What is the Effect of the CEO also being Board Chairperson?

There is an active discussion around corporate governance right now on a LinkedIn group, debating the issue of insiders (especially the CEO) being a voting member and chairman of his or her board. The consensus of the participant professionals seems to be that a separate chair is “better.” (I agree). But, the problem is that research, which uses stockholder value as the outcome indicator shows very little, if any, effect between an independent board and one where the CEO is also the chairperson.

Here is the dilemma as I see it, especially viewed around the issue of perhaps one of the most dangerous risks for an organization—denial, the inability to face the truth when threatened. The danger of denial is enhanced when we are in the trees and cannot see the forest AND, we also grew the trees, we are also vested in the trees (activating the “sunk cost” bias in our thinking). This is the case with insiders on a board. They are among the trees and know them and like them. It is well accepted that both being in the trees and invested in them—having a stake in the trees such as “it is your project” (think Bay of Pigs, or Kodak)—militates against a dispassionate view of the facts when they are in opposition or threatening.

Distance helps perspective, one argument for an independent board. However, with governing boards, the dilemma with distance (i.e., independence), is lack of sufficient information to compete with insiders. It is the insiders (including the CEO) who have by far the most information, have the time and resources, spent time on it, and think they have considered every angle to rationalize and support their conclusions. The poor outsiders haven’t a chance with that asymmetry of information!

Distance works when there is parity of information all around. The big picture combined with no bias helps greatly in avoiding denial. However, in the current constructs we use for board governance, the two seem mutually exclusive —more of one results in less of the other, a perverse and unfortunate “system” indeed, to the detriment of the ownership.