Media Clips

Financial Times

May 28, 2008

Calls in US for split of top jobs gain momentum
By Joanna Chung in New York and Kate Burgess in London
US companies have long concentrated power in the hands of one individual at the top of a company.
Indeed, the majority of US companies has one executive holding the positions of both chief executive and chairman. Companies with independent chairmen account for only 12.6 per cent, or 63, of S&P 500 companies, according to the Corporate Library, a corporate governance research firm.
"A ship should have only one captain; that has been the prevailing view in the US," says John Coffee, law professor at Columbia University.
But the issue remains a persistent concern for some shareholder activists who believe that companies are better served by a chief executive who runs the company but is overseen by a truly independent chairman. While 129 companies have separate chairmen and chief executive roles, the chairmen are company insiders or not independent, according to the Corporate Library.
"There need to be checks and balances," says Amy Borrus, deputy director for the Council of Institutional Investors, which represents funds managing combined assets exceeding $3,000bn.
So when shareholders of ExxonMobil vote today at the annual meeting on a proxy item asking whether Rex Tillerson's combined role of chairman and chief executive should be split, many outside the energy industry will be paying attention to the result.
Last year, the motion received support from 40 per cent of votes. This year, the backing of the powerful Rockefeller family and other prominent US investors - with all the attendant publicity - has provided momentum.
Some experts say that garnering support for such a resolution remains an uphill battle.
"The belief in business circles is that if you allow power to be shared, the ability of the power figure is weakened. It is something to do with the pysche rather than best governance practice or best business practice," says Paul Hodgson, senior research associate at the Corporate Library. "It seems unlikely that the situation will ever change completely because the prevailing view is held extremely strongly in many companies."
Change has been more rapid in the UK and some European jurisdictions, where the splitting of the role of chairman and chief executive is a core tenet of codes of good governance and is considered a means of strengthening boards.
Patrick McGurn, special counsel at RiskMetrics Group, a proxy advisory firm, says: "There is cultural resistance to it in the boardroom. CEOs, particularly at very large companies, are very resistant to any attempt to strip them of the chairmanship.
"If it is properly done and there is a clear division of responsibility, it can be almost a point of freedom for the CEO who can worry about nothing but running the company . . . but it is still a very, very unpopular issue. The CEO wants to be the top dog, not share power."
Corporate governance champions are hopeful that sentiment is turning in the US, albeit slowly.
Stephen Davis, project director of the Millstein Centre for Corporate Governance at the Yale School of Management, says: "Not long ago, having an independent chairman in the US was entirely alien. It is less so now. We are on the cusp of change."
ChevronLegg MasonSo far this year, there have been 32 such proposals put forward and vote results for 16 produced an average support of 32.8 per cent, according to data from RiskMetrics. That compares with an average of 30.2 per cent support in 2006 and 24.8 per cent support during the 2007 season.
Alongside the increase in the support for companies splitting the top role, there has also been an increase in the appointment of the independent lead director to serve as the leader at companies where the CEO is chairman of the board. But such a position is only a "second best" solution to an independent chairman, says Mr Coffee.
Many investors are unwilling to settle for anything less than a split of the top job. "The stronger the CEO, the more you need a strong independent chairman," says Ms Borrus.
This month, Wachovia, the fourth-largest US bank by assets, stripped the chairmanship from Ken Thompson but left him as chief executive following big loan losses and regulatory problems.
Few expect a similar result at Exxon, not least because the company has delivered record profits to shareholders on the back of surging oil prices. Or as Mr Hodgson puts it: "Unless there is an issue that is so obviously having an effect on the bottom line, most shareholders end up voting with the management."
Some Exxon shareholders may also agree with the company, which in supporting the status quo in its boardroom, has said: "The board believes very strongly that there is no single best organisational model that would be most effective in all circumstances."
But even a gain on last year's vote will be seen as a success by some fighting for change. Mr Davis says: "If the Exxon vote is high, it will accelerate interest elsewhere in independent chairs."