Shareholders press US boards to split chief executive and chairman roles

Big US companies have come under increased pressure to ditch combined chief executive and chairman roles, as the number of shareholder proposals pushing for independent board leadership ramped up in 2019.

Some 56 shareholder resolutions on independent board chairs were voted on at annual meetings of S&P 500 companies by early August, compared with 49 in 2018 and 44 in 2017, according to ISS Analytics’ data compiled for the Financial Times.

Although none of the resolutions has passed in 2019 so far, more than 40 per cent of shareholders backed the motion at five companies, including telecoms business AT&T and oil major ExxonMobil.

“The separation of the roles of chair and CEO is increasingly seen as best practice in governance in the US and elsewhere,” said Timothy Smith, director of environmental, social and governance shareowner engagement at Walden Asset Management.

“The resolutions filed seeking such a reform stress the importance of empowering the board to oversee the work of the CEO and company, which is made more difficult if the CEO is ‘first among equals’ on the board.”

While there are growing shareholder calls for greater independence at board level, several asset managers combine the chief executive and chairman role, including BlackRock, the world’s largest asset manager, Legg Mason and Franklin Resources.

Kosmas Papadopoulos, executive director of thought leadership at ISS Analytics, said a separation of the chief executive and chair roles is becoming standard practice in many markets globally.

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“In the US, there is general agreement on greater independence in the leadership of the board. But there is disagreement about whether that needs to be the chair or an independent lead director,” he added.

The last time a resolution passed for an independent chair at an S&P 500 company was in 2018, when 58 per cent of investors backed the motion at Rite Aid Corp. This year, such resolutions received support of at least 30 per cent at 26 S&P 500 companies, while the median proposal received 28.7 per cent support.

Mr Papadopoulos said: “While the vote results don’t suggest overwhelming support for these proposals, the overall trend is for companies to move towards independent chairs.”

According to ISS, a decade ago, 62 per cent of S&P 500 companies had a chief executive who was also the chair. This fell to 46 per cent this year.

In some cases, Mr Papadopoulos added, shareholders were using a vote on an independent chair to signal upset with other aspects of a company’s governance or business practices. 

Research from ISS Analytics in 2018 found that boards with independent leadership are more likely to be diverse and have a more balanced tenure, while chief executive pay is “less likely to be excessive relative to peers”.

In Russell 3000 companies with a combined chair-chief executive, 39 per cent had no women on the board, compared to 14 per cent of companies where the chief executive and chair roles were separate, which also had an independent chair or independent lead director.

Last year, Tesla was forced to remove chief executive Elon Musk as chair as part of a settlement with the US markets regulator. Facebook has also faced pressure from investors to appoint an independent chair.

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In its responsible investment guidelines, BlackRock, where Larry Fink holds both the chief executive and chairman roles, says: “We believe that independent leadership is important in the boardroom.”

But it added that in the US an independent chairman or a lead independent director, when the roles of chairman and chief executive are combined, are commonly accepted structures for independent board leadership.



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