United or divided: Should one or two people serve as chair and CEO?

Are companies better served by two people at the helm?

Over the past few years, some companies have separated the roles of chair and CEO, some have combined the two positions and others have followed tradition by keeping the breakdown of titles and duties the same as always. So, what are the pros and cons of separate vs. combined, and is one approach better than the other across the board?

Is two really better than one?
Last January, news broke that Bank of America had decided to put the kibosh on a proposal to divide its CEO and chair positions after combining them last fall. Shortly afterward, Lawrence Cunningham, a corporate governance professor at George Washington University, penned an article for The Wall Street Journal that dissected the motivations behind bifurcating these two executive roles and ultimately suggested that company culture is at the root of the issue.

“Having two people at the top encourages diversity of thinking.”

“The first principle of corporate culture is the tone at the top,” Cunningham asserted, after praising Bank of America’s decision to study the state of its culture and values in lieu of creating two separate chair and CEO positions. Although he ultimately steered readers away from what he termed “the aging chief-chair discussion,” Cunningham did acknowledge that many high-profile examples of successful leadership came about as the result of a dynamic duo being at the helm, notably Michael Eisner and Frank Wells at Disney, and Warren Buffett and Charlie Munger at Berkshire Hathaway. In short, companies can often benefit from the diversity of thinking that comes with having two people at the top.

Additionally, there are practical considerations to take into account. In an October 2014 piece for Fortune, Paul Hodgson asserted that the duties associated with the chair and CEO roles are too different to be assigned to a single person.

“Put simply, the CEO is the primary manager of a company and the chairman is the head of the board, which oversees management,” Hodgson explained. “There’s really no good reason why one person should do both jobs.”

There’s also the issue of safeguarding and security. Of course, organizations with a single person as chair and CEO still have a copious number of checks and balances in place, but a twosome at the top results in an layer of oversight that wouldn’t otherwise be present.

Lastly, studies – including one conducted by Hodgson himself for GMI Ratings, in partnership with Greg Ruel – have found that compensating a combined chair/CEO can cost companies significantly more than paying two people to do the same work. In a June 2014 article for the Harvard Business Review, senior editor Andrea Ovans pointed to research conducted by GovernanceMetrics International that found the median total compensation of executives with dual titles exceeded the amount given to two executives serving in split roles by nearly 60 percent.

Compensating someone serving in a combined chair/CEO role tends to cost more than paying two separate people.Compensating someone serving in a combined chair/CEO role tends to cost more than paying two separate people.

Consolidation, consolidation, consolidation
So, with the plethora of reasons to divide the chair and CEO titles, why are so many companies headed by one individual? In some cases, these enterprises may simply be following tradition, but others have elected to consolidate the two roles in the recent past. Going back to the Bank of America example, the financial institution’s board of directors chose to replace chairman Charles Holliday with Brian Moynihan, who already held the position of CEO.

“Merging positions could be seen as a show of faith and strength.”

Cunningham, Hodgson and Ovans all made reference to the idea that splitting the chair and CEO roles is something companies do when they are not performing well or are under considerable pressure from shareholders or other entities. By the same token, merging the positions could be seen as a show of faith and strength in the man or woman who steps up to fill both titles.

The question of whether two is better than one is up for debate, but one thing’s for sure: two can be more complicated. As Ovans pointed out, detractors of the split leadership paradigm often raise concerns about the bifurcation of roles, arguing that such an action creates confusion about who’s responsible for what, encourages the formation of two separate “camps” and contributes to power struggles that distract from the central duty of running the company.

The devil in the details
Of course, there’s more than one way to consolidate separate chair and CEO positions, or to divide a single leader’s responsibilities into two separate roles. In fact, it could be argued that the particulars of these practices may ultimately define success and failure more than the basic choice to split or combine.

“Exact effects vary depending on the circumstances, such as whether the switch happened with the appointment of a new CEO or with the demotion of an incumbent,” Cunningham noted.

Indeed, Hodgson highlighted three position-splitting scenarios detailed in a study conducted by Matthew Semadeni and Ryan Krause at the University of Indiana’s Kelley School:

  1. The sitting CEO/chair becomes only the chair, while the incoming CEO takes an apprentice role.
  2. The sitting CEO/chair becomes only the CEO, effectively taking a demotion (typically following a lackluster performance while serving as CEO) and having to answer to the incoming chair.
  3. The incumbent CEO/chair vacates both positions and is replaced by two individuals.

Scenario #1 divests the sitting CEO/chair of some responsibility, but as chair, he or she still ultimately outranks the newcomer. Scenario #2 is essentially a downgrade, with the sitting CEO/chair making a jolting transition from ruling the roost to taking direction from the new chair, while scenario #3 puts the CEO and chair on an even keel given that neither of them has held his or her position longer than the other.

Not all leadership splits are equal.Not all leadership splits are equal.

When you consider the dynamics of human relationships, it stands to reason that each of these situations will be charged with different amounts of friction, resentment, deference and respect. You could also get even more specific, arguing that each person’s professional experience, tenure at the company, individual characteristics and interpersonal relationships – particularly with the other executive in question – will also impact the success of the leadership change.

No one-size-fits-all answer
At the end of the day, the question of whether it’s better to combine or separate the chair and CEO positions doesn’t come with an easy answer – not unlike the vast majority of questions involving leadership. There are many factors to take into account, from the strength of the company as a whole to the skills and talents of the particular person taking on the role of chair and/or CEO. The opposing acts of consolidating and splitting the titles both have their merits, and companies must decide for themselves which path is best to take.

About Caldwell Partners
Caldwell Partners is a leading international provider of executive search and has been for more than 45 years. As one of the world’s most trusted advisors in executive search, the firm has a sterling reputation built on successful searches for boards, chief and senior executives, and selected functional experts. With offices and partners across North America, Europe, Latin America and Asia Pacific, the firm takes pride in delivering an unmatched level of service and expertise to its clients.