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Time to pull "chairs" from under CEOs
By Al Lewis, Staff Columnist
Denver Post
Tuesday, May 30, 2006

Dick Notebaert, Dick Kelly and Dick Kovacevich have more in common than first names.

They each have two titles: chairman and chief executive.

They've each faced Gerald Armstrong, a Denver shareholders-rights activist, who'd like them to have just one title.

And they'd each like Armstrong -- a noteworthy gadfly -- to buzz off.

But Armstrong represents the future.

These chairmen/CEOs of Qwest, Xcel Energy and Wells Fargo, respectively, are holding on to the past.  The idea that one person can be the chairman of the board that oversees the CEO -- and also be the CEO -- is absurd on its face.

"How can you be your own boss?" Armstrong barked at Notebaert during Qwest's annual shareholders meeting last week.  Notebaert did not reply.  Armstrong posed similar questions at Xcel's and Wells Fargo's annual meetings.

I spoke with Notebaert and Kelly about the issue at their annual meetings.  Both said they had enough independence in their boardrooms.

"The issue is losing momentum," Notebaert said after Armstrong's measure failed.

"There's no need to do it," Kelly said.  "Usually when you separate them, it's because there's a problem.  There's no problem.  We have great governance."

It's amazing, considering the abuses at some of America's biggest corporations that chairmen/CEOs still reign supreme.

Is it any wonder why executive compensation bounds to new heights each year with a system like this?

"We blew it," said Paul Kocourek of management consulting giant Booz Allen Hamilton in San Francisco.

Responding to corporate scandals, lawmakers bombarded businesses with expensive regulations mandating tight financial controls.  What they did not do was put enough checks and balances on the backslapping, glad-handing chums that run giant corporations.

"It's very hard to have checks and balances when the CEO is one of the board members and managing the agenda," Kocourek said.

Kocourek is co-author of a new study showing that stocks perform better at companies where the roles of CEO and chairmen are separate.  Kocourek examined CEOs at top publicly traded companies who left office in 2003, 2004 and 2005.  Those who reported to independent chairmen saw stocks outperform the market by an average of 7 percent.  Those who held the combined titles saw stocks perform an average of only 2 percent better than the broader market.

In Europe, companies have long had separate chairmen and CEOs.  Yet, one person holding both jobs is still the norm in the nation that gave birth to Enron.

Since last year, shareholder proposals to separate the roles have gone down in flames at scores of U.S. companies, including Abbott Laboratories, Boeing, Caterpillar Inc., Dow Jones & Co., JPMorgan Chase & Co. and Wachovia Corp.

"Generally, these proposals are submitted at companies where there are serious concerns about the board's or the CEO's effectiveness," said Nell Minow of the Corporate Library, a group that tracks corporate-governance issues.  "The idea is that if the CEO controls the agenda and information, you have an insular, closed-loop system that cannot ensure independent oversight."

Corporate boards, entrenched in this status quo, routinely recommend no votes on shareholder proposals.  Many mutual funds and institutional investors do not have time to sort through proxy issues, so they vote with management as a default setting.  That's why shareholder proposals for reforms routinely fail.

With God, however, there is always hope.  Last year, a group led by the Sisters of Mercy succeeded in their quest to divide the CEO and chairman's jobs at aerospace giant Textron Inc.  "We believe separation of the roles of chair and chief executive officer is a basic element of sound corporate-governance practice," Sister Maureen McElroy said at the time.

Armstrong says he'll be back next year to pester Qwest, Xcel and Wells Fargo.

"It just takes time," he said.  "This is going to change over the next three or four years. ... If corporations don't learn to regulate themselves, they're just going to see more government regulations."

Al Lewis' column appears Sundays, Tuesdays and Fridays. Respond to Lewis at, 303-820-1967 or