Splitting of the Roles of CEO and Chairman – It’s Not for Everyone
TO: AABD MEMBERS AND FRIENDS
FROM: DAVID BARIS, PRESIDENT AND RICH WHITING
SUBJECT: SPLITTING THE ROLES OF CEO AND CHAIRMAN
DATE: FEBRUARY 23, 2016
The debate over whether corporations, including banks and their holding companies, should separate the roles of CEO and Chairman of the Board continues with intensity in 2016.
Norway’s oil fund, the largest sovereign wealth fund in the world, recently joined the chorus of many institutional investors and proxy advisory firms to urge U.S. banks to split the roles of CEO and Chairman. The International Business Times reported this in its February 7, 2016 edition.
The Fund’s CEO was quoted as saying that “there is a special consideration for banks given that history of 2008 which makes it untenable for companies not to separate the roles.”
The Clearing House’s corporate governance report issued last year and summarized for our members did not call for all banks to separate the roles, and the banking agencies do not require it.
AABD also does not believe that all banks should separate the roles.
It shares the view of Jeffrey Sonnenfeld, the Senior Associate Dean at the Yale Management School that there is no evidence to suggest that separating the roles will improve the financial performance of the institution. See New York Times op-ed dated May 9, 2013.
He also points out that the separation of roles may, in theory, allow the chairman to be the guardian of the board’s agenda and ensure the independent oversight of management. This arrangement, he writes, can work at companies during leadership transitions and when there are dominant shareholder blocs, like family control.
The NYSE rules require either separate roles or, if not separate, the appointment of a Lead Director who often will have many of the traditional powers of a chairman.
To be sure, there are sound arguments on both sides of this discussion and credible examples of success/failure for both forms of these two kinds of corporate governance.
AABD believes that neither form of leadership will be always right for every bank, and that the board of directors of each bank should exercise the discretion to choose between consolidated or separated leadership roles. We also believe that shareholders lack sufficient information about the personalities, internal operations and business of their companies to make the best decision.
Choosing the best leadership fit for a bank requires a careful analysis and balancing of a nuanced and complex set of factors that are known and understood best by members of the board of directors. Where the bank board decides to maintain or authorize a unitary role, it is advisable to also consider the appointment of a lead director with authority to participate in the setting of board agendas, lead executive sessions, and perform other tasks appropriate for the bank.
This review can be part of your board’s annual or periodic review of its corporate governance processes. AABD strongly recommends that bank boards conduct such a review which incorporates a board assessment process.