The number of U.S. companies that separate the chairman and CEO roles is at a historic high: 40% of the S&P 500 now separate the roles, up from 23% a decade ago, according to Spencer Stuart. Of the 40%, 19% may be classified as independent Chairs, up from 9% five years ago. A new report published by the Millstein Center for Corporate Governance and Performance at the Yale School of Management is among the first to outline how chairs and CEOs work effectively together in these interdependent roles, providing useful guidance as the chair-CEO leadership structure becomes more prevalent.
The Effective Chair-CEO Relationship: Insight from the Boardroom, authored by management expert Elise Walton, is based on interviews with 35 chairs, CEOs, and stakeholders. Participants identified key factors that contribute to a successful working relationship between the chair and CEO: good chemistry, a clear framework for the relationship, and having effective people and practices in place.
“Separate board leadership is still emerging in North America,” said Walton. “There is no guidebook on how to get the chair-CEO partnership right, but we can distill lessons from leaders with decades of experience with both roles.”
In the interviews, chairs and CEOs characterized chemistry in terms of good communication, which they defined as frequent, open, and with easy access between the two, among a range of other variables. Participants also stated that while the relationship should be close, it should not cross into personal friendship, to retain objectivity. Personal qualities also come into play, with collaboration, honesty, accessibility, and the absence of ego cited as desirable qualities by both chairs and CEOs. Chairs value competence, authenticity, and a willingness to learn in CEOs, while CEOs value listening skills and credibility in chairs.
Three major themes of “working relationships” emerge: relationship chemistry, helpful framework, supportive context.
A strong chair-CEO relationship is aided by having a clear framework that is rooted in a shared commitment to the best interests of the company. Those interviewed emphasized that this commitment must go beyond doing the right thing for the company and its shareholders to having a common sense of strategy to achieve the company’s goals. They also discussed the importance of having effective processes in place to manage opinions and build alignment. The processes that came up frequently in interviews include managing the agenda of board sessions; major transactions such as acquisitions; compensation; C-suite personnel; and succession planning.
Having clearly defined but adaptable roles was also identified as an essential piece of the relationship framework. All agreed that the CEO runs the company and the chair runs the board, but there were no hard and fast rules beyond that baseline. The common thread in strong relationships is that specific responsibilities are well understood and discussed between the chair and the CEO up front.
The chair-CEO relationship works well when there is support in place. Having a strong, supportive board, a competent and accessible management team, and a culture of openness were cited as reinforcing the effective working relationship of the chair and CEO. Where support is lacking, the first priority for the chair and CEO should be to work together to understand and address the issues, whether they involve replacing directors or making management changes.
The effective relationship helped most in two types of situations: during significant material events such as mergers, repeated acquisitions, or other major asset decisions; and when the company needed to reposition itself strategically.
The Walton report also highlights benefits interviewees cited when the chair-CEO relationship is working. They included better outcomes for shareholders in mergers and acquisitions and other major decisions affecting corporations.
The report is sponsored by the Chairmen’s Forum, a peer organization of independent chairmen of corporate boards in the U.S. and Canada.