All public companies in the United States are required to have a board of directors that is tasked with overseeing corporate activities and protecting the interests of the company's shareholders.

The board is headed by a chairperson, or chair, who can influence the direction of the board. In many companies, the chief executive officer (CEO), who holds the top management position in the compꦇany, also serves as board chair. This is often the case with companies that have grown rapidly and still retain the initialꩵ founder in those roles.

The issue of whether one person holding both roles reduces the effectiveness of the board is a hot topic and often rears its head at shareholder meetings. There are good reasons to separate the two position🐬s in order to strengthen the overall integrity of the company. Tꦐhis article looks at three of them.

1. Executive Compensation

An increase in executive pay generally gets the attention of company 澳洲幸运5官方开奖结果体彩网:shareholders. Increases come at the expense of shareholder profits, although most shareholders understand that competitive pay 𒀰helps to𒀰 keep talent in the business, which can drive profits.

However, it is the board of directors that votes to increase executive pay. Accordingly, when the CEO is also the chair, a 澳洲幸运5官方开奖结果体彩网:conflict of interest arises, as the CEO is voting on tꦜheir꧃ own compensation.

Although a board probably includes some members who are indepeꦓndent of management (as required by legislation), the chair/CEO can influen෴ce the activities of the board, which allows for potential abuse of the chair position.

2. Corporate Governance

One of the board's main roles is to monitor the operations of the company and to ensure that it is being run in conjunction with the mandate of the company and the will of the shareholders.

As the CEO holds 𒉰the management position responsible for driving those operations, having a combined role results in monitoring oneself, which꧙ opens the door for abuse of the position.

A board led by an independent 🗹chair is more likely to identify and monitor areas of the company that are drifting from its mandate and to put into place ꦜcorrective measures to get it back on track.

3. Audit Committee Independence

In 2002, the Sarbanes-Oxley Act was passed in response to several high-profile corporate failures. It set out stronger regulations for corporate oversight, including a requirement that the 澳洲幸运5官方开奖结果体彩网:audit committee consist of external board members only.

This means that no member of managemen♏t can sit on the audit committee. However, because the committee is a sub-group of the board of directors and reports to the chair, having a CEO who is also the chair can limit the effectiveness of the committee.

This is especially true for the whistleblower clause. Sarbanes🐼-Oxley requires that the audit committee have a procedure whereby employees and other connected individuals can report fraud and other abuse ꧃directly to the committee, without reprisal.

When the board is led by management, employees may be less likely to report such activities and the audit committee may be less likely to act on such reports.

The Bottom Line

In many instances at public comp🐈anies, the two high-profile positions of CEO and board chairperson are o𒐪r have been held by one individual. That is changing due to conflicts of interest and misbehavior that can arise. Shareholders are increasing the pressure on companies to fill the roles with two different people.