Disclose board leadership structure.

• Author: Koppes, Richard H.

Let's mandate that boards tell shareholders whether they do, or do not, have a lead director.

CEOs in the United States have long fought the separation of the positions of CEO and chair of the board. According to Korn/Ferry International's 1997 Board of Directors Study, only 6% of the companies surveyed had independent chairs. In contrast, a number of CEOs have shown a willingness to embrace the concept of lead director. Korn/Ferry reports that the percentage of companies with a lead director increased from 22% in 1995 to 24% in 1997.

While this trend is heartening, I believe that more is needed to jump-start the process of ensuring that all publicly traded companies have an effective independent board leadership structure.

I propose that the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD) amend their listing policies to require a listed company to disclose in its proxy statement whether or not there is a separate independent chair, and, if there is not, whether or not its board of directors has designated a senior independent director who functions as a leader of its independent directors. For this purpose, a director would not be considered to be independent if he or she were the retired CEO or would not otherwise be deemed independent applying the definitions used in the NYSE and NASD rules requiring an audit committee consisting solely of independent directors.

This proposal would not require a company to separate the roles of CEO and chair or to designate a lead director. Rather, it would allow a company to select the board leadership structure that it considers optimal. However, if that structure did not include a separate independent chair or a lead director, the directors would be required to explain in the proxy statement why they believe it to be in the best interests of the company and its shareholders to have a single individual act as its CEO and chair or to have a retired CEO or other non-independent person as chair without the appointment of an independent lead director.

This proposal is designed to encourage directors to consider the issue of independent leadership or a lead director, thereby increasing the likelihood that a company's independent directors will not be beholden to the CEO and that they will actively monitor and evaluate the performance of the CEO and the company on an ongoing basis. Implementation of such a proposal would enhance the ability of a company's board of...