07 Apr 2017
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The relationship between a Chairman and a CEO should be one of respect, yet it doesn’t always work out like that
Nothing creates more unease among company shareholders than a shock announcement betraying the fact that all is not well in the boardroom, which is why the US bookstore chain Barnes & Noble recently caused such a stir on Wall Street.
In a terse statement in August last year, the company announced the departure of Chief Executive Ronald D. Boire after less than a year in the job. Leonard Riggio, the company’s founder and Executive Chairman, immediately assumed CEO duties, and the board has since appointed a Chief Operating Officer but, notably, not another CEO.The statement announcing Boire’s exit was a triumph of brevity over corporate spin, saying only that he was “not a good fit for the organisation”, which left some wondering: why was this veteran retail executive hired in the first place? It begs another question: would the outcome have been more positive for all concerned if Barnes & Noble’s board were led by an independent chairman rather than the founder?
Barnes & Noble is hardly alone in corporate America. It is still common there for one person to be CEO and Chairman whereas in the UK and Germany, for instance, the roles tend to be split, and that is certainly the preferred structure among institutional investors. According to the global governance principles promoted by the International Corporate Governance Network (ICGN), the Chairman should be independent and non-executive, and there should be a clear division of responsibilities between that Chairman and the executive management. The Chairman runs the board; the CEO runs the company.
ICGN is an investor-led body with nearly 650 members from 47 countries, representing US$26 trillion under management. In short, it has clout. “The type of message that is embodied in our principles is having an impact in the US and other parts of the world although in some cases there is resistance,” says ICGN’s Policy Director George Dallas. If nothing else, Boire’s brief stint at Barnes & Noble underlines the importance of a harmonious Chairman-CEO relationship in big companies, and the uncertainty and scrutiny that follow when it breaks down.
“The key is to establish a relationship of respect that isn’t cosy,” says Partner & Head of the Non-Executive Director Practice at Odgers Berndtson in the UK. “The CEO is driven by shorter-term performance measures and it is the Chairman’s job to think about the future of the company as a whole, perhaps to think longer-term and bring the board along with that vision.”
“A Chairman who thinks his job is to tell the CEO how to run the business is a bad Chairman.
But a Chairman who lets the CEO get on with it and is able to provide counsel, direction, wisdom, coaching advice along the way is extremely valuable.” As indicated, if the Chairman-CEO dynamics work well, then a company’s performance, short and long term, will surely improve. And yet there is little empirical evidence of the link. As long ago as 2006, the Journal of Management Development published a paper by Cranfield School of Management academics on this “under-researched area”. They concluded that “the Chairman- CEO relationship is pivotal for an effective boardroom”. Their paper was entitled ‘Chairman and CEO: that sacred and secret relationship’.
Since then, globalisation of capital and a greater scrutiny of boardroom remuneration on both sides of the Atlantic mean the relationship is more sacred than ever among big, multi-national companies.
Adds Dallas: “If there are governance or relationship issues between people who should be getting along with one another it can, and probably will affect the quality of decision making, relationships with employees and stakeholders who are important for the company’s long-term direction.”