Why the CEO Shouldn’t Also Be the Board Chair
Recent debacles at Boeing, WeWork, and Facebook illustrate why organizations should be wary of giving the CEO job and the board chair job to one person. These cases also confirm what the authors have learned from interviews with accomplished tech industry CEOs, board chairs, investors and founders: As a leadership practice, the Two Job – One Person model can deny the organization talent at the top and lead to blind spots that undermine the organization’s ability to manage risks.
Beneath all the reporting on fatally flawed airplane design, serial ten-figure operating losses from big name startups, and Russian-linked presidential election information hackings, there lies an organizational leadership truth from the debacles at Boeing, WeWork, and Facebook: Be wary of giving the CEO job and the board chair job to one person.
As the complexity around and scrutiny of corporate leaders have intensified in recent years, proposals to abandon the Two Job – One Person model have become the most common type of governance proposal submitted by shareholders. This is unsurprising. A board chair leads the board’s effort to excel at advising on strategy, monitoring performance, overseeing finance and controls, and evaluating management. A CEO establishes within the company a shared set of values, practices, and goals that enables the company to execute its strategic plan and build a meaningful future. To grow, a company needs both of these roles performed thoroughly and well.
The three cases examined here show why we believe the model should concern investors. They also confirm what we’ve learned from interviews with accomplished tech industry CEOs, board chairs, investors, and founders: that as a leadership practice, the Two Job — One Person model can deny the organization talent at the top and lead to blind spots that undermine the organization’s ability to manage risks.
The CEO-Board Chair at work
Let’s look at each of the cases we mention above in more detail. First, during Dennis Muilenburg’s recently concluded tenure as both board chair and CEO of Boeing, the United States’ 28th largest corporation attempted to contain costs by outfitting a version of its flagship airliner with a flawed flight control system. It lobbied successfully to ease regulatory review of new airplane designs. It then failed to tell pilots and the FAA about the control system’s flaws, despite apparently knowing about them. These choices were part of a chain of events that is suspected to have led to two plane crashes and the tragic loss of 346 lives, the grounding of almost 500 planes worldwide, and company losses that will exceed $18 billion.
In WeWork’s case, during the last three and a half years of Adam Neumann’s recently concluded tenure as both board chair and CEO, the office subleasing start-up founded a meat-free New York City elementary school and took a stake in a surf lagoon manufacturer located in northern Spain. Its financial reports regularly showed it spending two dollars for every dollar earned. The corporation’s vision and other decisions during those years resulted in operating losses that exceeded $4 billion.
In Silicon Valley, Mark Zuckerberg continues an undisturbed tenure as Facebook’s CEO and board chair. But lawmakers recently blistered the corporation for becoming a tool for Russian obstruction in the 2016 U.S. presidential election. Critics claim Facebook has taken inadequate steps to prevent an encore in the next one. So far, though, lobbying efforts seem to have staved off legislation that would require Facebook to change the customer data collection and sharing practices at the heart of the problem. It recently reported third quarter income of $7.1 billion, a 24% increase over the previous year.
The problem with two for one
These debacles illustrate different problems with the Two Job – One Person model. First, in early stage companies, the person picked for the two jobs is often the founder, which means the jobs are likely given to someone unqualified to perform them. Jay Watkins, a Lecturer at Stanford Graduate School of Business with a three-decade career as a venture investor and founder, CEO, and board chair at several healthcare companies, explained to us:
The frustrating paradox about entrepreneurship is that you need persistence and an unwavering belief that your perspective is right. Yet as the organization grows and adds people and complexity, those traits morph into liabilities. Founders don’t intuitively recognize that they’re missing the traits required to be leaders of their now larger and more complex organizations. As an organization grows, a founder loses control and must open up to influence, collecting information and feedback.
Even the most extraordinary founder’s talent set will likely not include both a CEO’s ability to establish a shared set of values, practices, and goals that enables the company to build a meaningful future and a board chair’s ability to direct the board in its oversight and strategy advisory roles. By monopolizing both jobs, the Founder-CEO-Board Chair denies the company the opportunity to benefit from the skills, experience and capacity a second corporate leader could provide.
Second, the Two Job – One Person model can weaken the corporation’s ability to manage its risk by undermining the import of feedback delivered to the CEO from the board’s closed executive sessions. Mr. Watkins further told us:
[T]he closed executive session … is critically important … I go around the room and ask for individual feedback…After collecting feedback, I say to the board, “With your concurrence, I will aggregate these responses, sit down with the CEO, and discuss your feedback.”… Having separate chair and CEO ensures you have dialogue at the right levels.
