ABBEY CHIKANE: Balancing the executive chair power play: a corporate governance perspective

In March, James P Gorman, chair and CEO of Morgan Stanley, was recognised as the world’s most influential executive. Just two months later he startled the financial world by revealing that he planned to step down within 12 months.

Despite this significant move he left his successor’s name undisclosed, opting to remain with the bank in the capacity of executive chair indefinitely. Consequently, Morgan Stanley’s share price fell more than 2%. 

Gorman’s dual role as CEO and chair presents an interesting dilemma facing boards in terms of governance best practice. When the traditional role of chair of the board and CEO or MD are combined, the role is often referred to as “executive chair”.

This means the incumbent is responsible for leading the board of directors while also being actively involved in the day-to-day operations and strategic decision-making of the organisation. It is a position with significant power. 

Remarkably, Gorman’s situation is not an anomaly. Analysis of more than 3, 000 CEOs worldwide in the 2023 CEO World survey, ranking the world’s most influential CEOs, reveals that 35% of the top 200 CEOs also chair the boards of directors of their organisations. Among the world’s top 20 CEOs, 30% fulfil both roles.

Many global organisations, including ExxonMobil, Microsoft, Chevron, Mercedes-Benz, General Motors, Ford and Meta Platforms, embraced the concept of executive chairs in recent years. Prominent founders such as Patrice Motsepe of African Rainbow Minerals, Jeff Bezos of Amazon and Bill Ford of the Ford Motor Corporation, have been successful executive chairs. 

In SA, we have daily reminders of the pain of state capture and the corporate scandals of recent years. These failures 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.

Against this backdrop I ask: does having an executive chair at the helm really serve the interests of shareholders and stakeholders, or is it an invitation for trouble? I believe the role of executive chair is problematic for good governance practices.

To weigh up the advantages and drawbacks of an executive chair I turned to the King IV report on corporate governance, which 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 practice recommends that the chair of the board should be an independent nonexecutive director to ensure a clear separation of power, effective board oversight and impartial decision-making. 

Mitigating the governance risks associated with an executive chair involves several critical considerations. An executive chair with an overpowering personality can jeopardise board independence and objectivity, and create conflicts of interest. This may lead to fewer checks and balances on the individual’s authority remits and actions, fostering a culture of dependence or fear among board members and management. 

Based on my experience as an executive chair of a state-owned enterprise, I am sceptical about concentrating power in one individual as it exponentially increases risks to the organisation. As we see in Gorman’s case, the absence of a separate chair may hinder succession planning, posing risks in leadership transitions, and ultimately affect the organisation’s long-term sustainability and competitiveness. 

While there are scenarios where an executive chair can be beneficial, such as when they are the organisation’s founder or a retired CEO with deep institutional knowledge, careful considerations are paramount. Situations that might warrant an executive chair include periods of disruption, crises, highly competitive environments and family ownership dynamics.

The role can facilitate unified leadership, expedited decision-making and long-term strategic vision alignment. Harvard Business Review suggests that companies with an executive board chair have on average a 33% higher profitability than those organisations that do not. 

Organisations opting for an executive chair should carefully consider additional risk mitigation strategies. There are six priorities for boards with executive chairs: 

• Independent directors provide objective oversight and maintain checks and balances. A lead independent director, as recommended by King IV, can counterbalance the executive chair and represent the views and concerns of independent directors.
• Performance evaluations of the executive chair ensure alignment with strategic objectives and ethical conduct. 
• Succession planning must be in place to identify potential successors, ensuring continuity in leadership. 
• Stakeholder engagement should facilitate feedback on the executive chair's performance from diverse perspectives. 
• Board composition must be diverse, with sufficient representation of independent and nonexecutive directors, to provide different perspectives and expertise. 
• Transparency must be a priority. A culture of “independence of mind and actions” among board members should be cultivated. Transparent disclosure and reporting mechanisms reassure shareholders and stakeholders about the organisation’s performance and governance. 

Corporate governance should prioritise the best interests of stakeholders and uphold the highest standards of ethics and governance. Charismatic personalities and the single-minded pursuit of profit above accountability can offer only fleeting 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.

• Chikane is director of Ziyasiza Consulting.