By Thomas Gryta and Theo Francis 

When the crisis at Boeing Co. escalated into calls for replacing CEO Dennis Muilenburg, the jet maker's board did the next closest thing: stripped him of his role as chairman.

When AT&T Inc. reached a cease-fire last week with activist investor Elliott Management Corp., the media and phone giant disclosed it planned to separate the roles of chairman and CEO when current leader Randall Stephenson retires.

When Wells Fargo & Co. recently hired Charles Scharf as CEO to restore the bank's battered reputation after a fake-account scandal, it kept the board's independent chairwoman in her role.

The number of big U.S. companies separating the top roles is at record levels. It is a structure that has long been supported by pension funds and governance advocates. But the latest moves inside some of America's biggest boardrooms occurred only after a crisis or shareholder pressure forced the change.

As of Oct. 18, there were 266 companies, or 53%, in the S&P 500 index that have definitively split the two roles, according to proxy advisory firm Institutional Shareholder Services. That matches the 53% level set in 2017. In 2009, the roles were split at 35% of the companies in the index.

Boeing said splitting the roles would "strengthen the company's governance" and allow Mr. Muilenburg to focus full time on running the company. An AT&T spokesman said its board decided to separate the roles more than a year ago whenever Mr. Stephenson retired.

Wells Fargo didn't respond to a request for comment.

Boards at other high-profile companies have recently decided to separate the jobs, including Nike Inc. and Under Armour Inc. after their longtime leaders decided to step aside as CEO but stay on as executive chairman. At WeWork parent We Co., the newly appointed chairman is searching for an outside CEO after the board stripped co-founder Adam Neumann of both roles at the troubled office-space startup.

"If you haven't done it already, it's low-hanging fruit to appease the shareholders," said Rosanna Landis-Weaver, a program manager at As You Sow, a nonprofit investor advocacy group that uses shareholder proposals to push for environmental and social issues.

The separation is intended to maximize management accountability and the independence of the board. Traditionally, the CEO oversees the daily operations of the company as the top manager, while the chairman heads the board, which oversees management. Combining both jobs concentrates power by essentially making the CEO their own boss.

"The board hires, fires and sets the compensation for the CEO. It is probably the most important thing they do," said Espen Eckbo, director of a corporate-governance research center at Dartmouth College's Tuck School of Business. "For the CEO to be the chairman of that board is a bit odd."

The steady decline of U.S. companies combining the two roles also corresponded with the 2010 signing of the Dodd-Frank Act, which requires disclosure and explanation of the chairman-CEO structure. Proxy advisory firms generally back efforts to separate the positions as being more friendly to shareholders. The country's largest pension fund, the California Public Employees' Retirement System, or Calpers, has been outspoken in its support for the separation.

"The chair should ensure a culture of openness and constructive debate that allows a range of views to be expressed," according to Calpers governance principles revised in September. "The CEO and chair roles should only be combined in very limited circumstances."

The change isn't always permanent. Caterpillar Inc. separated the roles in early 2017 when company veteran Jim Umpleby was promoted to CEO. The machinery company said the split allowed the CEO to focus on day-to-day management, and it was cheered by governance advocates. But Caterpillar reversed the decision by naming Mr. Umpleby chairman at the end of 2018.

Caterpillar didn't respond to a request for comment.

Boeing hasn't said its change will be permanent as the company works through a crisis following two plane crashes that killed 346 people and the grounding of its fleet of 737 MAX jets. The new chairman, Blackstone Group Inc. executive David Calhoun, also served as chairman of Caterpillar when the roles were temporarily divided.

UBS analysts said they expect "decisions to be more deliberate and likely more risk-averse" at Boeing under the new structure.

Mr. Eckbo said there is no evidence that one leadership structure is preferable over another in times of crisis. Some studies have shown that separating the roles produces higher shareholder returns, but Mr. Eckbo warns that determining a causal relationship between returns and board structure is difficult. "I would just use common sense," he said.

Struggling industrial conglomerate General Electric Co. has revamped its board and replaced its CEO twice in the last two years. But each time, the company kept the chairman and CEO roles together, even when it brought on outsider Larry Culp as CEO.

In its proxy filing earlier this year, GE said the decision was based on the circumstances facing the company and keeping the roles combined allows Mr. Culp to "drive strategy and agenda-setting at the board level, while maintaining responsibility for executing on that strategy as CEO."

In an interview last week, Mr. Culp said he wouldn't rule out a change but also said the current structure will be in place at GE for the foreseeable future. "It is not an active conversation for us today," he said. "We are focused on other topics."

Write to Thomas Gryta at thomas.gryta@wsj.com and Theo Francis at theo.francis@wsj.com

 

(END) Dow Jones Newswires

November 03, 2019 06:14 ET (11:14 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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