There remains a logic to separating functions of chair and chief executive.
Are all-powerful bosses a recipe for decisive leadership or hubris? Investors rightly prefer the separation of chair and chief executive roles, particularly in Europe. Some companies insist the case is not cut and dried.
Take FTSE 250 housebuilder Vistry. It has said that Greg Fitzgerald will combine the roles of executive chair and CEO after its May annual meeting. That is at odds with the UK corporate governance code. But a 15 per cent rise in its share price since the announcement suggests investors are unfazed. That might reflect the dominance of US shareholders, at about 60 per cent of its register.
Indeed, the prevalence of combined roles in the US is commonly cited in its defence. Fifty-four of the 100 largest US public companies do it, said BlackRock in rejecting a challenge concerning Larry Fink’s dual chair and chief executive roles. The objection came from UK activist investor Bluebell, which wants more board oversight of the asset manager’s approach to sustainable investing.
But even in the US combined roles are becoming less common outside the top tier. For S&P 500 companies, it is down by 13 percentage points to 44 per cent over the past 10 years, according to ISS Corporate Solutions. In France, just 12 companies in the Cac 40 index still combine the roles. One is energy giant TotalEnergies, where Patrick Pouyanné’s dual role is being challenged by investors wanting a faster shift away from fossil fuels.
Under 5 per cent of UK-listed groups combine the roles. Germany has banned the practice, though there is now a debate over whether former top executives should join supervisory boards. Shareholder adviser Institutional Shareholder Services is locking horns with BASF and Munich Re on this issue.
Champions of combined roles can point to some academic support. During the pandemic, S&P 1500 companies that merged the jobs outperformed, perhaps because they had the edge in swift decision making, a study found.
Marc Goergen, professor at Madrid’s IE Business School, found that shareholders reacted badly to S&P 500 announcements from large, complex companies about combining the top roles. But there was a positive reaction when companies were small, fast-growing or high-tech.
Split roles may not be right for every company. But there remains a logic to separating functions. A controlling boss weakens board oversight. Checks and balances are not optional extras. Even as other US governance practices such as dual-class shares become more common, combining the top roles should remain a rare exception to the rule.
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