BAH: Separating CEO and Chairman decreases shareholder value

Separating the roles of CEO and chairman of the board has become a popular objective in the U.S. among certain CG activists. A recent comprehensive study of the worlds 2.500 largests companies by Booz Allen Hamilton (S+B, June 2004) shows that splitting the roles of chief executive and chairman does not result in higher returns for shareholders. The norm in Europe for at least a decade, dividing the positions of CEO and chairman has become the G. movement’s cause célèbre in the U.S. But returns to investors are lower — 4.7 percentage points per year lower in Europe, and 4.1 percentage points lower in North America — when the roles are split.
BAH seems to conclude that there is a causal relation between splitting the roles of CEO and Chairman on one side and shareholder value creation on the other side. Do you agree? Or do you believe the fact that Europe is lagging in shareholder value creation is due to other reasons?

Building Better Boards

According to Nadler in the HBR of May 2004, boards know what they ought to be: seats of challenge and inquiry that add value without meddling and make CEOs more effective but not all-powerful. A board can reach that goal only if it functions as a high-performance team, one that is competent, coordinated, collegial, and focused on an unambiguous goal. Such entities must be constructed. Do you agree with Nadler that an ambitious board-building process, devised and endorsed both by directors and by management, can potentially turn a good board into a great one?