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Chairman of the Board and Chief Executive Officer - Combined role or not?


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Hey guys,


Just the other day, I received my first-ever proxy statement information in the mail. I own shares of Cisco (CSCO) and their annual shareholder meeting is coming up next month. One of the proposed items to be voted on is whether the combined role of CEO and Chairman of the Board should be split up. The board is recommending that shareholders vote against splitting the roles. Cisco's annual report makes mention of the fact that the combined roles provide "strong leadership" for the company, whatever that means.


I did a quick Google search and found that there isn't much empirical evidence in the form of company performance numbers to support the argument for or against the combined roles. All I could find is that since the Chairman and the rest of the board are responsible for selecting, monitoring and compensating the CEO, having a CEO fulfill the role of chairman creates a conflict of interest. I also found arguments stating that it's difficult to find a CEO and Chairman that can work well together, and so having the roles combined eliminates that problem. That may be true, but is the introduction of a conflict of interest really the solution, for no other reason than "because it's hard otherwise"?


So without dealing with performance numbers, the question comes down to abstract/moral/ethical reasoning for which opinion one might hold. I'm personally leaning toward the idea of separate roles, but I wanted to get this board's thoughts and opinions on the advantages and disadvantages before making a final decision.



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I don't have much expertise on this question, but so far I'd lean toward a case-by-case evaluation of each company to try to determine which structure would be better.


The idealized scenarios that I'm thinking of when I think of this problem are:


1) A fundamentally good business that could be run by a ham sandwich. What you are investing in here is the business itself, and you just want management to not do anything too stupid. Diluting their power a bit might help.


2) An owner-manager that makes what might otherwise be an ordinary business extraordinary because of their integrity/skills. Here you are investing first in the management, and second in the business. In this case I think it can make sense to make decisions as easy as possible for that individual(s) because that should increase value creation.


But reality is always messier than that, small investors rarely have much to say about this, and I'm not even sure if that's the best way of looking at it. It's just what I think right now, but I'm open to change my mind if I hear convincing arguments.

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Guest deepValue

It's not going to matter in most cases. BoDs rarely are truly independent, so combining the roles of Chairman and CEO is really just a formality.

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