator is encouraging certain US companies to separate the roles, but doing so does not necessarily enhance an organization’s corporate governance. The Economist’s article, which appeared in its Schumpeter column, notes that some 30 academic studies produced over the last 20 years have failed to show that either combining or separating the roles has any meaningful impact on an organization’s management. Instead, the decision should be made on an individual basis, selecting the most-appropriate option for a particular company’s circumstances. Nonetheless, some members of Congress would rather see the roles separated at all US companies, and a “Shareholder’s Bill of Rights” introduced by New York Senator Charles Schumer would do just that. Opponents of the measure fear that forcing all corporations to separate the roles may place an undue burden on smaller entities and could lead to internal disagreements and managerial gridlock if the individuals appointed to the two roles cannot work together. Rather than requiring all companies to split the duties of CEO and Chairman of the Board of Directors, Congress should require that corporations justify their decisions to either combine or separate the positions.

The Shareholder’s Bill of Rights Act of 2009, Senate Bill 1074, was introduced on May 19, 2009 and referred to the Committee on Banking, Housing, and Urban Affairs, where no further action has been taken.