One of the persistent ideas among shareholder activists is mandating that the chairman of the board of directors--who in the USA is often also the company's CEO--be an independent, non-executive individual. I've written about this effort to split the CEO/Chairman before, arguing that the empirical evidence does not support it. Now there's a new study confirming that having the CEO serve as chairman of the board does not harm shareholder interests:
We use over 22,000 firm-year observations from 1995-2010 to investigate whether combining roles of CEO and board-chair causes poor performance. Our research design allows us to reconcile disagreement in the literature about whether CEO-chair duality impacts shareholder value. CEOs are awarded the additional title of board-chair following superior firm performance. A naïve analysis indicates a drop in firm performance following CEO promotion to chair. However, a research design that controls for the propensity to combine roles and performance mean-reversion reveals no post-appointment underperformance. Consistent with a learning explanation, investors react positively to combining both roles early in CEO’s tenure, but exhibit no reaction to combinations later in CEO’s tenure. Increases in post-combination compensation are unrelated to proxies for managerial power. Overall, there is no evidence that combining the CEO-chair positions hurts shareholder interests.
Jayaraman, Narayanan and Nanda, Vikram K. and Ryan, Harley E., Does Combining the CEO and Chair Roles Cause Firm Performance? (September 18, 2015). Georgia Tech Scheller College of Business Research Paper No. 2015-11. Available at SSRN: http://ssrn.com/abstract=2690281