New criticism of combined titles - Governance - on chief executive officers who are chairman of the board - Brief Article

Chief Executive, The, Dec, 2002 by Sonja Sherwood

AMERICAN COMPANIES have largely skirted the controversy over whether CEOs should also be chairmen of their boards, but the drumbeat of governance reform has brought the debate back to center stage. A recent study may give it legs.

Two researchers at the Hong Kong University of Science and Technology have produced statistical evidence to support the old saw that companies are less likely to fire a bad CEO if he is also chairman.

Their study, published this year in the Journal of Corporate Finance, lends ammunition to the argument that combined titles weakens boards.

Vidhan K. Goyal and Chul W. Park examined CEO turnover from 1992 to 1996 at 455 companies listed on the S&P and Mid-cap indexes. They found that CEOs who also were chairmen were half as likely to be removed because of poor stock performance as CEOs without the top board role. Companies that failed to meet analysts' earnings forecasts and that had a CEO with a combined title showed almost identical CEO entrenchment.

Their findings remained statistically significant even when they accounted for such variables as company size and executive ownership in the company, and when they excluded departures related to retirement, mergers or death.

"We have documented that the board's monitoring role is weaker in firms with a combined CEO-chairman title," the researchers concluded. "Why more firms do not separate the titles remains an open question."