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The Securities Edge Securities Blog for Middle-Market Companies

CEO/Chair separation — the more things change…

Posted in Bob's Upticks, Corporate Governance, investor empowerment

The morning after a surprising election outcome seems as good a time as any to bear in mind the old saw that the more things change the more they stay the same.

And so it goes with corporate governance trends.  Lost in the piles of paper and ink (real and virtual) expended on the Wells Fargo scandal is an article that appeared in The Wall Street Journal a few weeks ago suggesting that the beleaguered bank will benefit from its post-oops decision to separate the positions of CEO and Chairman of the Board.

I’ve studied this issue for several years, and I can state with confidence that there is no proof that separating the positions or having an independent Board Chair does anything to improve performance or to avoid problems.  The most that can be said is that the studies are inconclusive.

For every company that may have benefited, performance-wise or otherwise, from the separation, there are abundant examples of cases where the separation didn’t help or arguably may have hurt (can you say “Enron” or “BP”?).  From a personal perspective, I’ve seen separation work and I’ve seen it turn into a hot mess.  And when I’ve asked investors who have pressed for separation for hard, objective data supporting their view, the answer has consistently been “We’ll get back to you on that.”  (They haven’t.)  One of the better studies on the topic, produced at Yale some years ago, points out that chemistry between the CEO and the Board Chair is the primary determinant of whether separation is good, bad or indifferent.   In other words, one size does not fit all.

And yet the media and investors continue to push the notion that CEO/Board Chair separation would be the corporate equivalent of healing the sick and raising the dead.

As I said, the more things change, the more they stay the same.

Bob