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Are Your Chairman and CEO the Same Person?

By: Dave Berkus

 

Are Your Chairman and CEO the Same Person

Here’s one that targets most any company that has taken investments at any stage, as well as more mature companies.

Why would you split the positions?

More and more today, shareholder organizations recommend that the positions of chairman and president (or CEO) be split, so there are checks and balances at the board level in the leadership. This recommendation is true for all companies with outside investors who are active and have or seek board representation.

The risk of hand-picked boards by the CEO

If we examine the blowups that have been so public these past years in public company leaders exceeding their reasonable authority or exercising dictatorial authority to the ultimate detriment of the shareholders, in most cases the CEO and chairman was the same person. When you combine that fact with the relative inaction by the board, it becomes clear that some boards are hand-picked by the CEO who is also the chairman, and those boards are the ones most likely not to challenge marginal or bad decisions.

Why this balance is important

With a balanced chairmanship and CEO separation, the chairman sets the meeting agenda, manages the meeting, allows for asking the tough questions by board members, encourages all to speak and hopefully gain consensus, and moves the meeting along to cover critical issues. The CEO is given much of the meeting by the chairman, but it should be clear who is in charge of board meetings.

The types of chairmanships

There are two types of chairmanships: executive (paid and full time) and non-executive, the latter typical of most corporations whether private or public. Non-executive chairmen (chairwomen) should actively dialog with the CEO before the meeting to discuss the agenda and expand time for discussion of critical issues. Without this, it is typical that board meetings seem to follow an agenda that does not change much from meeting to meeting, and strategic issues are often ignored at the board level when a high profile, large ego combined chair-CEO is in charge.

Is there a formal method required for splitting the positions?

There is no shareholder vote required to split the positions. Officers are elected by the board, not the shareholders. So, it is the responsibility of a great board to explore then act upon this recommendation from the various shareholder advocacy groups and split the positions.

Published: October 14, 2019
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Source: Berkonomics

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Dave Berkus

Dave Berkus is a noted speaker, author and early stage private equity investor. He is acknowledged as one of the most active angel investors in the country, having made and actively participated in over 87 technology investments during the past decade. He currently manages two angel VC funds (Berkus Technology Ventures, LLC and Kodiak Ventures, L.P.) Dave is past Chairman of the Tech Coast Angels, one of the largest angel networks in the United States. Dave is author of “Basic Berkonomics,” “Berkonomics,” “Advanced Berkonomics,” “Extending the Runway,” and the Small Business Success Collection. Find out more at Berkus.com or contact Dave at dberkus@berkus.com

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