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.

Once the board’s role has been defined, the committee can turn to the roles of the chairman and the CEO, starting from the principle that the chairman runs the board, determines its priorities, and sets the agenda for meetings — all with input from the CEO — while the CEO manages the company and is accountable for corporate performance (see “Clearly Define the Roles,” at the end of this article). A chairman shouldn’t undertake management responsibilities (for instance, operational roles), and a CEO shouldn’t attempt to run the board. A division is necessary because one important reason for splitting the two jobs is the desirability of making the board more independent. A chairman with an operational role would in effect be a part of management and therefore less independent from it.

As the committee designs the chairman’s duties, it should also spell out the involvement and time commitment required to hold the position (see “How Much Involvement Is Required?” at the end of this article) — a point that may seem trivial but actually plays an important part in differentiating the two roles. In the United Kingdom, chairmen typically spend about two days a week on the job, which reduces the likelihood that they will intrude upon management activities. Of course, a chairman may need to make a greater commitment if the company is young, lacks management depth, or is undergoing a major transformation or crisis.

The committee can best delineate the roles by developing a comprehensive, written job description for each of them. (The U.K. Combined Code recommends as best practice the development of written job descriptions, accepted by the board, for both posts. But a survey that Market & Opinion Research International conducted for the Higgs Report, which was commissioned by the U.K. government in 2002 to assess the effectiveness of nonexecutive directors, found that only 53 percent of the 72 U.K. chairmen in the survey had been given specific objectives to fulfill their role.) These documents, which are much more than just a formality, facilitate the search process by telling job candidates what to expect and leaving less room for surprise. They also guide the relationship between the chairman and the CEO once the appointments have been made and reduce the risk that either will attempt to overreach. “It is precisely because there is so much common ground between the two posts that the mapping of the respective territories should be the starting point,” says Adrian Cadbury, whose eponymous guidelines launched the separation of the roles in the United Kingdom.

Appointing the Right People

The most important contributors to the success of any split-leadership structure, of course, are the chairman and the CEO themselves. To identify the right people, boards should assess not only the technical skills of the candidates but also the way their mental dispositions mesh — or fail to mesh.

For chairmen, the most important characteristic — over and above the usual ones, such as integrity and leadership ability — is a lack of ambition to be CEO: only someone content to serve in a secondary, behind-the-scenes role can have a productive and trusting relationship with the chief executive. The lack of rivalry fosters cooperation, eases the flow of information, and helps chairmen to serve as effective mentors to CEOs and to revel in their success.

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