There are two governance structures, the US and UK models.

In the United States, it is common to find the CEO serving as both CEO and Chairman of the Board. This practice could lead to a concentration of power and therefore potential conflicts of interest. On the other hand, having a single person in charge helps streamline decision-making and increase accountability. You don’t want the CEO to make excuses for slowed business growth due to bureaucracy. You will often hear the term, Executive Chairman being used to refer to the Executive (the CEO) doubling as the Chairman of the board.

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In the UK, on the other hand, the CEO is usually independent of the Chairman, a check which provides a balance of power and reduces the risk of conflicts of interest. The Chairman serves as the head of the board and provides oversight of the CEO and the company, ensuring that the interests of the shareholders are protected. The downside of this approach is that having two separate individuals in charge may lead to confusion and duplication of effort. The US or the UK approach depends on the size, industry, culture and nature of the business. In family-owned businesses, for example, the US model is preferred. Many founders are not comfortable ceding control to some independent person who may not have their heart and lungs so to speak in the business.

In the United States, it is common for the CEO to also serve as the Chairman of the Board. The practice is said to be rooted in the tradition of American corporate governance, which emphasizes the strong leadership of a single individual at the top. Due to the entrepreneurship acumen of the country, the founders are said to be the vision bearers.  They are therefore seen as the folks who can best provide direction and guidance to the company, and serving as the Chairman of the Board is seen as a way to reinforce that authority.

Also, many US companies have relatively small boards of directors, with a limited number of outside directors who are independent of the company’s management. In these cases, having the CEO serve as the Chairman of the Board can help ensure that the board is well-informed about the company’s operations and priorities, and can provide a clear line of communication between the board and the company’s management. That said, this practice is not universal in the US and there is a growing trend towards separating the roles of CEO and Board Chairman, especially among larger companies and those with more complex operations.

The new development comes after so many large companies came tumbling down. Two examples of companies in the corporate graveyard come to mind:

a) Enron, the energy company’s collapse in 2001 was largely due to widespread accounting fraud. Another reason advanced was weak governance practices, specifically the fact that Kenneth Lay, the company CEO also doubled as the Chairman of the Board, something advanced as a factor that could have contributed allowed the fraud to occur unchecked due to the absence of separation of powers of an independent board Chairman.

b) WorldCom, the telecommunications company’s accounting scandal in 2002 was also attributed to a poor governance structure. The then CEO, Bernard Ebbers, also served as the Chairman of the Board, which reduced the independence and oversight of the board. When the CEO and Board Chairman roles are fused, one person is left with a lot of power. This means, there is no independent body to check or monitor their decisions.

But we cannot use two examples of failed companies to undermine the US governance structure.  There are several successful companies in the United States where the CEO serves as the Chairman of the Board.  The top four that are part of our everyday life; include:

a) Apple, Tim Cook has served as CEO of Apple since 2011 and also serves as the Chairman of the Board. Apple is one of the most valuable companies in the world and continues to lead in product and service innovation with very novel business models. The company has continued to make products like the iPhone and the mac book which are “addictive” to the users so to say due to high quality and craftsmanship.

b) Amazon, Jeff Bezos was both CEO and Chairman of Amazon until February 2021, when he stepped down as Chairman. During his time as CEO, Bezos transformed Amazon from an online bookstore into a global retail and technology giant. Amazon is a force to reckon with thanks to Jeff’s leadership.

c) Google (now Alphabet), Larry Page served as CEO of Google until 2015 and served as CEO of Alphabet after Google restructured. Larry Page also served as the Chairman of the Board of Alphabet. Under Page’s leadership, Google became one of the largest technology companies in the world and expanded into new areas such as self-driving cars and smart home devices.

When it comes to organisational structure at the top level, it is important to understand the type of company. Tech companies with the founder as the CEO; have tended to perform well when the same individual doubles as Chairman. Such an approach gives them the power to move this. The tech companies above that have succeeded have strong cultures of innovation, talented leadership, and a clear vision for the future, which has likely been a key factor in their success. Ultimately, the decision of whether the CEO should also serve as the Chairman of the Board will depend on the specific circumstances of each company and the individuals involved.

In the US, the approach works because of high-level shareholder activism, they keep the CEO cum Chairman in the spotlight for their decision. Whoever is given too much power, a lot is expected of them too. And the shareholder activists ensure such power is not abused. More so, the US media is said to be liberal and very professional where developments about the company and the decisions at the board level find themselves in the press. Add the strict regulatory regime of listed companies, and the risks of fusing the roles of Chairman and CEO are offset by the transparent media, high shareholder activism level and regulatory regime.

Also, in family-owned companies where there is no private equity holder that would be impacted by poor board decisions, we see the founders preferring to adopt the US model of “executive chairman” which combines the roles of CEO and Chairman.

Ends.

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Copyright Mustapha B Mugisa, Mr Strategy. 2023 All rights reserved.

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