Two-Headed Monster, or One-Man Show?

Boards of directors around the U.S. should be prepared to weigh in on a heated debate over whether or not their companies should continue in the American tradition of consolidating the CEO and chairman duties into one person, or shift to the more European-style separation of powers. There are pros and cons for both cases, of course. Separating the duties allows the chairman to serve as a watchdog of the CEO and puts the company in a position to avoid the pitfalls that accompany an imperial CEO. Then again, combining the roles can increase efficiency and avoid front-office personality clashes that can cripple companies. Corporate governance and executive-search experts say the trend in the U.S. is leaning more towards separating the CEO and chairman duties and some are even calling for a further step: term limits on CEOs. “Regardless of what hat you’re wearing, or if you’re wearing both hats, you have a fiduciary obligation to the shareholders,” said Charles Whitehead, a law professor at Cornell University. “It’s a question of two heads being better than one, and that you aren’t putting so much power in one” person. Separating the CEO and chairman duties has been in the headlines lately as some have called on Goldman Sachs GS to strip CEO Lloyd Blankfein of his chairman title as the bank attempts to repair its tarnished public image. Bank of America BAC shareholders stripped then-CEO Ken Lewis of his dual titles in 2009 amid criticism over the bank’s questionable acquisition of Merrill Lynch. At the same time, American International Group AIG chairman Harvey Golub resigned last month over a front-page spat with CEO Robert Benmosche, who complained their relationship was “ineffective and unsustainable.” There have also been recent examples of companies that may have benefited from having already split their CEO and chairman duties, such as embattled oil giant BP BP, which last month announced the resignation of CEO Tony Hayward, who had been criticized for a series of public-relations and strategic blunders. “If Tony had been the chairman of BP, could he have looked at himself in the mirror in the morning when he was shaving and said, ‘Tony, you need to be fired’?” said Tom Flannery, managing director at global executive search firm Boyden. Avoiding the Imperial CEO The case for separating the top front-office posts is that it increases accountability and minimizes conflicts of interest. To read the rest, head over to FOX Business.