The lead director.

• Author: Lipton, Martin
• Position: Corporate director - Includes related articles

In many boardrooms today, such a leader is already recognized by management and the outside directors.

In more than 70% of the major British public companies, the chairperson of the board is not the chief executive officer. In these British companies a non-executive outside director is the chairperson. The chairperson sets the agenda for the board, presides at the meetings of the board and of shareholders, and, frequently, individually or together with the CEO, speaks for the company. The CEO manages the company on a day-to-day basis. This arrangement has worked well in Britain. It is one of the key recommendations in the Cadbury Committee's draft report on proposals to improve corporate governance in Britain.

In the United States the opposite approach prevails. Less than 20% of our companies have a separate chairperson and CEO. The vast majority of American CEOs are opposed to separating the two roles. The principal arguments against such separation are that:

* It would dilute the power of the CEO to provide effective leadership of the company.

* It creates the potential for rivalry between the chairperson and the CEO, leading to compromise rather than crisp decisiveness.

* The chairperson may be overly protective of the CEO and shield the CEO from being held accountable by the board for poor performance.

* Having two public spokespersons leads to confusion and the opportunity for third parties to take advantage of the division.

While we have reservations about the validity of some of the arguments against the separation, we see no need to face these issues directly. Instead, we recommend that those companies that do not have a non-executive chairperson designate one of the outside directors as the lead director.

The lead director would not have a corporate title and would not have an office at the company headquarters. The lead director would not set the agenda nor preside at meetings of the board or of shareholders. Nor would the lead director act as a spokesperson for the company.

The lead director would be consulted by the chairperson/CEO on: (1) the selection of the board committee members and chairs, (2) the board's meeting agendas, (3) the format and adequacy of the information directors receive, and (4) the effectiveness of the board meeting process. The lead director would also coordinate an annual evaluation of the chairperson/CEO by the outside directors.

Finally, if the outside directors are confronted by a crisis because of the incapacity of, or failure of performance by, the chairperson/CEO, they would have a designated leader in place and would not lose time in organizing to deal with the problem.

While the immediate reaction of many chairperson/CEOs to this proposal is negative, we believe it is a critical factor in making boards more effective. In fact, we believe that in many boardrooms today such a leader is already recognized by management and the outside directors. This is a natural concomitant of responsibility for audits, compensation, and nominations being placed in the hands of committees composed only of outside directors. The chair of one of these committees usually...