Commentary by David F. Larcker, James Irvin Miller Professor of Accounting & Director, Stanford GSB Corporate Governance Research Program; and Brian Tayan, Stanford GSB Case Writer, MBA ’03.
Early proposals for financial reform would have required that companies with a dual chairman-CEO formally separate the roles. For example, Senator Charles Schumer’s much touted “Shareholders Bill of Rights” last year would have made an independent chairman a legal requirement. The concept of an independent chairman has been widely supported by corporate governance experts, both academic and professional, who believe that a dual chairman-CEO leads to management entrenchment and reduced board oversight. To this end, the Corporate Library has written that “A split between the roles of chairman and CEO is gaining widespread support as a corporate governance best practice that many business leaders believe should be adopted by more, if not at all, public companies in the U.S.”
While the prospects of a legal mandate have fallen largely by the wayside in the current financial reform bill, the push to require separation has moved to the marketplace. This year, shareholders of Kohl’s sponsored a proposal that would have required an independent chairman. Shareholders at Constellation Energy Group sponsored a similar proposal.
The results of these votes are quite interesting. Kohl’s shareholders rejected the proposal by an astounding margin: 42 million votes in favor and 208 million against. Constellation Energy shareholders rejected the proposal by a similar margin: 28 million to 124 million.
It makes you wonder: if an independent chairman is such a good idea, why did so many shareholders vote against it?