Always Separate CEO, Chairman Roles

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- Goldman Sach ( GS) is the latest to separate the CEO and board chairman roles by leaving Lloyd Blankfein as CEO, but naming James Schiro as the leading director of the always provocative financial powerhouse investment bank.

While this was precipitated by demands from the American Federation of State, County and Municipal Employees union group, it just makes good sense.
Goldman Sachs CEO Lloyd Blankfein

There is always a need for some degree of independence, if not the appearance of independence and separation of powers. Frankly every company should follow bucking the "Imperial CEO" trap of joint titles/roles.

The dreaded Sarbanes-Oxley Act was a costly, knee-jerk reaction to the infamous scandals at Enron and WorldCom, where all-powerful CEO-chairmen had little check on their actions because they ran the board of directors and managed the company. By the way, not to be outdone by Sarbanes-Oxley, Washington continues the insanity with Frank-Dodd, Volcker, et al. But I digress . . .

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The reality is that CEOs are responsible for day-to-day operations. And the board of directors are responsible to see the CEO is doing his job.

Sure there are other responsibilities of both board and CEO regarding strategy, mission, vision, governance, risk and compliance.

CEO governance is leadership. Board leadership is governance.

While both involve leadership and must share common goals and strategies, the board cannot adequately monitor the CEO's conduct if the CEO also heads the board. By heading the board in a chairman's role, a CEO ultimately has too much control on the awareness, dissemination and actions taken on all kinds of information.

Historically the dual CEO/Chairman banner has been bestowed in recognition of trust, performance and status for the CEO. Often a founding or longtime CEO was honored with the vote of confidence to assume master control of the firm.

The common complaint by boards is being surprised by CEO conduct surrounding company situations. If everything becomes exclusively filtered through the CEO acting as chairman too . . . well, you can see the temptation of conflicts of interest.

Several companies who agree with the separation of CEO and board chairman include:
  • J.C. Penney Co. (JCP) tapped outside board member Thomas J. Engibous as their first independent chairman of the department-store chain on Jan. 28. He succeeded retiring Executive Chairman Myron E. Ullman III.
  • In November, Apple (AAPL) itself named outside director Arthur Levinson chairman, filling a spot briefly held by late co-founder Steve Jobs. Apple lacked a chairman while Jobs was CEO.
  • In 2009, Bank of America's (BAC) CEO Ken Lewis was stripped of his chairman duties, as shareholders voted to separate the two roles.
  • Also in 2009, Google (GOOG) CEO and Chairman Eric Schmidt stepped down from the board after federal regulators began a review to determine if the overlap of his board posts at both Apple and Google violated antitrust laws. (Schmidt said the move was not related to the federal inquiry.)
  • Mind you, titles alone don't guarantee things will or will not happen, good or bad. But the separation does help to delineate roles and limit power concentration when it comes to risk, decision making, overall operations and strategic achievement.

    And in today's world of heightened scrutiny regarding conflicts of interest, it simply makes good sense to separate the roles in order to ensure distinct focus on the individual responsibilities of governance, risk and compliance.
    This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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