Why the Combined Chair/CEO Position Is Under Increasing Scrutiny Among Management Scholars

The combined chair/CEO or managing director positions have garnered significant criticism among management scholars, primarily due to issues of concentration of power, lack of accountability, and reduced board effectiveness.

Concentration of Power

One of the main criticisms surrounding the combined chair/CEO position highlights the excessive concentration of power in a single individual. This concentration can undermine the board's independence and ability to provide effective oversight, which is critical for robust corporate governance.

Lack of Accountability

When one person holds both titles, it can lead to a lack of accountability. The CEO may prioritize personal interests over those of the shareholders, making it difficult for the board to challenge decisions made by the CEO. This can create a serious imbalance in the decision-making process, leading to potential conflicts of interest.

Reduced Board Effectiveness

A strong chair is essential for a board's effectiveness, as they help facilitate discussions and ensure diverse viewpoints are considered. However, when the roles are combined, the chair may prioritize the CEO's agenda, reducing the board's ability to provide independent oversight. This can lead to suboptimal decision-making and a lack of accountability.

Risk of Groupthink

Having a single person in charge of both the chair and CEO roles can foster groupthink, where dissenting opinions are discouraged, and critical discussions are stifled. This can result in poor decision-making and a lack of innovation. In a corporate environment, innovation is crucial for competitive advantage and long-term success.

Stakeholder Trust

Investors and other key stakeholders often prefer a separation of these roles as it signals a commitment to good governance practices. The perception of improper influence can damage trust, not only among current stakeholders but also among potential investors in the future. This can have a significant impact on a company's stock prices and overall market reputation.

Regulatory and Market Trends

There has been a growing trend towards promoting best practices in corporate governance. Many institutional investors advocate for the separation of the chair and CEO roles, reflecting a broader shift towards enhancing transparency and accountability in corporate leadership. Regulations and market trends are increasingly favoring this separation to ensure better governance.

Empirical Evidence

Empirical research supports the argument for separating the chair and CEO roles. Companies with separate chair and CEO positions tend to perform better in terms of stock performance and governance metrics. Studies have shown that such separation leads to improved corporate governance, better shareholder returns, and enhanced transparency.

In summary, while some argue that combining the roles can lead to more streamlined decision-making, the criticisms predominantly focus on the risks associated with power concentration, accountability, and governance effectiveness. The growing trend towards separation reflects a broader commitment to best practices in corporate governance and transparency.