"CEO and Chairman of the Board"

Our View: separate individuals should hold the CEO and Chairperson positions.  The Chairperson should not be an executive of the company.  It is also preferable for the CEO not to be a member of the board.

The following is from our evaluation of General Electric corporate governance.  However, it applies to most companies:

The basic reason to separate the CEO and Chairman roles is the same that was asked by Greek philosophers and Roman satirists millennia ago: “sed quis custodiet ipsos custodies?” or “who is guarding the guardians?”  Unlike the Roman satirist Juno, Plato was romantic about this and suggested that the guardians can guard themselves if they are told a “noble lie” that they are better than the ones they serve, hence they will serve the “lesser” because they believe it right, and not because they desire power.  The “noble lie” also required the guardians to live simple lives and never touch gold.

If Mr. Immelt convinces anybody that he believes in the “noble lie,” we will be the first to support his dual role as the CEO and the Chairman.  He can convince everyone that he does not desire power by giving up his compensation package in exchange for a $100,000 salary.  Yea, right.  Of course, we are not being sincere.  Actually, if he did, we would probably suggest that he be committed.  But here is a noble, sincere, truth instead: Mr. Immelt is a good manager.  If Mr. Immelt at least agrees with this noble truth, he should have no problem embracing his role as the Chief Executive Officer and be comfortable in allowing the shareholder-elected board, with an independent Chairman, to oversee the management properly.  He should see the basic rationale that it is not efficient to report to yourself (unless of course you own the whole kit and caboodle).

The GE board, on another hand, presented their own rationale for opposing this proposal:

1.                The Company has to be represented by one person, not two (CEO and Chairman).   That is lame.  The CEO represents the company.  The board supervises the CEO.  That’s how it works, and works well, in all other companies where CEO and Chairman are separate.

2.                The company has strong corporate governance guidelines, which include separate meetings by non-executive directors.  That may be, but somehow, the board forgot to mention that the Chairman is allowed to attend any meeting of directors.  Here is what GE bylaws say (Aritcle IV, A1): “The Chairman of the Board shall preside at all meetings of Directors, and he may at any time call any meeting of the Board of Directors; he may also at his discretion call or attend any meeting of any committee of the Board, whether or not a member of such committee.”

    There goes the “noble lie.”  Let’s try for some “noble truth” instead.