An ever increasing number of investors are convinced that splitting the positions of chairman and CEO is a key element of good corporate governance. While separate positions have already long been considered as good practice in the UK (split roles in more than 90% of the FTSE 100 companies according to PIRC*), 67% of the S&P 500 companies still combine the chairman and CEO positions according to ISS**.
In the USA, following various scandals since the year 2000 (Enron, Tyco, Worldcom, etc.), more and more shareholders have engaged with companies to require that chairman and CEO duties be split. The engagement process resulted in shareholder resolutions being filed in a rapidly increasing number of companies, from 4 in 2002, up to 29 in 2003, and 40 in 2004. In 2005, 42 companies are so far concerned.
In 2004, the resolutions received significant support from shareholders’ votes, thereby giving a strong signal to managements. For example :
- Bristol-Myers Squibb : 38%
- United Technologies : 33%
- Merrill Lynch : 33%
- Exxon Mobil : 27%
- Coca-Cola : 25%
In 2004, the shareholders of Disney pressured the company’s board to obtain the separation of the roles held by Mr. Eisner since 1984. The final decision came after 43% of shareholders withheld their votes from Mr. Eisner at the Annual General Meeting. More recently, Fannie Mae announced that both roles would be split following the conclusion of an official inquiry which revealed violations of accounting rules.
For 2005, ICCR*** has launched a campaign targeting pharmaceutical companies to improve their transparency and corporate governance. Among the various resolutions filed, one requires the separation of the duties of chairman and CEO in the following companies : Abbott Laboratories, Bristol-Myers Squibb, Eli Lilly & Co., Merck, Pfizer, Wyeth.
The ethos Foundation supports resolutions in favour of separate chairman and CEO positions. Ethos is convinced that separate roles are a key element in contributing to reduce risks of dysfunction at top management level.
* PIRC : Pension Investment Research Consultants
** ISS : Institutional Shareholder Services
*** ICCR : Interfaith Center for Corporate Responsibility
