Restoring American Financial Stability Act of 2009: Separating the Chairman and CEO: The Battle Begins

by J. Robert Brown, for The Race to the Bottom, December 4, 2009.

One of the newest fronts in the corporate governance area has been the consistent decision on the part of most public companies to combine the positions of chairman and CEO.

The approach is facially inconsistent with the role of the board.  To the extent that the board has as a primary obligation the duty to oversee the CEO, it defies logic to set up boards consisting mostly of independent directors, a status that, while not ensuring independence, does generally ensure that they have no independent source of information about the company except what they get in the popular press or from board meetings, but having them be chaired by the person they must oversee.  The chair typically calls special meetings of the board and controls the agenda.  In short, if problems arise with the CEO, it is the chair who presumably alerts the other directors, something that has to diminish inordinately when the chairman is the CEO.

Nor is this conjecture.  In the realm of global corporate governance, the practice of combining the two positions is the exception.  Indeed, some of the pressure for reform is coming from overseas sources…(continue reading)

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