By Thomas Gryta and Theo Francis
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 4, 2019).
When the crisis at Boeing Co. escalated into calls for replacing
Chief Executive 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 company 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. A Wells Fargo spokeswoman said the bank has had the split
roles for several years.
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 after two plane crashes that killed 346
people and led to 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 past 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 04, 2019 02:47 ET (07:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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