IMHO: Here's why it doesn't make sense for the board chair to also be CEO

By Ben Kepes CFInstD
2 Aug 2022
read time
4 min to read
white plastic chair against dark black background

OPINION: Sometimes it is worthwhile looking at historical arcs to inform our approach to things in the modern world.

Depending on whom one believes, the saying that “those who don't know history are destined to repeat it” can be attributed to Irish statesman Edmund Burke, Spanish philosopher George Santayana or British statesman Winston Churchill.

No matter the origins, the essence remains that unless we inform ourselves of what went wrong in the past, we are at risk of making the same mistakes again.

I've been thinking of the failure to learn from historical mistakes of late. The thing that has me reflecting on this path is a book co-authored by a one-time running partner of mine, Colorado-based venture capitalist Brad Feld.

Feld has a long history of publishing books detailing his views of how to build entrepreneurial ecosystems. His latest publication, alongside another couple of authors, is the second edition of Startup Boards; A field guide to buildings and leading an effective board of directors.

Feld has done a huge amount to positively grow a deeper understanding of entrepreneurship. From his many books to his regular blogging, from the TechStars incubator programme he helped set up to his advocating for more diversity among management teams on early-stage companies, Feld is rightly respected for the good work he does.

But in this latest book, I believe that the co-authors are swayed by something that is the norm in the US, but exceedingly rare elsewhere. That is, the tendency to have a single individual fulfil the role of both chair of the board and chief executive in companies.

It is worth taking a several-thousand year leap back in history to understand where the idea of separating governance and management (or variations on those themes) first came about.

Aristotle mentioned the idea of "mixed government" in the 4th Century BC in which he discussed the just distribution of power. The Romans took up Aristotle's good work as they developed separate branches of government and a system of checks and balances.

The Calvanists continued this division of political power and, albeit with some missteps over time, this notion of the division of power has continued through until today.

Unfortunately when it comes to corporate governance, the US has decided to depart from what is considered the norm almost universally elsewhere. The US view is that corporate leadership should not have the checks and balances, or the separation of church and state, that the US political system enjoys. As someone commented to me: The rigorous separation of executive, legislature and judiciary seems to make for a much more stable and enduring democracy and nation - circa 235 years at current count.

Instead, the norm in the US is for the chief executive of a corporation to also chair the board of the same organisation. Sacre bleu!

I put this viewpoint to Matt Blumberg, one of the co-authors of the book who gave a thoughtful response saying that: “I've always been a big proponent of chief executive as chairman. I think an organisation can really only have one head, it would take a ton of effort with a separate board chair to make that person an effective leader. The juice wouldn't be worth the squeeze in my book. When I've been both chief executive and chair, it's worked well. When I've been chief executive with a separate chair, and admittedly that was an unusual situation, it worked very poorly, with a board chair who was meddling in the organisation for the wrong reasons, causing chaos for personal gain and gratitude. I've also been a board chair multiple times where the role is split from the chief executive (in both nonprofit and corporate organisations), and I find the role of board chair quite difficult and frustrating without an operating role.”

I think Blumberg conflates his experiences with a poor independent chair to being an indication of what happens in all cases when an independent chair exists.

In addition, his main reason for the combined role seems to be that it is easier. To which the obvious answer is that, yes, checks and balances do make things more complex. This is the very reason we have a separate legislature, executive and judiciary - not because it's easier, but because it's better. All things being equal, this separation makes it less likely that bad things will happen. Just imagine Trump without the checks and balances of a nominally separated legislature, executive and judiciary.

Interestingly it would seem the US is finally, and slowly, falling into line with how the rest of the world does this. JPMorgan has indicated that, in response to overwhelming investor sentiment, it is likely to split the chief executive and chair roles when its long-standing chair and chief executive Jamie Dimon steps down. According to JPM many of its shareholders had a “general preference” for the role to be separated.

JP Morgan would seem to be recognising an emerging trend in the US. As recently as 2017, most of the larger US listed companies combined the chief executive and chair roles. That figure thankfully dropped to 43% in 2021. In a related change, the number of independent chairs – those who have not previously been CEO of the same company – hit 36%.

We shouldn't underestimate how much of a change this is - both in terms of mindset as well as the operation of corporations. Charles Elson, a University of Delaware academic who looks at corporate governance, describes the shift away from the dual role as “historic”, the furthermore points out that since the Great Depression many chief executives have treated company directors as de facto advisers rather than setters of strategy and holders to account.

Governance is a complex thing, but its primary aim is to hire the chief executive and hold them to account. This US fascination with combining organisational leadership and corporate governance stands in the way of that very important goal. 

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About the author

Ben Kepes

Ben Kepes CFInstD is a professional board member, a globally-recognised technology commentator, and an entrepreneur.

Ben has served on the boards of a number of non-profit, privately held and listed companies in New Zealand and the UK. He has won a number of accolades including being a recipient of the Sir Peter Blake Leadership Award in 2016 and being recognised as a Chartered Fellow of the New Zealand Institute of Directors in 2021.

Ben has been an investor in a large number of early-stage technology startups across three continents and has had successful exits to listed and privately held companies in Canada, the US, and the UK. He has served on the advisory boards of a number of technology startups in New Zealand, Australia, the US, and the UK.

The views expressed in this article do not reflect the position of the IoD unless explicitly stated.

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