Combined CEO/Chair Costs More, Adds Risk & Lowers Returns

GMI Ratings reports that combined CEO/chairmen cost more, present higher ESG and accounting risk, and provide lower long-term shareholder returns than if the positions are separated. Expect this report to be cited by shareowner proposals next season seeking to split the positions.

The report focuses on 180 North American mega-caps, those with a market capitalization of $20 billion or more. Main findings include:

  • Executives with a combined CEO and chair role earn a median total summary compensation of just over $16 million.
  • CEO plus a separate chairman earn a combined $11 million.
  • Less than 1% of companies in the sample with a combined chair and CEO score an ESG rating of above average compared to almost 20% of companies with separate roles.
  • 31.74% of companies with a combined chairman and CEO score an ESG rating of “F” compared to 15.87% of companies with a separate CEO and chair.
  • Corporations with combined CEO and chair roles are 86%  more likely to register as “Aggressive” in GMI’s Accounting and Governance Risk (AGR®) model.
  • Five-year shareholders returns are nearly 28% higher at companies with a separate CEO and chair.

Takeaway: Companies that combine the roles of CEO and chair score far worse in our ESG model, which evaluates companies using GMI Ratings’ comprehensive list of ESG KeyMetrics, as well as scoring far worse on our AGR Ratings, which test for fraud and financial restatements, among other quantitative accounting items. Furthermore, shareholder returns over an extended period seem to be favorable for those companies which separate the CEO and chairman roles. Indeed, there appears to be very little benefit to long-term shareholders in having a combined CEO and chair. The only benefit seems to be an economic one to those CEOs who have convinced the board to allow them also to serve as chair.

Download The Costs of a Combined Chair/CEO. Thanks to GMI for making this report widely available.

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