pull "chairs" from under CEOs
By Al Lewis,
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
And they'd each like Armstrong -- a noteworthy gadfly -- to
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
"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
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
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
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