Sunday, August 8, 2010

Should the CEO also be the Chairman? The Duality Debate

CEO duality exists when the CEO is simultaneously the chairman of the board and there are differing views on whether duality or independence is the correct method for strategic leadership. Chen, Kao, Tsao and Wu (2007) identified that “the examination of corporate governance can be divided into two aspects: the ownership structure and the leadership structure – for leadership structure, the main concerns are the board and CEO duality” (p.252).

Various surveys carried out between 1999 and 2005 show that in the United States between 60 and 80 percent of all major corporations have the same person act as both the CEO and chairman, whereas in British, Canadian, and Japanese companies only about 10 to 20 percent combine the role of CEO and chairman.

It’s worth spending a moment reviewing the various theories that exist, where agency theory is the most dominant theoretical framework in corporate governance research. The popularity of this theory is likely due to two factors. First, it is an extremely simple theory, in which large corporations are reduced to two participants – managers and shareholders – and the interests of both are assumed to be both clear and consistent; and, secondly, the notion of human beings as self-interested and generally unwilling to sacrifice personal interests for the interests of others.

Other predominant theories include; the stewardship theory which describes executives and directors as frequently having interests that are exactly the same as those of the shareholders, and where the directors are good stewards of the corporate assets; the organisational life cycle theory states that complexity is the key determinant in respect of governance requirements as the organisation moves through the life cycle; the resource dependence theory, assumes that corporate boards will reflect the environment of the organisation and that the corporate directors, who are external to the organisation, will be chosen to maximise the provision of important resources; the social network theory emphasises the importance of network formation on reputation, trust, reciprocity and mutual independence; and the neo-institutional theory asserts the importance of normative frameworks and rules in guiding, constraining and empowering behaviour, arguing that board composition will be determined largely by prevailing institutional norms in the organisations industry sector.

In respect of the various theories it is worth noting as Lynall, Golden and Hillman (2003) contend, “it is not a matter of choosing one theoretical perspective over another but, rather, of identifying under which conditions each is more applicable” (p.419).

The strongest advocates of the joint duality structure have been the CEO’s themselves who don’t favour a separation of the CEO and chairperson roles. Ruigrok, Peck and Keller (2006) state that, “such clear cut leadership removes any ambiguity of accountability and responsibility for firm processes and outcomes. The advantages of clear leadership might be the most valuable in situations where a company has to overcome a crisis, as this situation requires fast decisions and clear strategic orientation” (p.1208), though this is disputed by other academics and researchers.

For example, Kang and Zardkoohi (2005) noted that “if duality is adopted because a powerful CEO imposes it on a board, then governance decisions are likely to favour self-serving behaviours of top executives rather than maximising shareholder wealth” (p.795); and Daily (1995) stated that “the central concern with the dual leadership structure is the power which this structure grants the CEO. A primary function of the board, monitoring the CEO, is impeded when the chairperson also serves as the CEO” (p.1046).

Epstein and Roy (2004) highlight that “many corporations have tried to improve the independence of their boards through ensuring that the board leadership is independent. This can be done through either a separation of the role of the CEO and chairman or by the appointment of a lead director. In both cases, the goal is to provide a board leader that is independent of all day-to-day corporate activities and is solely devoted to providing oversight and fulfilling a fiduciary duty to the shareholders” (p.9).

Recent major studies by Booze Allen Hamilton and Khaled Elsayed found that “the impact of CEO duality on corporate performance varies with industry context and corporate performance, which provides partial support for agency theory and stewardship theory. Their findings highlight that there is no one optimal board leadership structure and that CEO duality will benefit some firms while separation will be more advantageous for others. The findings also provide support for the conclusion of Finkelstein and D’Aveni (1994) that, when corporate performance is low, the board of directors is more likely to prefer CEO duality as a means of improving corporate performance” (Elsayed, K, 2007, p.2010).

It’s worth noting that current research is looking in more detail at the different variables that impact and influence the CEO-Chairman relationship, including the composition of the Board itself.


Brownbill, N. (2008). Exploring the Relationship between Strategic Leadership and Corporate Governance; presented at the 7th International Conference on Studying Leadership, Auckland, December 2008.

Chen, A., Kao, L., Tsao, M., and Wu, C. (2007). Building a corporate governance index from the perspectives of ownership and leadership for firms in Taiwan. Corporate Governance, Vol.15, No.2, p.251-261.

Daily, C.M. (1995). The relationship between board composition and leadership structure and bankruptcy reorganisation outcomes. Journal of Management, Vol.21, No.6, p.1041-1056.

Elsayed, K. (2007). Does CEO Duality Really Affect Corporate Performance? Corporate Governance, Vol.15, No.6, p.1203-1214.

Epstein, M.J., and Roy, M-J. (2004). Improving the performance of corporate boards: Identifying and measuring the key drivers of success. Journal of General Management. Vol.29, No.3, p.1-23.

Kang, E. and Zardkoohi, A. (2005). Board leadership structure and firm performance. Corporate Governance, Vol.13, No.6, p.785-799.

Lynall, M.D., Golden, B.R., and Hillman, A.J. (2003). Board composition from adolescence to maturity: a multitheoretic view. Academy of management review, Vol.28, No.3, p.416-431.

Ruigrok, W., Peck, S.I., and Keller, H. (2006). Board characteristics and involvement in strategic decision making: Evidence from Swiss companies. Journal of Management Studies, 43:5, July, p.1201-1226.

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