Defining the role of the CEO

What would happen if firms were forced to divide the job of CEO and chairman? Senator Charles Schumer proposes that Washington initiate just that mandate on companies. Public companies will have two executives instead of one running corporations. An article by Dennis Carey of Korn/Ferry International details advice for firms in such situations.

It is misguided in our troubled global economy to increase mandates on CEOs and boards of major corporations, especially when such mandates do not make sense. There is no evidence that splitting the roles will promote corporate profits and better management. Currently, with a combined chairman and CEO position, large global corporations are applying excellent management standards. In America, there are over 60% combined chairman and CEO roles. While in Europe, many major corporations have divided chairman and CEO roles, yet there no evidence that it has led to improved governance or profits.

In fact, a major strength of American corporate governance is its flexibility to make decisions that respond to current corporate issues. Flexibility and quick responding lead to corporate profit and the best possible management. For example, Mr. Breen rescues Tyco. Would we want to reduce Mr. Breen’s ability to take action? Would we want smart independent board chairmen to be mired down in bad corporate compliance regulations?

Or would we want independent corporate CEOs and boards to be able to make decisions that impact their corporations. The best governance is to have the shareholders and their boards make changes in a corporation’s structure. Deciding to split the CEO and chairman into two positions is basic to corporate structure, and that decision ought to be made by CEOs and shareholders based on complex factors and criteria. On the economic scene, there is fear of financial crisis. This fear leads to well-intentioned politicians grasping at controlling the economy by imposing mandates on corporations. This thinking backfires. Mandates create rigidity, making it difficult for CEOs and boards to have the flexibility to make the best decisions.

Mandates weigh down corporate leadership with compliance matters and restrictions. What is needed is flexibility so that CEOs can evaluate risk management, and based on realistic dilemmas, CEOs can make strategic decisions that will actually prevent fiscal meltdowns. Flexibility makes it easier for CEOs to use current financial information to make decisions that promote fiscal growth.

Senator Schumer can prevent a major mistake of forcing firms to split their chairman and CEO positions. He can seek more information before he takes actions. Senator Schumer should request the opinion of a cross-section of current chairman and CEOs with a history of successful management of their corporations.