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Do shareholders benefit by splitting CEO/Chairman roles?

March 15, 2013

Shareholder activists are trying to split the dual CEO/Chairman role held at many companies, reported on March 12.

On Wall Street, Jamie Dimon at J.P. Morgan and Lloyd Blankfein at Goldman Sachs are among those holding both titles as their firms face pressure to appoint a chairman from outside the company to lead the board of directors and demonstrate freedom from conflicts of interest. Many prominent companies have the dual structure, including Archer Daniels Midland, Cisco, Coca-Cola, Dell, FedEx, Procter & Gamble, Starbucks, and Visa.

Governance groups argue that when a CEO reports to himself in a chairman role, it allows unchecked risk-taking that may produce spectacular short-term results but ultimately harm a company.

A coalition of pension funds is proposing that some two dozen companies separate the roles. But splits are tough to engineer, made evident in March when Disney shareholders rejected an effort to separate CEO Robert Iger from his chair role.

Combining the two roles often seems a default for companies. “It is rooted in the longstanding tradition that the chairman and the CEO usually come from the same group of people, the circle of friends and acquaintances where people know each other, know what to expect, and there is an ease of communication,” Jason Schloetzer, an assistant professor at Georgetown’s McDonough School of Business, told Fortune.CNN.

A study in June 2012 by GMI Ratings reportedly found that shareholders in large-market-cap companies that had separated the two roles received a 28-percent higher five-year return. — Greg Beaubien


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