Should the position of Chairman plus CEO be split?

Should the head of a company be its Chairman plus CEO, or would shareholders benefit from a separate person for each position?

David F. Larcker and Brian Tayan from the Stanford Graduate School of Business think it “depends more on context than on corporate structure.”

At the moment Jamie Dimon is Chairman plus CEO of JPMorgan Chase & Co. There is currently a proxy fight on whether Dimon should be stripped of the chairman title. The issue has been widely covered in the media. Larcker and Tayan describe it as a “Rorschach test for arguments about CEO power, shareholder rights, and Dimon himself.”

Glass Lewis & Co. and Institutional Shareholder Services Inc. believe the two positions should not be held by the same person; they would also like to replace several members of JPMorgan’s board who are loyal to Dimon.

Media mogul, Barry Charles Diller believes Dimon should be Chairman plus CEO and has mounted a vociferous counter-campaign. Diller is Chairman and Senior Executive of IAC/InterActiveCorp and Expedia. He is responsible for the creation of Fox Broadcasting Company and USA Broadcasting.

Dimon has said that if the vote goes against him he may resign.

Does separating a Chairman plus CEO post benefit shareholders?

Tayan and Larcker, who work at the Center for Leadership Development and Research at Stanford Graduate School of Business say “Probably not”. They gathered and examined data from studies published over the last twenty years.

According to all the studies they looked at, separating the roles of CEO and chairman either had no effect or not a significant one on a company’s share price or its future operating performance.

The researchers also found that other reforms, such as setting executive pay did not have any noticeable effects on company performance. “Some companies do well with tighter board oversight, while others do not. Overall, the results are a wash,” they wrote.

Much of the benefit of a specific governance structure depends on the unique characteristics of the individual company and its chief executive, they concluded.

“Narcissistic” CEOs, i.e. creative thinkers, large-picture strategists who tend to be excessive risk-takers may need certain checks put in place to control their power. However, for other low-key executives, such checks may ultimately result in inefficiency.

Tayan and Larcker wrote in a recent summary of the research, “Instead of debating features of corporate governance, more attention should be paid to contextual issues – a company’s leadership, culture, and specific situation.”

The authors point out that narcissistic CEOs have their strengths and weaknesses. “Productive CEOs” may make bold decisions; they can be creative and achieve big results. However, studies have shown that they like attracting attention, have a tendency to pay too much for acquisitions, and are not averse to excessive risk-taking. “For that kind of chief executive, stronger board oversight may be a good idea,” they say.

Although Tayan and Larcker refrain from making any giving regarding JPMorgan or Jamie Dimon, their fundamental conclusion is clear, “Simply changing specific structural features of corporate governance doesn’t in itself produce better results.”

A study published in Bloomberg Businessweek in November, 2012, found that CEO-Chairman separations tended to reverse a company’s performance, i.e. the low-performing ones did better while the high-performing ones did worse afterwards.

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