strategy+business is published by PwC Strategy& Inc.
 
or, sign in with:
strategy and business
Published: September 9, 2011

 
 

When a Chairman Runs the Show

The authors found that firms with a strong chairman tend to be more profitable, as measured by comparing three- and five-year averages for returns on assets and equity. These companies could also be seen as more efficiently run, both because in such firms other board members have longer tenures and because strong chairmen hold fewer outside directorships, allowing for more focus on their own company.

The better performance could result from a “positive founder effect,” which occurs when a founder is able to maintain a consistent vision, the researchers said. They found that more than 60 percent of the chairmen who were identified as “very powerful” were founders. Younger firms also tended to have more powerful chairmen, which makes sense because at older firms the original visionary is more likely to have departed.

The researchers stress that the CEO is still the person more apt to run a company’s day-to-day operations and make smaller decisions. But because “corporate outcomes largely depend on how major financial, strategic, and organizational decisions are made,” they write, “...the possibility that the de facto corporate leaders hold the chairman title instead of that of CEO should thus be taken into account” by analysts, shareholders, and firms seeking to do business.

Bottom Line:
When the CEO and chairman positions are held by different people, especially in companies with concentrated ownership, the chairman is usually more powerful and more heavily involved in the strategic direction of the firm than the chief executive. Firms with a powerful chairman tend to be more efficiently managed and to have higher profitability.

 
 
 
Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store

 

 
Close
Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.

Close