The Wall Street Journal-20080114-When Chairman and CEO Roles Get a Divorce
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When Chairman and CEO Roles Get a Divorce
London -- Bear Stearns Cos. became the latest high-profile U.S. company to divide its leadership when James Cayne stepped down last week as chief executive but remained board chairman.
This division of labor, long favored by governance advocates, has gained momentum slowly in the U.S., where many CEOs resist sharing power. Around 36% of Standard & Poors-500 companies have separate chairmen and CEOs, up from 22% in 2002, according to the Corporate Library, a research group in Portland, Maine. As at Bear Stearns, splits in the top posts at American businesses are often the result of a leadership transition or financial trouble. In numerous cases, the chairman is a concern's retired CEO.
Yet the gradual emergence of non-CEO chairmen in the U.S. raises a sticky question: How do you perform a role that rarely existed until recently?
For insight, American executives increasingly look to Britain, where most major public companies have divorced the roles since a 1992 corporate-governance reform effort. The chairman usually comes from outside company ranks.
Next month, about a dozen independent chairmen from the U.S. and abroad will brainstorm at a New York round table organized by Yale University's Millstein Center for Corporate Governance and Performance. Participants will discuss how to run boards "and not step on the CEO's toes," says Stephen Davis, the center's project director. The session will be led by Harry Pearce, a retired General Motors Corp. vice chairman who heads the boards of Nortel Networks Corp. and MDU Resources Group Inc. A CEO who also is chairman has "the only job without a boss," Mr. Davis says.
He hopes participating U.S. chairmen will form a permanent caucus similar to Britain's self-help groups for independent chairmen, a venue for swapping tips about leading boards during crises and handling conflicts with the CEO. The Chairmen's Forum, begun in 1999, boasts around 120 members. It hosts quarterly dinners at a private club here, publishes a board performance-review guide and recently held a "good chairmanship" conference. The second group, formed by Reuters Group PLC Chairman Niall FitzGerald, has met twice a year since 2005.
"You build relationships with other chairmen that you don't know," says Richard L. Olver, chairman of big defense contractor BAE Systems PLC and former deputy chief executive of BP PLC. In October, Mr. Olver helped orchestrate an earlier-than-expected retirement of BAE Chief Executive Mike Turner amid a U.S. investigation of BAE arms deals with Saudi Arabia, according to people close to the situation.
That same month, Mr. Olver attended Mr. FitzGerald's group, where he described his creation of an outside panel to review BAE's business ethics. "It's good to have a nonthreatening setting where we can let down our hair -- what's left of it," Mr. FitzGerald observes.
The British experience suggests that a separate chairman can be a helpful guiding hand, particularly during crisis. Splitting the roles lets the CEO run the business while the chairman leads the board, recruits new members -- and manages CEO succession. But separating the chairmanship can also spark power struggles and sow confusion among employees, especially when outside chairmen get involved in day-to-day operations.
U.S. companies where the CEO also is chairman often have a lead director who mainly conducts executive sessions of fellow outside members. But veteran British chairmen say the lead director role is too limited.
Paul Myners, chairman of Land Securities Group PLC and former chairman of Marks & Spencer Group PLC, quit the board of Bank of New York Co. in 2006 partly because he felt uncomfortable about a single chairman and CEO. Combining top spots "allows one person to be too dominant," Mr. Myners says.
Many American CEOs see it differently. Jeff Bewkes, Time-Warner Inc.'s new CEO, can resign if the media giant doesn't give him the additional title of chairman by early 2009, his new employment accord states. Michael Roth chaired Interpublic Group of Cos. for six months before he also was named CEO of the advertising and marketing firm in 2005. Dividing the posts again "would be a disaster," because "lines of authority [must] be clear," Mr. Roth told a recent conference.
John Weston, who has been both a CEO and an outside chairman, disagrees. Mr. Weston was BAE's chief executive from 1998 to 2002, when he stepped down amid a clash with then-Chairman Richard Evans over the company's strategic direction, knowledgeable people recall. Mr. Weston has since chaired several British concerns.
"The separate chairman model is the better one because it makes it very clear the chief executive has somebody else he is responsible to besides shareholders," Mr. Weston says. Having a separate chairman at BAE "worked satisfactorily for me for nearly all of my CEO tenure," he continues.
He became interim CEO of iSoft Group PLC in June 2006, when the health-care software provider ousted Tim Whiston amid contract delays, profit warnings and a share-price slump. The board later uncovered accounting irregularities and fired a co-founder. Mr. Weston struggled to stabilize the company, which IBA Health Ltd. acquired late last year.
At BAE, tension between the chairman and the CEO resumed soon after Mr. Weston's departure. Mr. Olver became chairman in July 2004, following a 31-year career at BP. Paid about $1.1 million a year, he works two to four days a week in a spacious corner office here that overlooks lush gardens. Mr. Turner, who remains CEO, occupies similar quarters nearby.
Mr. Olver, 61 years old, says he initially found the abrupt role switch difficult. A new chairman has "a propensity to run too fast," he explains. But you no longer can "throw the orders around and drive the ship," he says.
He sought advice from other chairmen. BP Chairman Peter Sutherland encouraged him to revamp the BAE board by recruiting more independent directors.
The board shake-up sparked the departure of two chief operating officers, straining relations between Messrs. Olver and Turner, individuals close to the situation recollect. At a June 2005 press dinner, Mr. Turner called Mr. Olver "a guy who knows nothing about our industry." A BAE spokesman later said Mr. Turner was joking.
Things grew so tense that each man "tried to get rid of the other one," one of the knowledgeable individuals says. He says Sir Peter Mason, BAE's senior independent director, helped arrange a truce. Sir Peter couldn't be reached.
Last June, Mr. Turner told a journalist he wanted to stay until age 65. Four months later, he unveiled plans to retire when he turns 60 this August.
"The two guys work extremely well together," says John Neilson, a BAE spokesman. The executives decline to comment about their relationship.
Nevertheless, Mr. Olver still believes in the split roles. Compared with a lead director, "the chairman spends more time with the company, has greater context and can therefore help more," he says. "A separate chairman is a much more powerful way of having good corporate governance."
