No litmus test: the superficiality of considering the chairman-CEO split as 'best practice.'.

• Author: Kaback, Hoffer
• Position: QUIDDITIES

ONE OF THE MANY ongoing policy debates in the corporate governance world is whether or not to split the positions of board chairman and CEO.

Some make that issue a litmus test for "good governance" or "governance best practices." That is: A split equals "best practice"; a non-split equals a palpable insensitivity to "good governance." And a non-split may engender a shareholder proposal reflecting that dichotomous view.

News Corp. and Wells Fargo have received such proposals and, in late February, so too did JPMorgan Chase.

Still, an important analytical problem remains. It is that, often, the phrases "best practices" and "good governance" are not merely annoying. They are bootstrap. They conveniently (though transparently) assume the conclusion.

Whether it is a good thing or a bad thing to effect a split is, a priori, not at all clear. There are cogent arguments both ways.

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In a column eight and one-half years ago, "To Split or Not to Split" [Fourth Quarter 2004], I mentioned people of some accomplishment in the business or academic worlds who had opposite opinions on the subject. These included former Federal Reserve Chairman Paul Volcker, favoring a split, and former long-term CEO Norman Augustine and management guru Ram Charan, who feel that a split is generally not beneficial.

In an in-depth conversation with me some years ago in these pages ["Paul Volcker: Corporate Director, Public Servant," Fall 2000], Volcker told me: "Most of the time [a split may not make much difference]. But when a company gets in trouble, and if there's some question about the chief executive officer in terms of his tenure, responsibility, the need for new blood, or whatever, it's just much more difficult to make the change when you don't have an alternate source of leadership on the board other than the chief executive himself?'

Does Volcker's position embody truth, wisdom, and "best practice"? Or, does the opposite of Volcker's position possess those attributes? Answer to both questions: No. The matter does not permit a litmus test, cookie-cutter, or box-checking approach. That way superficiality lies.

Consider the recent interesting study from Ryan Krause and Matthew Semadeni, which appears on The Conference Board's Governance Center Blog.

Krause (completing a Ph.D. at Indiana University's Kelley School of Business) and Semadeni (an associate professor of strategy there) address, in that February 6, 2013, piece titled "CEO-Board Chair...