A CEO feedback session whose import is underscored by having the CEO’s organizational equal—i.e., the board chair—conduct it is not possible, of course, when the board chair is the CEO. This makes it harder to check a top exec steering the corporation astray.
If we go back to Boeing, Muilenburg seemed intent during his three–year tenure as CEO-Board Chair on remaking an aerospace company into a “global industrial champion.” He gave interviews that fueled his debate with Tesla founder Elon Musk about whose company would make the rocket that carries the first person to Mars. His company’s culture, even before the first 737 Max crash in Indonesia in 2018, was generating employee emails that referred to regulators as “dogs watching TV,” and to the plane that would crash twice within six months as “a joke.” That culture would soon be described as “deeply flawed.”
In the wake of that first crash, Boeing might have benefitted from a board chair initiating a closed executive session that considered Muilenburg’s fixation on global and interplanetary aspirations. Perhaps those aspirations could have been identified as what they turned out to be: signals that the corporation’s priorities had veered dangerously out of alignment. Perhaps the tragic Ethiopia crash a couple months later could have been avoided with additional “dialogue at the right levels”—i.e., if someone whose stature in the organization equaled Muilenburg’s told him the board wanted the corporation’s priorities to change immediately. One wonders whether any board members have misgivings about the company’s decision to replace Muilenburg with another CEO-Board Chair.
The third problem we see is that letting the CEO chair the board can compromise board discussion quality, weakening the corporation’s risk management ability. Sam Gerace, CEO at Convey and five-time technology CEO, recently told us:
I would argue that organizationally the chairperson should not be the CEO, simply because organizations move in the direction of the questions that they ask. If you have a chairman and a CEO, one and the same, there are questions that might not get asked. He or she could create an atmosphere in the room that is hostile to certain questions being asked, and in that case the organization suffers.
Will spending two dollars for every dollar we earn ever put us on a positive trajectory? How will investing in a surfing lagoon manufacturer ever advance our mission? Had the board at WeWork asked such questions and pressed for answers, the corporation might have moved in a direction that would not have entailed the loss of $4 billion.
Does the FAA really understand our designs well enough to evaluate them? What role did our design play in the Indonesia crash? Had the board at Boeing asked such questions and pressed for answers, the corporation might have fully grasped its exposure to risk and made different decisions.
Splitting the CEO and board chair jobs between two people can help strengthen the quality of questions the corporation asks itself. When those questions remain weak, the organization is less likely to develop strategies that mitigate risk.
Finally, consider the model’s potential impact on a corporation whose disruptive business model, thanks in part to lax regulation, generates profit yet also harms customers, employees, or other stakeholders. Board oversight of operations normally orchestrated by the board chair might steer such a corporation away from generating that damage. Yet that oversight may never happen if the CEO-Board Chair happens to be one and the same and fixates on profit and fame. That executive may instead implement policies that distract public attention from the damage by spotlighting compliance with the lax regulation, thereby perpetuating the profit, the fame and the damage.
Facebook’s business model, for example, violates no statute concerning customer data collection, yet allowed the platform to be used as a tool for foreign interference with presidential elections. How could the business model be altered to prevent future damage? What role is Facebook’s board playing in exploring these high-stakes questions? Zuckerberg meanwhile spearheads a lobbying blitz that discourages laws that would force the business model to change, in part because it complies with the First Amendment.
The good news is, more companies are starting to keep the CEO and board chair roles separate. Between 2005 and 2019, according to Institutional Shareholder Services, the percentage of companies in the S&P 500 who split the CEO and board chair jobs between two people rose from 30% to 53%. That split of course doesn’t guarantee organizational success, just as embracing the Two Job – One Person model does not necessarily spell organizational doom. But the Boeing, WeWork, and Facebook debacles illustrate that the model can compromise a firm’s talent base, risk management, and societal impact. A company aiming to build a meaningful future will think carefully about these cases in considering the leadership it needs.
Joseph Mandato is Managing Director of DeNovo Ventures, Co-Chair of Harvard University’s Advanced Leadership Coalition, and Lecturer at Stanford University.
William Devine leads the Corporation in Society Practice at William Devine Esquire, a Silicon Valley regulatory and governance law firm, and is Adjunct Professor of Law at Menlo College
Why the CEO Shouldn’t Also Be the Board Chair
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