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.

How to encourage good chemistry? Directors at a struggling U.K. company recently asked the CEO to participate in the final stage of selecting a new chairman. Armed with a headhunter’s short list of outside candidates, the board met with each of these people and asked the CEO to meet them as well. The board assured him that it would remove candidates from consideration if he anticipated any difficulty working with them. Eventually it hired a turnaround specialist who had extensive experience as a chief executive but was ready to step back and take a nonoperating role.

Fostering Positive Relations

Once the chief executive and the chairman are in place, it is largely up to them to develop an effective working relationship — building trust, ironing out differences in styles, and allocating shared responsibilities. Experience in the United Kingdom has shown the importance of establishing a regular communications routine through phone calls, e-mails, and face-to-face meetings to let information flow and provide a context for collaboration.

One common initial step is for the chairman and the CEO to agree on their respective roles. Even where job descriptions exist, they usually don’t cover all aspects of the work — particularly how to share responsibility for the development of strategy. “The agreement [between the two] should be put down in writing and eventually approved by the board,” says Henderson. “But the process of thoroughly understanding each other’s viewpoint is more important than the final text.”

Candor is a key ingredient for making the relationship work: Misunderstandings can create a vicious cycle of suspicion that eventually spirals into open distrust and acrimony. The CEO, who has an advantage in controlling information about the company, must demonstrate a willingness to share all news, good and bad, with the chairman, who should clearly proclaim a desire to avoid day-to-day decision making and give other nonexecutive directors adequate opportunities to spend time with the CEO. Such opportunities are important because they help nonexecutive directors to participate meaningfully in the board’s work, and an excessive focus on the relationship between the chairman and the CEO might alienate the other board members.

Whatever the difficulties, many boards have smoothly separated the two roles and chosen leaders who meshed together well in them. Take BP, which adopted the split model in 1992, when the board responded to plummeting profits and high debt by forcing out the chairman and CEO, Robert Horton; making David Simon, then the chief operating officer, his successor as chief executive; and appointing the outside director and former Barings chairman Lord Ashburton as part-time chairman. The pair restructured the company radically, selling assets, reducing capital spending, and laying off staff. Simon focused on the internal reorganization, instilling discipline, teamwork, and a performance-oriented culture. Ashburton served as BP’s statesman in the outside world and contributed his financial expertise. The turnaround was rapid. In mid-1995, when the company had record share prices and surging profits, Ashburton retired and Simon became chairman.

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