boards / CEO / corporate governance

Chairperson-CEO Duality

CEO-Chairperson duality, that is, combining the roles of CEO and Chairperson of a board of directors, has been a focus of research, and the UK Governance Code discourages role duality (Solomon 2013; FRC 2014).  This separation recognises the different roles of the two positions and that separation will minimise agency issues (Solomon 2013). The primary difference between the Chairperson and the CEO is that the Chairperson carries the authority of the board but the CEO carries the authority delegated to her by the board (Cadbury 2002).  Combining the two roles can give excessive power to the CEO potentially undermining board authority. For example, CEO duality enables the CEO to set the board agenda facilitating greater CEO power over the board (Uzun et al. 2004; Ruigrok et al. 2006).

However, empirical research supporting the importance of separation of the roles, as impacting organisation performance is inconclusive (Ong & Wan 2001). One potential reason for the inconclusive results may be due to cross-country differences; specifically that higher power is accorded to CEOs in the US, and reducing that power without additional measures, such as increasing the power of the board, may not produce the expected benefits (Zalewska 2014).  Nonetheless, role separation is recommended best governance practice in the US and the UK (Dodd–Frank Act 2010; FRC 2014).

References

Cadbury, A., 2002. Corporate governance and chairmanship: A personal view,

Dodd–Frank Act, 2010. Dodd–Frank Wall Street Reform Consumer Protection Act,

FRC, 2014. The UK Corporate Governance Code Financial Reporting Council, London.

Ong, C.H. & Wan, T.W.D., 2001. Board Structure, Board Process and Board Performance: A Review & Research Agenda. Journal of Comparative International Management, 4(1).

Ruigrok, W., Peck, S.I. & Keller, H., 2006. Board characteristics and involvement in strategic decision making: Evidence from Swiss companies. Journal of Management Studies, 43(5), pp.1201–1226.

Solomon, J., 2013. Corporate governance and accountability Fourth Edi., John Wiley & Sons, Ltd.

Uzun, H., Szewczyk, S.H. & Varma, R., 2004. Board Composition and Corporate Fraud. Financial Analysts Journal, 60(3), pp.33–43.

Zalewska, A., 2014. Challenges of corporate governance: Twenty years after Cadbury, ten years after Sarbanes-Oxley. Journal of Empirical Finance, 27, pp.1–9.

 

 

 

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