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Severed Heads: Companies Split CEO, Chairman Roles

The saying goes that if you want a job done right, do it yourself. But public companies seem to have learned a different lesson. When things go wrong, they’ve taken to splitting the job in two.

Specifically, embattled companies have been looking to appease their shareholders by chopping up the roles of chief executive officer and chairman of the board. According to The Wall Street Journal, the rate of companies opting to separate the roles into different positions has hit record levels. More than half of the companies in the S&P 500 now have separate CEOs and chairmen, up from 35% in 2009.

This has to delight corporate governance reformers and shareholder advocates, for whom the subject of independent chairmen has become something of a hobbyhorse. For example, proxy advisory firm Institutional Shareholder Services (ISS) said in its latest updates to proxy voting guidelines that it will recommend a vote for shareholder proposals related to an independent chair if, among other factors, there has been a “material governance failure.”

When crisis rocked aerospace company Boeing earlier this year following crashes of its 737 MAX planes, ISS counseled a vote in favor of severing the CEO and chairman roles to promote “the most robust form of independent board oversight.” Glass Lewis & Co., another prominent proxy adviser, made a similar recommendation. In October, Boeing’s board of directors pulled the trigger on the move, stripping chief executive Dennis Muilenburg of his chairmanship.

Boeing is far from an anomaly among companies seeking to get ahead of upheaval by changing things up in the C-suite. In the wake of a scandal in 2016, for instance, Wells Fargo decided to institute a requirement that the chairman position of the financial services company be filled by an independent director. Likewise, communications giant AT&T revealed in recent weeks that it intended to split the roles when current chairman and CEO Randall Stephenson retires – a decision spurred on by a dispute with activist investor Elliott Management Corp. As office-sharing company WeWork’s aborted IPO debacle played out, its board of directors forced co-founder Adam Neumann to abandon his position as CEO, initially imagining a “nonexecutive chairman” role for the embattled founder.

Interestingly, under the terms of a 2018 settlement between Tesla and the Securities and Exchange Commission, the Silicon Valley auto manufacturer underwent “comprehensive corporate governance” reforms. The changes included booting mercurial CEO Elon Musk from his position as chairman of the automaker’s board of directors. It goes to show that if scandal-ridden companies won’t take steps to split the roles, the Commission may just do it for them.

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