CEO Duality

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CEO Duality

🔥 CEO duality refers to the situation when a Chief Executive Officer (CEO), besides running the corporation at the highest level, also holds the position of the Chairman of the Board. This phenomenon can only be found in One-tier Boards. In simpler wording, it's when a firm's CEO wears 2 hats: the CEO-hat and the Chairman of the Board-hat. CEO Duality obviously affects the company in question in multiple ways, which may be positive or negative.
I would like to kick off this discussion page on CEO Duality by answering the question:

How does the CEO duality impact on the effectiveness of the company's corporate governance system?

There are at least 4 areas to consider for answering this question:

1. BOARD EFFECTIVENESS: CEO duality night make the board of directors members and managers feel that their contribution will not make a lot of difference, because the decisions and implementations are in the hands of one person. This creates an imbalance of the power within the firm and enables one person to carry out all matters of the organization, which quickly results in highly biased and potentially ineffective decisions.
2. BOARD INDEPENDENCE: The Cadbury Report recommends that all listed companies should have no role duality to ensure a balance of power and authority leading to more independent boards. CEO duality increases the concentration of power in the hands of one person, where the chairman plays the role of a decision-maker, supervisor, and executive manager at the same time. That will reduce the essential check over the management's performance and diminish the board's independence.
3. EFFECTIVENESS OF MONITORING AND CONTROLLING MANAGEMENT: When two important positions are held by one person, her/his own interests might be advanced over the company's interests. Insecure directors might evaluate the firm's performance less reliably because they fear the powerful Chairman+CEO person. This may lead to long-term strategic drift. So CEO duality weakens the board's effectiveness in monitoring and controlling management. A separation of the two positions will provide checking against the possibility of ambitious plans by the Chairman/CEO. That is very important for monitoring the management.
4. DISCLOSURE AND TRANSPARENCY: A merge of the CEO and Chairman role could lead to a conflict of interests and that could increase the chances of wrong disclosure or of decreased reporting quality. The concentration of power in CEO duality is therefore associated with reduced transparency and lower quality of corporate governance information. A separation between the two positions helps to improve the quality of supervision and reduces any advantages gained by the CEO from withholding information.

All in all, it could be said that CEO duality negatively affects the effectiveness of a firm's corporate governance system.

⇨ I am looking forward to your reactions on the effect of CEO Duality on Corporate Governance as well as other effects of CEO Duality. Please, if you have any related information, share it here.

References:
1. B. Ram Baliga, R. Charles Moyer, Ramesh S. Rao, (1996), CEO Duality and Firm Performance: What's the Fuss?, Strategic Management Journal, Vol. 17, No. 1, pp. 41-53.
2. G. Vintnla, (2013), Study on CEO Duality and Corporate Governance of Companies Listed in Bucharest Stock Exchange, Revista Română de Statistică – Supliment Trim II, pp. 88-93.
3. K. Kong-Hee, R. Buchanan, (2008), CEO Duality Leadership And Firm Risk-Taking Propensity, The Journal of Applied Business Research – First Quarter, Vol. 24, No. 1, pp. 27-42.

		Comments by date▼ Comments by rating Rating
		3 Graham Williams Management Consultant, South Africa
	How Does the CEO Duality Impact on the Effectiveness of the Company's Corporate Governance System? In most cases I believe that the roles of Board, Leadership and Management vary sufficiently to warrant the separation of the individuals carrying out those roles - in order that the right checks and balances come into play, that there is a right focus on sustainable profit/people/planet and balancing of stakeholder/shareholder/customer/activist and other interests; a right weighing up of risk and reward, and a right application of ethics to prevent disconnects between stated purpose and values and actual on-the-ground behaviours. Simply put, Boards govern for the long term sustainability, Leaders inspire and determine direction, Managers produce. Thus Boards are more focused on the long term and deal with a wide and broad range and scope of issues than do Leaders and then Managers. Managers deal with greater operational depth than Leaders, and then Board members. Note that in my opinion, all share an interest in matters of culture, strategy, reputation etc. But this doesn't obviate the role focus here proposed. The larger the organisation, the more importance should be put on this role distinction. Wherever possible avoid the shortcomings and perceived shortcomings of CEO duality.

		1 chaovalit Director, Thailand
	CEO Duality Trade-off To the point, the CEO Duality will be working well for small private company. Otherwise there will be no check and balances at large and or public companies.

		1 Helen Strong Business Consultant, South Africa
	King IV Report Considerations for CEO Duality @ Graham Williams: I agree that definitely the larger the organisation, the more important it is to separate the powers. But recognise that probably not possible in SME's. The King Report IV has been adopted in South Africa. Simply said it recommends: "As a minimum, the chief executive officer (CEO) and at least one other executive should be appointed to the governing body to ensure that it has more than one point of direct interaction with management." However while it does not prevent one individual from holding two such powerful positions it highly recommends that this does not occur. Relevant injunctions include: Principle 7: "The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively." Later: "Members of the governing body should avoid conflicts of interest…" "The governing body should elect an independent non-executive member as chair to lead the governing body in the objective and effective discharge of its governance role and responsibilities" "The CEO of the organisation should not also chair the governing body, and the retired CEO should not become the chair of the governing body until three complete years have passed after the end of the CEO's tenure." So all things considered, for maximum transparency, different people should be CEO and Board Chair.

		0 Graham Williams Management Consultant, South Africa
	King IV Report Considerations Agree Helen. King IV principles are very sound. Very apt in this world requiring sustainability, decent decision - making "capitals" and frameworks, need for adhered-to values and good corporate gover...

		1 John Henry Project Manager, United States
	An Organization Requires Cooperation at All Levels Whenever we start with creating a one size fits all, it does not fit, anyone. First, what is the role of the CEO, What is the role of the Chairman of the board, What is the role of the Board itself. ...

		1 Cecilia Calderon Kohler Accountant, Chile
	CEO DUALITY La problemática Director Ejecutivo-Presidente del Directorio es vista como una opción para minimizar costos, sin embargo, esto puede afectar el control de la organización. Cuando las empresas optan po...

		0 Graham Williams Management Consultant, South Africa
	CEO Duality Agree Cecilia. A clear, concise, well-thought-out viewpoint supported by good research sources. Thank you. Your opinion also shows that the situation that we're discussing is not one of duality betwee...

		4 Jaap de Jonge Editor, Netherlands
	CEO Duality (or Not) is Complex. Multiple Interests are at Stake As Mohammad Hamdan wrote so clearly, there are at least 4 major ways in which CEO Duality (or Not) influences the effectiveness of a company's corporate governance system and (indirectly) the effectiv...

		1 Manoj Rambajan (MBA) Mauritius
	CEO Duality - the Power Game CEO Duality has a direct impact on corporate governance system as it relates to the power game in the organization. In my opinion, the system is only effective in very rare circumstances such as in fa...

		1 Jaap de Jonge Editor, Netherlands
	Success Factors of Co-CEOs Model Don't mix up "CEO Duality" with the concept of "Co-CEOs". Co-CEO's is a more informal, less legal way of sharing the immense task of a CEO. Although the 2 concepts are different, they also have substa...

		2 Moderated AI Netherlands
	The Advantages and Disadvantages of CEO Duality CEO duality, where the CEO also serves as the chairperson of the board of directors, has both advantages and disadvantages: Pros: EFFICIENT DECISION-MAKING: With CEO duality, there is a single ...