Balancing the Executive Chair power play

Balancing the Executive Chair power play – a corporate governance perspective

By Abbey Chikane
Director, Ziyasiza Pty Ltd

In March 2023 James P. Gorman, Chairman and Chief Executive Officer (CEO) of Morgan Stanley, was named as the world’s most influential CEO. Two months later he announced his intention to step down within 12 months. The legendary Wall Street banker did not name a successor and intends to remain at the bank as Executive Chair for an indefinite period. The announcement was followed by a drop in Morgan Stanley’s stock of more than two percent.

Gorman’s dual role as CEO and Chairman presents an interesting dilemma facing boards in terms of governance best practices. When the traditional role of chairperson of the board and the CEO or managing director are combined, the role is often referred to as ‘executive chairperson’. This means the incumbent is responsible for leading the board of directors while also actively being involved in the day-to-day operations and strategic decision-making of the organisation. It is a position that wields significant power.

Gorman’s situation is not an anomaly. Analysis of over 3 000 CEOs worldwide in the 2023 CEOWORLD survey, ranking the world’s most influential CEOs, reveals that 35 percent of the top 200 CEOs also hold the role of chairperson of the board of directors of their organisations. Among the world’s top 20 CEOs, 30 percent fulfil both roles. According to Harvard Business Review 15 percent of board chairs in the S&P 500 held the designation ‘executive chair’ in 2021. 

Global organisations such as Exxon Mobil, Microsoft, Chevron, Mercedes-Benz, General Motors, Ford, and Meta Platforms, among others, have opted for executive chairs in the past few years.

In South Africa, where the wheels of accountability and justice turn slowly, we experience daily reminders of the pain of State Capture and corporate scandals of recent years. These appalling failures of governance continue to raise questions about the consistent application of governance best practice standards, intended to protect the organisation’s stakeholders, investor trust, and corporate reputation. 

If you need a topic for lively dinner table conversation, ask the question whether having an executive chair at the helm truly serves the interests of shareholders and stakeholders, or whether it is an invitation for trouble. I concede that there’s a case to be made for both sides of the argument. However, in my opinion, the role of executive chair is problematic, especially in the South African context.

What does best practice look like?

To better understand the advantages and disadvantages of the role of an executive chair, we must also consider the impact on transparency, accountability, and organisational sustainability and performance.

Turning to one of the world’s best blueprint on the topic, the King IV Report on Good Governance™ (also referred to as King IV™) does not explicitly prohibit the role of an executive chair. However, it emphasises the importance of an independent chair to ensure effective board oversight and unbiased decision making. 

Best practices recommend that the chair of the board should be an independent non-executive director. This is to ensure a clear separation of power and responsibilities between the chair and the CEO and to avoid any potential conflicts of interest or undue influence by the chair over the board or the management.

The traditional board chair’s primary focus should be on the organisation’s strategic oversight, board leadership and strategic guidance to senior management. It is an important role of stewardship that requires knowledge, experience, wisdom, and integrity.

The hybrid CEO-chair tends to play a different role. Focused on both strategy development and implementation, the governance oversight role tends to retreat from priorities of the executive chair. In most cases, the role of ‘monitoring and oversight’ falls to independent directors on the board. This distances the executive chair from the nuts and bolts of oversight, and cracks in good governance may begin to show. 

Mitigating the governance risks of an executive chair 

There are risks associated with appointing an executive chair. An executive chair with an overbearing personality has the potential to compromise board independence and objectivity, and create conflicts of interest. The result could be fewer checks and balances on the CEO’s authority and actions. This could create a culture of dependence or fear among board members and management. 

Based on my personal experience of having previously served as an executive chairperson of a state-owned enterprise, I am not a proponent of the concentration of power in one person, as the risks to the organisation increase exponentially. The executive chair has to juggle many duties and responsibility, which could increase human frailties such as health and mental burnout, and result in reduced focus on governance. As we see in Gorman’s case, the absence of a separate chair may also hinder succession planning, posing risks during leadership transitions, and ultimately impact the organisation’s long-term sustainability and competitiveness.

Organisations that do appoint an executive chair should carefully consider additional risk mitigation. In my view, these are six priorities for boards with executive chairs: 

  1. Independent directors on the board provide objective oversight and maintain checks and balances. A lead independent director (as recommended by King IV™) can act as a counterbalance to the executive chair and represent the views and concerns of the independent directors.
  2. Conducting regular evaluations of the executive chair’s performance will ensure alignment with strategic objectives and ethical conduct.
  3. A robust succession plan will help to identify potential successors and ensure continuity in leadership. 
  4. Regular stakeholder engagement will also facilitate feedback on the executive chair’s performance from diverse perspectives. 
  5. A strong and diverse board composition, with sufficient representation of independent and non-executive directors, can also provide different perspectives and expertise.
  6. There must be effective transparency on decision making within the board. A culture of ‘independence of mind and actions’ by board members must be cultivated to ensure that their opinions are carefully considered, documented and accountability for decisions clearly articulated. The board must have transparent disclosure and reporting mechanisms, which can inform and assure the shareholders and other stakeholders about the performance and governance of the organisation.

Right time, right place

Clearly, there are instances where an executive chair is good for the organisation. Executive chairs are often founders of the organisation. South African businessman Patrice Motsepe, founder and executive chairman of African Rainbow Minerals, Jeff Bezos from Amazon, and Bill Ford at the Ford Motor Corporation, are some of the more well-known examples. We also find that executive chairs are retired CEOs of the organisation, who have long tenures and deep knowledge of the organisation. 

Sometimes, circumstances will motivate the appointment of an executive chair, such as:

  • periods of major disruption, transformation and innovation;
  • crises;
  • highly competitive environments; and 
  • dynamics of family ownership.

It is helpful to have an executive chair when organisations need unified leadership or expedited decision making. The executive chair role can be well placed to align the vision of the board and management and facilitate a more informed and cohesive long-term strategic vision. 

Strong and experienced leaders in an executive chair role can help guide and support the board and management through the challenges, drive growth and performance, and balance expectations of different stakeholders. 

Harvard Business Review suggests that companies with an executive board chair have on average a 33 percent higher profitability than those organisations that do not. If this is the case, I would argue that it is not sustainable in the longer term and may result in a steep price tag requiring trade-offs in governance.

As a long-standing protagonist of good corporate governance, I am in favour of leaders who act in the best interests of their stakeholders and adhere to the highest standards of ethics and governance. While every situation is unique, those charged with governance of organisations should not be distracted by charismatic personalities or profits, as history has proved that these are short-lived gains. Instead, boards should embrace their duty of care to their shareholders and broader stakeholders—including society as a whole—and hold leaders to account for their actions.