Introduction

In an era of increasing scrutiny on corporate governance, the separation of the roles of Chief Executive Officer (CEO) and Chair of the Board is widely recognized as a best practice. While some companies continue to combine the positions, leading governance authorities—including the Council of Institutional Investors and Institutional Shareholder Services—recommend keeping them distinct to foster stronger oversight, better accountability, and more balanced leadership. This paper explores the rationale behind separating the CEO and Board Chair roles, highlighting the governance, strategic, and ethical advantages of doing so.

The Distinct Responsibilities of CEO and Board Chair

The CEO is primarily responsible for the day-to-day operations of the company, including executing strategy, managing the executive team, and delivering financial performance. The Board Chair, by contrast, leads the board of directors, sets the agenda for board meetings, facilitates discussion, and ensures that the board effectively oversees management, including evaluating the CEO’s performance.

When these roles are combined, the fundamental principle of checks and balances can be compromised. The Board Chair is expected to supervise and, if necessary, challenge the CEO—tasks that are inherently difficult when the same person occupies both roles. This can lead to conflicts of interest, reduced board independence, and the potential for managerial entrenchment.

Governance and Oversight Implications

From a governance standpoint, role separation enhances board independence. When the CEO also serves as Board Chair, it concentrates power in a single individual, weakening the board’s ability to provide objective oversight. In contrast, an independent Chair can help the board operate more effectively as a counterbalance to management, fostering open debate, greater transparency, and more rigorous evaluation of strategic decisions.

Separation also improves the board’s ability to respond to crises, such as leadership transitions or corporate scandals. An independent Chair can act swiftly and impartially in these situations, whereas a combined role could delay action due to conflicts of interest or the perception of self-protection.

Strategic and Ethical Benefits

Strategically, separating the roles encourages a diversity of perspectives at the highest levels of leadership. With a CEO focused on executing business strategy and a Chair focused on governance, companies can better navigate complex and evolving challenges. This division of labor also allows for more robust succession planning and risk management, two key responsibilities of an engaged and independent board.

Ethically, separating the roles promotes accountability and integrity. Shareholders, employees, and the broader public are more likely to trust an organization that visibly demonstrates its commitment to ethical leadership and transparent governance. An independent Chair can also play a critical role in managing stakeholder expectations and enhancing investor confidence, particularly during periods of organizational change or scrutiny.

Should the CEO Sit on the Board?

A more nuanced question in governance circles is whether the CEO should serve as a member of the board at all, even if not as Chair. There are pros and cons to this arrangement.

Pros:

· Insight and Leadership: CEOs bring firsthand knowledge of the company’s strategy, operations, and risks. Their presence on the board can enhance the board’s understanding and decision-making.

· Alignment: Having the CEO on the board can foster alignment between management and directors, facilitating more seamless execution of board-approved strategies.

· Continuity and Stability: Especially during leadership transitions, CEO participation can provide continuity and institutional memory.

Cons:

· Compromised Oversight: Even if not serving as Chair, a CEO on the board may still influence board deliberations, potentially softening the board’s ability to independently assess management.

· Power Dynamics: A CEO board member may dominate discussions, particularly if board members are hesitant to challenge the individual in charge of day-to-day operations.

· Reduced Independence: The presence of executive leadership on the board can dilute its objectivity and hinder its ability to act solely in shareholders’ interests.

A common compromise is for the CEO to retain a board seat but ensure that the Chair is independent and that the board is composed primarily of outside directors. This structure preserves the benefit of CEO insight while safeguarding the board’s independence.

Market Trends and Empirical Support

The trend toward separating the CEO and Chair roles is gaining traction globally. In the United Kingdom and much of Europe, this separation is standard practice. In the United States, while less common, the practice is on the rise, especially among companies seeking to strengthen their environmental, social, and governance (ESG) credentials.

Empirical studies have shown that companies with separate roles often experience better long-term performance, reduced risk of corporate misconduct, and stronger shareholder returns. While the evidence is not uniformly conclusive, the overall trend supports the notion that role separation can contribute to more resilient and accountable organizations.

Conclusion

Separating the roles of CEO and Board Chair is a prudent and increasingly necessary governance practice. It supports effective oversight, prevents conflicts of interest, and reinforces ethical leadership. As stakeholders continue to demand greater accountability and transparency from corporate leaders, organizations would be wise to adopt this best practice as a foundational element of sound governance. In doing so, they not only protect the integrity of their leadership structures but also position themselves for long-term success in a complex and dynamic business environment.

About the Author

A governance consultant and leadership expert, Jim Schraith helps organizations enhance boardroom effectiveness through training, strategy, and technology integration. Jim is a veteran of over 30 public, private and non-profit boards. He is the founder and President of BoardEvals, LLC.