Corporate Governance | What is the argument in favor and against of merging the roles of chairman and CEO?

What is the argument in favor and against of merging the roles of chairman and CEO?

The argument in favor of merging the roles of chairman and CEO is one of efficiency. By putting the leadership of the board of directors and the senior management team in the hands of the same person, the potential for conflict is minimized and, it is argued, the board is given the benefit of leadership from someone who is in touch with the inner workings of the organization rather than an outsider who needs time to get up to speed.

The argument against merging the roles of chairman and CEO is an ethical one. Governance of the corporation is now in the hands of one person, which eliminates the checks and balances process that the board was created in the first place. This type of situation compromises the independence of the board, and the powers of the stockholders are minimized.



Source: Ghillyer_Business Ethics A Real World Approach 2e

Corporate Governance | Key Terms

Key Terms - Corporate Governance

Audit Committee:  An operating committee staffed by members of the board of directors plus independent or outside directors. The committee is responsible for monitoring the financial policies and procedures of the organization—specifically the accounting policies, internal controls, and the hiring of external auditors.

Board of Directors:  A group of individuals hired to oversee governance of an organization. Elected by vote of shareholders at the annual general meeting (AGM), the true power of the board can vary from institution to institution from a powerful unit that closely monitors the management of the organization, to a body that merely rubber-stamps the decisions of the chief executive officer (CEO) and executive team.

Compensation Committee:  An operating committee staffed by members of the board of directors plus independent or outside directors. The committee is responsible for setting the compensation for the CEO and other senior executives. Typically, this compensation will consist of a base salary, performance bonus, stock options, and other perks.

“Comply or Else”:  A set of guidelines that require companies to abide by a set of operating standards or face stiff financial penalties.

“Comply or Explain”:  A set of guidelines that require companies to abide by a set of operating standards or explain why they choose not to.

Corporate Governance:  The system by which business corporations are directed and controlled.

Source: Ghillyer_Business Ethics A Real World Approach 2e