How to Separate the Roles of Chairman and CEO

Many companies that thought they knew how to split them stumbled along the way. Five steps can make the process smoother and more successful.

Similarly, the independent directors should conduct the process at some distance from the current chairman-CEO, particularly if he or she hopes to retain one of the roles after the split. Even a current boss who supports the separation is likely, perhaps unconsciously, to propose candidates who would follow the strategy and policies he or she put in place. While that may not seem like a bad thing, particularly if business is good, a more detached assessment of the company’s direction and leadership is usually preferable. In the later stages of the process, the entire board should become involved to ensure that the people chosen as chairman and as CEO have the support of all the directors.

Right Form, Right Timing

When U.S. companies split the roles of chairman and CEO, the current holder of the combined position typically cedes only one title rather than depart altogether. Experience in the United Kingdom, however, suggests that companies may be better off when the boss gives up both. In the mid-1990s, as U.K. boards followed the recommendation of the Cadbury Code of Best Practice to split the roles, some chairmen-CEOs gave up the chief executive’s job but stayed on as chairman. U.K. companies that adopted this approach concluded that it wasn’t workable.

As in the Kingfisher case, the chairman’s resistance sometimes made it hard for a new CEO to institute changes. At other companies, executives were confused about where to place their loyalty and who should give them their orders. Similar problems would arise if a chairman-CEO gave up the chairmanship but continued to serve as chief executive. In this case, the new chairman could be less effective because the current directors might continue to view the CEO as the real leader. Furthermore, a chief executive used to running the show as chairman-CEO may not be willing to take direction from a new chairman or to accept the board’s authority. So the U.K. Combined Code (the successor to the Cadbury Code) states that a chairman should be independent at the time of appointment, and more than three-fourths of the United Kingdom’s 100 largest publicly traded companies now have a chairman who wasn’t formerly the chief executive.

Some U.S. companies too have learned this lesson the hard way. The chairman-CEO at one of them ceded the role of chief executive only to reclaim it after undermining the new CEO’s authority and making it difficult for him to win the employees’ attention when the person they considered to be the ultimate boss was in the room. In a minority of cases, a chairman-CEO was successful as chairman after ceasing to be CEO, but only because he or she genuinely relinquished that role, slowed down, and stepped out of the limelight by consciously steering clear of management responsibilities. Intel chairman Andy Grove said that dropping the role of CEO was one of the most difficult transitions in his life but that he learned in this way to control a tendency to dig into details and dominate decision making. Another U.S. chairman who previously wore both hats says that when employees turn to him for management guidance, he routinely refers them to the new CEO, even if he himself has the answer.

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