Split Chairman and CEO Roles? It Depends

There's considerable debate these days on whether the roles of chairman and CEO should be separated in publicly held companies. I've reviewed hundreds, if not thousands of failed and problem banks – both as chairman of the Federal Deposit Insurance Corp. and as a consultant since leaving the FDIC.  I have also served for the past three years as nonexecutive chairman of Fifth Third Bancorp. These experiences have given me a unique perspective on the chairman/CEO issue and on corporate governance generally.

The first observation I offer is that much of the debate about the chairman/CEO issue is misdirected, trivialized and too emotional.  Unfortunately, any discussion or consideration of the issue is too often taken as a personal affront to the CEO involved. 

My second observation is that I have seen both models used successfully and unsuccessfully. Dick Kovacevich, now retired, was chairman and CEO of Wells Fargo for many years.  His track record of success through both good and bad economic times was remarkable.  I will refrain from naming chairmen and CEOs with failed performance records.

The heart of the issue is not who holds what titles, but whether a company's governance processes are functioning as they should.  Is the board of directors, including its committees, properly overseeing management and the company's operations, strategic direction and risks?  That is a function of the quality and experience of the board, the charter of the board and its committees and the relationship between the board and the CEO. 

Separating the roles of chairman and CEO does not guarantee good results, and it can be destructive if the relationship between the chairman and the CEO is not a good one or, worse yet, is adversarial.  It's very difficult to generalize about what will work best in different situations.

I have leaned toward the view that the functions of chairman and CEO of financial institutions should be separated, when feasible, based on my experience with large numbers of failed and problem banks. The common thread among these institutions is that in nearly every case, the banks had a strong and dominant CEO and a weak and compliant board of directors. 

Separating the roles can help to foster a better balance between the board and the CEO – no guarantees, but it can help.  That said, there are other perfectly acceptable ways to accomplish the same result, such as creating a strong lead director who has control over the board agenda, chairs the board meetings, handles executive sessions of the board, is able to convene special board meetings without approval from the CEO and has authority to retain experts to assist the board in its deliberations.

It's unfortunate that regulators have not provided general guidance in this area because, in the absence of guidance, the subject frequently becomes very personal and emotional for the CEOs involved.  It would be helpful if regulators would offer suggestions for ensuring a proper balance between the board and the CEO.  This could involve separating the roles of the chairman and CEO, depending on the personalities and capabilities of the people involved.  Or it might include creating a strong and properly empowered lead director and ensuring that directors play the leading role in selecting and replacing directors and that board committees are comprised of individuals with the expertise to understand the complexities of a large financial institution.  Getting the governance issues right is much better than regulators trying to micromanage executive compensation and other operating issues in banks.

The media coverage tends to sensationalize and trivialize this very important issue by treating it as a zero sum game of winners and losers.  Nothing could be further from the truth.  Implementing proper corporate governance, and striking the appropriate balance between the board and management through whatever means works best, produces no losers.  Everyone wins – management, the board, shareholders and creditors.  Everyone loses only if boards of directors do not take control of the issue and implement what they honestly believe will create the most effective form of governance for their particular institution.

William M. Isaac, former chairman of the Federal Deposit Insurance Corp., is global head of financial institutions for FTI Consulting, chairman of Fifth Third Bancorp and author of "Senseless Panic: How Washington Failed America." The views expressed are his own.