GMI Ratings Report Spotlight: Splitting the Chairman / CEO Titles – Practice Good Corporate Governance While Saving Money

Posted on Jul 10, 2012 in Governance and Compliance, IR Therefore I Am | 0 comments

We’ve all learned over the past few years that having two executives fill the roles of chairman and CEO is considered a good corporate governance practice; however, an interesting study from GMI Ratings, the corporate governance, accounting and ESG research and rating firm, reveals that the cost of employing a combined CEO/chair is 151 percent of what it costs to employ a separate CEO and chairman.

For its survey, GMI Ratings focused on 180 North American mega-caps, those with a market capitalization of $20 billion or more. 

In its review, GMI Ratings notes that many investors, shareholders and much of the governance community has been promoting the separation of these two key roles over the last few years because it creates a balance of power in the boardroom and removes the potential for a conflict of interest when, as chairman of the board, the CEO is charged with monitoring him or herself. Now, however, analysis by GMI Ratings shows that there is a solid, practical, economic basis for the separation of the roles. Not only do combined CEO/chairmen cost more than the sum of the compensation for a separate CEO and chair, separated roles also present a lower risk profile both from an ESG (environmental, social and governance) standpoint and an accounting risk standpoint. Not only that, but companies run by a separate CEO and chair show better long‐term shareholder returns than those run by a combined CEO and chair.

Some of the main findings of the report:

  • Executives with a combined CEO and chair role earn a median total summary compensation of just over $16 million.
  • CEOs who do not serve as chair earn $9.8 million in median total summary compensation.
  • A separate CEO and chairman earn a combined $11 million.
  • Less than one percent of companies in the sample (defined as companies with a market cap in excess of $20 billion) with a combined chair and CEO score an ESG rating of above average compared to almost 20 percent of companies with separate roles.
  • Companies with a combined CEO and chair and an ESG rating of “F” include Goldman Sachs, News Corporation, Wells Fargo, Coca‐Cola Company and AT&T.
  • Corporations with combined CEO and chair roles are 86 percent more likely to register as “Aggressive” in GMI’s Accounting and Governance Risk (AGR®) model.
  • Five‐year shareholder returns are nearly 28 percent higher at companies with a separate CEO and chair.

“The validation for separating the CEO and chairman roles – already the norm in most Western economies – was already strong,” said Paul Hodgson, co‐author of the report with Senior Research Associate Greg Ruel. “With this data and analysis to back it up, it suddenly got a lot stronger.”  

For a free copy of the report click here: http://info.gmiratings.com/free-report-shows-that-combined-ceo/chairmen-cost-more?utm_campaign=Free-Report%3A-Combined-CEO%2FChairmen-Cost-More&utm_source=PR