Ryan Krause is Associate Professor of Strategy in the Neeley School of Business at Texas Christian University; Mike Withers is Assistant Professor of Management in the Mays Business School at Texas A&M University; and Matthew Semadeni is Professor of Strategy at Arizona State University W.P. Carey School of Business. This post is based on a recent article, forthcoming in the Academy of Management Journal, and originally published in The Conference Board’s Director Notes series.
Many companies now use lead independent directors, yet little is known about when they are elected, who is selected, what impact their selection has on performance and if their selection prevents the future separation of the CEO and chair positions. We explore these four questions using a power perspective and largely find lead independent directors represent a power-sharing compromise between the CEO/chair and the board.
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A critical issue of board governance is the tradeoff of joining or separating the CEO and board chair roles. Joining the roles provides the organization the unity of command, with a single individual leading the firm. This is very important in dynamic environments where strong leadership is required and the CEO/chair must communicate clearly to multiple audiences. Also, it can provide the board greater insight into the day-to-day operations of the firm since the leader of the board is also managing the firm. But joining the roles puts at risk the oversight role of the board since its leader is one of those it is evaluating. This has been colloquially referred to as “CEOs grading [their] own homework”. [1] To prevent this, many have argued that the CEO and chair positions must be separated to prevent the conflict of interest inherent to the CEO leading the board.