Salvador A.
Perez
24 October 2021
HFT 2563-0W62
The Corporate Leadership Dilemma
In modern corporate hierarchy, there is a question that is now seeping its way into
boardroom meetings across the country, should a single person share the titles of CEO and
Chairman of the Board? In a standard business structure the CEO, though a member of the board,
cannot be the Chairman of the Board for the purposes of balancing the power of both positions.
Some, however, feel that this practice prevents a more streamlined and efficient form of
leadership from taking place. This assertion is erroneous. The more effective style that should
remain the standard is the separation of chairman and CEO, as it results in minimal conflicts of
interest, more effective corporate governance, and more protection and profit for shareholders.
Before continuing, it is only fair to properly display the correct argument that those who
believe the CEO should also hold the position of chairman represent. In essence, the argument
states that corporate governance is not so degraded by the combining of the roles and as such, for
a more streamlined and uniform decision making purpose, it is better for CEO’s to also be the
chairman. This argument is especially the go-to when they discuss new/small companies whose
structural hybrid position have been indicated to incite fast growth.1 Other minor arguments for
the mixing of the positions mention that separation of the roles damages the effectiveness of
visionary leaders that can hinder growth.2
In both arguments however there are lots of details and ethical issues that are skimmed
over and not dealt with. To effectively and safely run a successful corporation that can stand the
test of time, no matter how small, it is better to separate the CEO position from that of a
chairman. The first, and most obvious, reason for this is the conflict of interest that being a CEO
and representative of the board presents; being the sole boss of themselves. As bluntly put by 18
year finance and legal writer Angie Mohr “When the CEO is also the chair, a conflict of
interest arises, as the CEO is voting on his or her own compensation. … the chair can influence
the activities of the board, which allows for abuse of the chair position.”3 Usually the first thing
that is pointed out when mentioning conflict of interest is the executive compensation, and
though the most present and going concern, there also lies conflict in audit committee
independence. As explained in the whistleblower clause; “Sarbanes-Oxley requires that the audit
committee have a procedure where employees and other connected individuals can report fraud
Salvador A. Perez
24 October 2021
HFT 2563-0W62
and other abuse directly to the committee without reprisal. When the board is led by
management, employees may be less likely to report such activities and the audit committee may
be less likely to act on such reports”4. Required by law since 2002 to better regulate corporate
oversight, the wearing of both the hats of CEO and chairman allows the person with both roles
to, purposely or not, hinder the effectiveness of the audit.
The next reason it is better to separate the CEO position from that of a chairman is
because it allows more effective corporate governance. One of the main functions of the board is
to provide direction and oversight for the overall success of the business. As a member of the
board, the CEO represents and enacts the management necessary to attain the achieved vision but
has no more individual power over the board without support from other board members. This
completely dissipates and creates problems when the CEO is then also given the power of the
chairman. This can “weaken the corporation’s ability to manage its risk by undermining the
import of feedback delivered to the CEO from the board’s closed executive sessions”5 in effect
diminishing the quality of the communication of potential risks, new and effective strategies,
better opportunities, etc. Therefore, it can be inferred that the hybridization of both roles
diminishes the overall productivity of the business while simultaneously raising the liability of
the company. Examples of these risks and lack of communication can be no better exemplified
than the Boeing board members stripping CEO, Dennis Muilenburg, of his chairmanship as the
company struggles with the two recent crashes of its best-selling plane.6
Finally, the biggest reason to keep the roles separate is due to the protection and profit it
provides shareholders. The last thing a person wants when they put money into a company is to
lose that money, and as previously mentioned, the chance of that rises when the roles of CEO
and chairman are combined. Investors find “that as a leadership practice, the Two Job — One
Person model can deny the organization talent at the top and lead to blind spots that undermine
the organization’s ability to manage risks.”5 This, obviously, scares away potential investors
from a company that use a hybrid role, as can be seen with the percentage of companies
separating the two roles steadily increasing in hopes that investors are provided a sense of
stability.7
Salvador A. Perez
24 October 2021
HFT 2563-0W62
All in all, the separation of the CEO and board chairman positions is not only the
preferred way to run a corporation but also a seemingly necessary action to take when doing so.
Due to the problems that arise from the combination of the roles, such as the conflicts of interest,
less effective corporate governance, and risk of loss for the shareholders, the CEO and chairman
positions are better off segregated.
Salvador A. Perez
24 October 2021
HFT 2563-0W62
Endnotes
1
CEO and Chairman: Are Two Heads Better Than One?
https://dl.theiia.org/AECPublic/Tone-at-the-Top-August-2016.pdf
2
Companies with visionary leaders are hurt if the CEO and chairman roles are split
https://www.marketwatch.com/story/companies-with-visionary-leaders-are-hurt-if-the-ceo-and-
chairman-roles-are-split-2019-01-23
3
3 Reasons to Separate CEO and Chair Position
https://www.investopedia.com/financial-edge/0912/3-reasons-to-separate-ceo-and-chairman-
positions.aspx
4
U.S. Congress. "H.R. 3673, Sarbannes - Oxley Act of 2002."
https://www.congress.gov/bill/107th-congress/house-bill/3763
5
Why the CEO Shouldn’t Also Be the Board Chair
https://hbr.org/2020/03/why-the-ceo-shouldnt-also-be-the-board-chair
6
It’s not just Boeing. More companies are splitting CEO and chairman roles
https://www.cnbc.com/2019/11/05/its-not-just-boeing-more-companies-are-splitting-ceo-and-
chairman-roles.html
7
More U.S. Companies Separating Chief Executive and Chairman Roles
https://www.wsj.com/articles/more-u-s-companies-separating-chief-executive-and-chairman-
roles-11548288502
