It's a popular practice outside of the U.S., but there are some serious potential downsides that deserve consideration
U.S. boards typically combine the roles of chairman and chief executive officer, a majority practice among the Standard & Poor's 1500 composite index even today. Among the companies that do so, it is also common to appoint an outside independent director to serve as lead director. In Britain, where boards historically have had fewer independent directors than their American counterparts, a different practice arose: that of appointing an outside, independent director as nonexecutive chair. The question of whether U.S. companies should adopt the British model of separating chairman and CEO roles surfaces every time a corporate crisis erupts in America, most recently in the controversy over Countrywide Financial (CFC), where institutional investors called for splitting the combined roles held by Angelo Mozilo.
Institutional Shareholder Services' latest survey, released in September, 2007, noted that 36% of U.S. institutional investors favored the separation, although 50% found appointment of a lead director entirely satisfactory when the chairman and CEO roles are combined. Does separating the roles really provide better governance, or is it simply window-dressing for shareholders with little impact on board effectiveness?
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