It is vital to your company's success to decide whether the CEO should be the chairman of the board, because there is no "right" answer. If you are a large corporation, there is a high probability that the CEO is the chairman. If you are a high-growth company, it is strongly recommended that the CEO not be the chairman. To be or not to be--a combined CEO/chairman role, that is the question.
The true purpose of a board.
While it is frequently believed that the primary purpose of a board is "governance," recently in both Europe and the U.S., board members have wanted to spend more time providing value to the CEO and the senior management team. Their reasoning is that they can make your job easier with their varied industry experience and their understanding of macro-level trends occurring outside the company.
Why the CEO should not be the chairman.
Anyone who thinks that being a CEO is not a full-time job does not understand high- growth companies. Anyone who thinks that being the chairman is not an intensive job does not understand the importance of the board. CEOs who choose to be the chairman must shift focus from one of the two distinct roles to perform the other. There is no clear answer, and the debate has gone on for years.
While most people think that this is about governance, it is not. Findings, including those of Stanford University researchers, indicate that an independent chairman:
- Clearly distinguishes between the roles of the board and management.
- Eliminates conflicts in the areas of performance evaluation, executive compensation, and the recruitment of new senior staff and other directors.
- Gives one director clear authority to speak on behalf of the board.
- Allows the CEO to focus completely on operations, and organizational issues in strategy execution.
- Represents individual director perspectives to the CEO.
- Ensures that board meetings encourage others to share their viewpoints and raise questions that challenge and cause the CEO to think differently.
- Conducts executive sessions that allow for open and candid conversations between the independent directors and the CEO.
- Helps in a crisis situation by coordinating communications between the board and management, as well as communications between the company and external groups, such as investors or members of the media.
Closing food for thought.
Those in favor of separation argue that if the role of the board is to oversee management, a conflict of interest is unavoidable if the CEO chairs the board. At most companies, an independent chairman can provide a necessary balance to the CEO.
Do the right thing to accelerate the growth and maintain the stability of your company.