ACCA P1 考試：Separating the Roles of the CEO and Chairman

The reason that many corporate codes (e.g. the Code) recommend separating the roles of CEO and chairman is to avoid a situation in which one individual has unfettered (uncontrolled) power. There should be a balance of power between board members such that no one individual will gain unlimited, unchecked, power.

In a number of governance codes, this is enhanced by requiring he chairman to be an independent NED.

Benefits of Separating the Roles

The CEO is able to concentrate on the management of the company without having to report to shareholders or become distracted from executive responsibilities. The chairman is expected to represent shareholders' interests and act as the point of contact for shareholders.

Having two people at the head of a large company removes the risks of "unfettered powers" being concentrated in the hands of one individual. This is an important "check and balance" for investors (as well as other board members) concerned about a potential lack of transparency and accountability.

Separate roles reduce the risk of a conflict of interest in one person being responsible for company performance while also reporting on that performance to markets.

The chairman can be an important "sounding board" for the concerns of NEDs who, in turn, provide independent representation of external concerns on boards of directors.

Arguments Against Separating the Roles

Even with separate roles a CEO's influence may be so strong that he dominates the board.

There is no academic evidence to suggest that it is a good thing.

In family-run companies, the CEO and the chairman may not be independent of each other.

High-calibre managers may not agree to have the role split (as is usual in the US).

There are insufficient excellent managers/leaders to source the two roles.

Interestingly, in most of the corporate scandals of the last 20 years, a key element has been the dominant CEO who also acted as chairman. In the few scandals in which there was separation of the roles (e.g. Enron and RBS) the chairman (and the board as a whole) was dominated by the CEO. In both cases, the CEO had or was allowed, unchecked, unfettered power.