Companies with a joint CEO and chair and an ESG rating of ‘F’ include Goldman Sachs, News Corporation, Wells Fargo, Coca-Cola Company and AT&T.
A new report by Governance Metrics International (GMI) reveals that executives who serve as CEO and chair earn a median total compensation over $16 million whereas a separate chief executive and chairman can earn a combined salary of $11 million.
This new finding suggests that companies are not only spending more on the joint roles but that this approach poses a series of accounting and governance risks.
For years, the separation of the chairman and CEO roles has been a hotly debated subject. Many governance research groups and industry observers have long argued that combining the two highest-profile positions is a clear indication that a firm lacks both transparency and accountability.
According to GMI, other findings in the report include:
- Less than 1 percent of companies in the sample (defined as companies with a market cap in excess of $20 billion) with a combined chair and CEO score an environmental, social and governance rating of above average compared to almost 20 percent of companies with separate roles.
- Companies with a combined CEO and chair and an ESG rating of ‘F’ include Goldman Sachs, News Corporation, Wells Fargo, Coca-Cola Company and AT&T.
- Corporations with combined CEO and chair roles are 86 percent more likely to register as ‘aggressive’ in GMI’s Accounting and Governance Risk model.
- Five-year shareholder returns are nearly 28 percent higher at companies with a separate CEO and chair.
Having one-person monitor him or herself also limits power in the boardroom. And the boardroom dynamic is different. Shareholders are now demanding more engagement from directors, regulators are scrutinizing boardroom composition and proxy advisers are playing a more active role. Against this backdrop, there is a changing dynamic in the boardroom; splitting the roles of chairman and CEO can help facilitate a more open and collaborative environment.