Breaking Up Is Hard to Do

THE ANSWER IS YES—except when it’s no.

Not the advice you anticipated, right? That’s because this isn’t a black-and-white issue. You wouldn’t necessarily know that, however, given the swinging corporate governance pendulum. In 2003, 23 percent of S&P 500 companies split roles, according to law firm Akin Gump. Ten years later, the number almost doubled. Yet, while the trend to split roles appears clear, you shouldn’t view separation as a panacea. Instead, you should ask: Would splitting roles be good for my company?

From my experience working with CEOs for over 30 years, three areas should be carefully explored before making that decision.

Corporate Complexity
The degree of complexity that an organization has to manage is a key factor. If an organization grapples with high complexity and many constituents, it may need to make the split. Since a high level of complexity is difficult to manage for one person, a “divide and conquer” mentality can be very effective in complex organizations. On the contrary, if you’ve got a leader effectively juggling both roles in an organization where complexity is low and the number of constituencies is limited, then separation may be unnecessary.

Chairman-CEO Dynamics
If the roles are split, what is necessary is unity of leadership. A CEO and chairman must always be on the same page with one voice on strategy, key goals and pace of change—whether dealing with analysts, shareholders or within the organization itself.

“It starts with the relationship that the CEO has with the board,” says Doug Conant, former CEO and board member of Campbell Soup Company. The boardroom can be a messy place if your CEO and chairman are not working together effectively. You need to make sure both are aligned regarding strategy, philosophy and communication. “It’s absolutely essential that whoever is shepherding that relationship ensures that there is good, transparent, candid dialogue between the CEO and the board.”

To do that, some boards appoint a former CEO chairman—someone with a distinct perspective and valuable experience managing the company. This is particularly advantageous if the company has a new CEO not quite ready for chairmanship.

Lead Director
There may be no one formula for making your decision, but unless you have a non-executive chair if you split roles, or a lead director otherwise, you probably have a formula for failure. That a strong lead director can ensure a healthy, effective, accountable board is increasingly recognized. Indeed, according to Farient research, almost 60 percent of S&P 500 firms had a lead independent director.

As former Hallmark CEO Irvine Hockaday Jr., who has served as lead director at four companies, explained recently in Harvard Business Review, “I look at the lead director as a conductor, like a symphony director, working to ensure maximum collaboration among directors and maximum support of management.”

Ultimately, good governance is not about joining a bandwagon. It is not about adopting a supposed best practice. And it is not about making a kneejerk reaction. As Indiana University associate professor of strategy Matthew Semadeni suggested in his 2012 report on the topic, “Companies shouldn’t undertake a separation…because other companies have, but instead take a studied approach that looks at current performance, determines how a change will affect overall performance, and then separate only if necessary.”