The Art Of Successful Succession: Part 2

Unlikely to find favour with investors

Two governance experts debate whether CEOs should become their organisation's chairman

One of the central tenets of the UK Corporate Governance Code is the division of responsibilities, and the creation of a clear difference between the roles of chairman and chief executive. Principle A2 states: 'There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company's business. No one individual should have unfettered powers of decision.'

This is amplified in Code provision A.2.1. which says: 'The roles of chairman and chief executive should not be exercised by the same individual. The division of responsibilities between the chairman and chief executive should be clearly established, set out in writing and agreed by the board.'

"The separation of powers between chairman and chief executive is seen as an important safeguard of shareholder interests" This is not new - the separation of the roles of chairman and CEO was first proposed in the original Cadbury Report of 1992 and soon took root in the UK. In contrast with some other countries, the separation of powers between chairman and chief executive, in order to avoid one all-powerful figure at the head of the company, is seen as an important safeguard of shareholder interests, and opposing the succession of a chief executive to the chairman role is regarded in a similar manner.

Research in 2012 from Booz and Company, now part of PwC's Strategy&, indicated that 29% of global CEOs go on to become chairman, but this model ranges in popularity from 69% in Japan to 15% in Europe.

Even here, anecdotal evidence is that the figure is higher in countries like France and Germany - although in the latter there is a two-year cooling-off period before members of the management board can join the company's supervisory board - and far lower in UK listed companies, where the assumption is that CEOs will step aside completely at the end of their term of office.

Exceptional circumstances

In addition to meeting the normal independence criteria, Code provision A.3.1 requires that a chief executive should only go on to be chairman of the same company in exceptional circumstances and that 'the board should consult major shareholders in advance and should set out its reasons to shareholders at the time of the appointment and in the next annual report.' Why is this...

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