Separating the board chair and CEO roles remains an ongoing debate in corporate governance with compelling arguments on both sides. The issue centers around whether a potential conflict of interest exists when the roles are combined and whether there is an appropriate balance of power between the CEO and the independent board members. As of 2012, 43% of S&P 500 boards currently separate the role.
Investors, proxy advisors, and a growing number of directors have focused on separating the roles over the past year. Shareholders submitted independent chair proposals at 58 Russell 3000 companies in 2013, slightly higher than the 48 in 2012 and significantly higher than the 23 proposals submitted in 2011. The average support level for such proposals fell slightly, from 36 percent in 2012 to just about 31% in 2013. Despite increased levels of average support, independent chair proposals only received a majority of votes cast at five of the 58 companies.
Fifty-five percent of 934 directors who participated in the PwC 2013 Annual Corporate Directors Survey (ACDS) said their company separates the roles of chair and CEO, an uptick of one percentage point from 2012. Of the companies that have a combined chair and CEO, about half of those boards are already considering splitting the role at their next CEO succession. The prevalence of these conversations suggests many directors are reevaluating their board leadership structure -- perhaps in response to continued shareholder activism against combining the role.
“In our view, boards are best positioned to determine the appropriate leadership structure for their companies' specific situation. That said, a CEO transition provides a good opportunity for the board to consider whether there should be a change in board leadership structure.”
— Catherine Bromilow, Partner, Center for Board Governance
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