The Association of U S West Retirees



Fewer Chiefs Also Serving as Chairmen
By Claudia H. Deutsch
New York Times
Friday, March 17, 2006

Disney did it.  So did Fannie Mae, Hewlett-Packard and Dell.  Most companies in Britain do it.  And now, more American companies are doing it, too:  wresting board chairmanships away from chief executives.

According to executive recruiting firm Russell Reynolds Associates, 29 percent of the companies in the S.& P. have separated the jobs, up from 21 percent five years ago.

Some, like Disney, were forced by shareholders to decouple the roles.  Others, like Dell, did so to give a hard-working president a promotion to chief executive.  Many others want to let a new chief executive grow into the job under the watchful eye of the former one, serving as chairman.

The insurance industry may soon give companies a financial incentive to split the top jobs, too.  "We always ask, are you considering dividing the titles, and if not, why don't you?" said Lou Ann Layton, managing director in charge of national directors' and officers' liability insurance at Marsh Inc.

Companies that do decouple the roles are starting to ask for discounts.  "Our clients ask us about this every day," said Peter Tulupman, a spokesman for the American International Group.

Many shareholders say such splits are overdue.  "When the same person fills both roles, the odds are much less that the board will challenge inappropriate decisions," said the New York State comptroller, Alan G. Hevesi, who oversees New York's pension funds.

The Council of Institutional Investors, which counts most large pension funds as members, has a policy that all boards should have an independent director as chairman.  Directors themselves are jumping on the bandwagon.  In a poll last year by Russell Reynolds that asked the question for the first time, 59 percent said they liked the idea of splitting the job of chairman and chief executive.

"It is just harder to achieve independent oversight of a C.E.O. who's also the chairman," said Patricia C. Dunn, who became chairwoman of Hewlett-Packard when Carleton S. Fiorina, then chairwoman and chief executive, was ousted last year.  Ms. Dunn retained the title after Mark V. Hurd was named chief executive.

More boards are putting the concept on the table.  In February, John W. Rowe, who had been chairman and chief executive of Aetna, ceded the chief executive slot to Ronald A. Williams.  Mr. Rowe said he would lead a board review of whether to keep the roles split permanently.

And a few chief executives, wearied by the amount of time top jobs consume in this Sarbanes-Oxley era, welcome the split.  Steven A. Raymund, the chairman and chief executive of Tech Data, plans to give up the chief executive slot as soon as the company finds a successor. "I want to stay involved in the company," Mr. Raymund, 50, said.  "But I'm getting fatigued, and I want to do other things with my life."

Charles A. Tribbett III, a Russell Reynolds managing director, said that more people aspiring to be chief executives were willing to accept the split, though most still found it unsettling.  "Candidates still want both titles, but it's just not the deal breaker it was five years ago," he said.

Management specialists argue that too many corporate disasters can be traced to concentrating power at the top.  James E. Schrager, a management professor at the Graduate School of Business of the University of Chicago, is certain that Ms. Fiorina's role as chairwoman and chief executive of Hewlett-Packard enabled her to push through the company's ill-starred acquisition of Compaq Computer.

Mr. Hevesi and other Disney shareholders say that Michael D. Eisner, Disney's former chairman and chief executive, used his dual role to get a huge severance package for Michael S. Ovitz, whom he hired and then fired as his No. 2.  Disney has since amended its guidelines to make separating the posts the norm.

No one suggests that splitting the roles by itself ensures good governance.  Chairmen who were once the chief executive are hardly independent voices.  According to Thomas J. Neff, chairman of United States operations at the recruiting firm Spencer Stuart & Associates, only 9 percent of S.& P. 500 companies have chairmen who had no previous ties to the company.  "C.E.O.'s still see moving up to chairman as a career pinnacle," he said.

Many shareholders prefer to keep the roles combined.  Despite public outrage over the rich retirement package that the board of General Electric granted to John F. Welch Jr., G.E.'s former chairman and chief executive, G.E. shareholders voted to let Jeffrey R. Immelt, who succeeded Mr. Welch, keep both titles.  Peter O'Toole, a G.E. spokesman, said that the "presiding director" role of Ralph S. Larsen, who had never worked for G.E., conferred enough independence.

Indeed, many companies now have "lead" or "presiding" directors overseeing committees that deal with compensation and other sensitive areas.

"If there's a lead director who has the final say on meeting agendas or information flow, we're happy," said Patrick S. McGurn, executive vice president of Institutional Shareholder Services, which advises institutions on proxy matters.

But that setup does not address perhaps the most compelling push to decouple the top two roles:  the need, as corporations are under increasing scrutiny, to prove that the company takes governance seriously.

Splitting the roles "sends a signal to the outside world that the board really cares about governance," Ms. Dunn, the Hewlett-Packard chairwoman, said, "and to the senior-level staff that they are responsible for providing information to the board, not just to the C.E.O."