A panel of prominent business leaders yesterday urged companies to consider separating the roles of chairman and chief executive, although it stopped short of urging all companies to sever the two offices.
The 12-member panel, appointed by the Conference Board, a business research group, said there was no clear evidence that one single approach was best for all companies. One panel member, former TIAA-CREF chairman and CEO John H. Biggs, said forcing companies to separate the jobs would impose an unnecessary cost.
Most firms in the Standard & Poor's 500, a broad cross-section of American industry, are led by executives who are both chairman of the board and chief executive of the company. In the wake of accounting scandals at Enron Corp., WorldCom Inc., Tyco International Ltd. and other firms, the independence and vigilance of corporate boards has come under intense scrutiny. Multiple reform efforts have focused on strengthening boards, ensuring that directors do not act as rubber stamps for management and limiting the power of the chief executive.
The panel, co-chaired by John W. Snow, CSX Corp. chairman and chief executive and President Bush's choice as the new Treasury secretary, has no formal power to enforce any of its suggestions. But corporate executives are expected to take seriously the recommendations of the panel.
The panel included former Federal Reserve chairman Paul A. Volcker, former commerce secretary Peter G. Peterson, former Securities and Exchange Commission chairman Arthur Levitt Jr., former U.S. comptroller general Charles A. Bowsher, former Vanguard Group chairman John C. Bogle and former senator Warren B. Rudman.
Snow did not attend the news conference announcing the findings. He has said he will make no public comments until the Senate confirms him as Treasury secretary. Peterson said Snow supported all the recommendations.
The panel suggested that a "presiding director" post be established at firms where the same person serves as chief executive and chairman. The presiding director would lead all meetings of the independent directors, be the main liaison between the board and management and set the agenda for board meetings.
In instances where the chief executive and chairman positions are held separately, but the chairman is not fully independent -- for example when the chairman is the company founder or a major shareholder -- the panel suggested that a "lead independent director" position be created. This lead director would, along with the chairman, set the agenda for board meetings and control information flow between the board and management.
Bogle also took aim at institutional investors such as pension and mutual funds. He said that they control about half of all outstanding stock but have failed to use their considerable power to discipline rogue executives and demand stronger board oversight.
Among other recommendations, the panel said companies should only hire independent law firms to conduct internal investigations, not firms that already do business with the company. The panel also said audit committees should be strengthened by hiring more directors with financial expertise or by hiring outside advisers to assist audit committee members.
A firm's internal auditors should also have a direct line of communication with the audit committee, the panel said, and outside auditors should not perform other services and should be rotated often.