“Imperial” board directors should be outlawed on US boards, which should de-couple the role of chairman from CEO, as is common on UK boards.
The US has a serious governance problem, says Gary Wilson in the Wall Street Journal — it’s with the “Imperial CEO”, the CEO who’s also chairman of the company and “accountable to no-one”.
Wilson believes this creates a conflict of interest and undermines the board’s independence — which is fundamental to its role as an impartial monitor of corporate development.
The result? Over-generous rewards and “undeserved job security” — all for performance that is not appreciably better for shareholders than that delivered by European CEOs, who are paid less than their US peers.
In the UK, the practice of combining chairman and CEO roles is frowned upon, although not illegal. At M&S, Sir Stuart Rose’s decision to take up both roles flouted convention and ignored the recommendations of the Combined Code of corporate governance — in which his predecessor at M&S, Sir Richard Greenbury, had a hand.
According to the Code, no one individual should have unfettered power and companies should have to present their case if they want to join the role of CEO with the chairmanship.
Rose has since had to defend that decision and, although he survived rebellious investors this time, any dip in the company’s fortune will reignite the same questions again.
The problem is that Rose has yet to provide a sufficiently robust defence of his move — and has confused investors further by failing to provide a clear succession plan. While his deputy chairman, David Michels, has defended Rose, the retailer’s choice still smacks of imperialism. He stands apart among big business bosses in Britain — and looks out of step with public opinion.
In the US, there’s a trend to more European dispersal of power. An alternative that has been sanctioned by proxy advisory institutions such as RiskMetrics is that of a ‘lead’ director. This should be another director, not the chairman-CEO, but who will head up board meetings where management is absent
But Wilson, a director of Yahoo — the board that Microsoft would like to sack wholesale — believes this is the worst of both worlds, giving investors false confidence when, in fact, CEO-chairmen have absolute power that no lead director will sway.
When Disney split the role, its share price rose 30 per cent over the subsequent four years, says Wilson.
He’s one of a small, but growing number who are calling on US boards to unseat the imperial CEO or face crisis-led regulation and government intervention.
What do you think? Is the de-coupled role a safer bet for investors?
