After the shareholders of JPMorgan Chase voted to retain Jamie Dimon as both the firm’s CEO and board chairman, Yale School of Management’s Jeffrey Sonnenfeld praised the decision in the New York Times. He argued that, in general, separating the two roles unduly limits the power of corporate leaders to bring about organizational and strategic change, while doing nothing to advance the cause of good governance. Citing instances of successful companies in which one individual wears both hats, along with examples of failures under split-role leadership, Sonnenfeld concludes there is no correlation between a corporation’s performance and the way its top tier of power is allocated, and that the advantages of faster decision making and a unified voice usually outweigh any benefits of independent oversight. His analysis is correct—but only in ways irrelevant to the fundamental issue of whether it is prudent to separate the CEO and chairman roles.
It’s an observable fact that a company’s top leadership structure doesn’t correlate with its performance, whether measured by financial returns or legal compliance. That’s because no other single factor correlates with those metrics of performance, either! Outcomes such as profitability are too complex and multidimensional to be driven by a single factor. Thus, this argument is fragile ground on which to base a conclusion that one form or another of governance is better than another.
Sonnenfeld is also right in his claim that separate roles don’t work when the two individuals involved are vying for power and the boundaries that differentiate their respective tasks are unclear. Having leaders divided against each other is simply bad governance. But shareholder activists calling for the separation of roles aren’t advocating bad governance. Instead, they propose a limited reform that merely increases the odds a company will perform more effectively and ethically. In that way, separate roles are like the emergency brake on your car: You probably will never have to use it and, even if you do, it might not work—still, it’s downright risky not to have one.
The real issue is that of reining-in executive power. Plato proposed that an all-powerful leader would be more effective than a weak one if that leader was the wisest, most selfless, and incorruptible individual in a city or state. Given human nature, that’s one big if (even in the narrower context of a corporation). Because all the wisdom of any group seldom resides in one virtuous person, Aristotle concluded his teacher’s utopia was most likely to end up a dysfunctional state, if not an autocracy. Indeed, history has shown that unchecked power increases the risk that power will be exercised inappropriately, if not excessively, and that every group is better off when each of its members is accountable to someone else—even corporate leaders like Jamie Dimon who are understandably impatient with limits on their ability to act decisively.
Of course, good governance requires both effective executives and effective boards. In particular, board chairs should see their roles as mentors, sounding boards, voices of experience, independent counselors, and—only as last resort—ultimate guardians of organizational purpose and protector of the interests of all stakeholders, starting (but not ending) with the shareholders who elect the board. Ideally, board chairs should not be involved in managing and should not attempt to overrule (or publicly second-guess) executive decisions. The ancient Anglo-Saxons understood their king needed a national council of wise men, called the witenagemot, a body of experienced elder sages who advised their leader but didn’t rule themselves. The proper function of all useful boards ever since has been to continually ask questions of management: Have you thought of this or that? Why are you doing this and not that? Have you considered the long term and indirect financial and ethical consequences of your proposed action?
Answering such questions in no way limits executive power. Instead, the exercise helps executives become more effective leaders. With a well-functioning board this process is far from adversarial—rather, it is a form of risk reduction. Significantly, the potential value of that final check is absent when the chairman is also chief executive.
Unfortunately, requirements imposed by Sarbanes-Oxley have hindered the effectiveness of boards. By requiring more members to have narrow accounting skills, boards too often act in the role of auditors rather than the senior advisors with the wisdom and leadership experience needed to give CEOs the support they really need. There, Dr. Sonnenfeld, is the bigger issue.