Ethix Forum – Issue 32

Is the separation of powers between the Chairman and the CEO a vital part of maintaining an ethical company?

No single person should have too much power. In fact, the system of government in both the U.K. and the United States recognizes this reality with the checks and balances and the two-house approach. Furthermore, it is an important safeguard in the ethical running of a business. At Getty Images, we have had a separation of the roles of chairman and CEO from the moment we went public on the NASDAQ in July 1996. We came to this conclusion at the very start, and set up our company to reflect this with a separate chairman and CEO. In practice, we have found that this works very well. We complement each other, providing checks and balances in our company, without any negative side effects. It is possible that over time this will become a legal requirement for publicly traded companies and we would support this change.

Jonathan Klein
Co-founder and CEO (not Chairman)
Getty Images
Seattle, WA

I think more credit is given to the value of separating the positions of chairman and CEO than is deserved. As long as the company performs well and the Chairman/CEO is ethical, there is not a problem. If the company gets into trouble or there is corruption then it was obvious that there should have been separation between the chairman and CEO duties.

For the separation of duties to be of any benefit, the chairman cannot be an employee. Actually, a lead director has the same benefit. Either way, it gives other directors a person to go to. It also gives the CEO someone to go to. In summary, I see some benefit but it certainly isn’t a cure-all. Each company has to evaluate its own circumstances. A strong executive committee can perform the same function and may be a better solution.

Historically, many companies have had the most recent retired CEO remain on the board and be chairman for a period of time. I don’t believe this is effective, because it’s confusing to other directors, and some employees, as to who is running the company.

There isn’t a perfect formula here and the situation should be looked at carefully for each company.

Roger Eigsti
Chairman and CEO, SAFECO, retired
Seattle, WA

Yes, I think they should be handled by two separate people. This would allow for the board to have more input in helping the CEO make good decisions and act ethically. If the CEO and chairman are the same person they can use their power to influence the company’s direction with less team or board thinking. I have seen this cause problems in some organizations.

There is an excellent discussion on this topic in the new book Back to the Drawing Board: Designing Corporate Boards for a Complex World by Colin B. Carter and Jay W. Lorsch, Harvard Business School Press, 2004. This book will be reviewed in the next issue of Ethix.

Mark Calette
Warman, SK, Canada