To Split or Not to Split?

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In the last year alone, JPMorgan Chase has been in the news for the “London Whale” trading losses, executive compensation packages, and simply because of its size. Further adding to the company’s media exposure, this week several institutional investor groups—including the American Federation of State, County and Municipal Employees (AFSCME), the Connecticut Retirement Plans and Trust, Hermes Equity Ownership Services, and several New York City pension funds—announced their support for a proposal requesting that JPMorgan’s board name an independent chair.

This announcement is one of many actions recently undertaken by AFSCME to alter the governance structures of publicly traded companies. Last week, the employee union announced its 2013 shareholder proposals, targeting “too big to fail” financial firms and “imperial CEOs.” AFSCME submitted shareholder proposals at 11 companies, including General Electric, Lazard, Lockheed Martin, and Wal-Mart. This is not the first time JPMorgan Chase has been the subject of a proposal to split leadership roles. Just last year, AFSCME submitted a similar resolution, which fell short with 40 percent support.

Despite its failure to attain majority support at JPMorgan, AFSCME claimed victory in 2012 following Goldman Sachs’ appointment of a lead director—a compromise from the union’s original proposal to name an independent chair. Nevertheless, the charge to separate the chair from CEO positions at large financial institutions is an uphill one. According to data from NACD’s 2012-2013 Public Company Governance Survey, just 38 percent of responding companies combine the chairman and CEO positions. At large and mega financial companies, this percentage jumps to 48 percent.

Board leadership has proven to be a divisive topic in the corporate governance sphere. Many investors and governance experts view the combined CEO/chair leadership position as an inherent conflict of interest, as the board—charged with oversight of the CEO—is chaired by the CEO. Additionally, the role of CEO requires a significant time commitment, compounded by the oversight responsibilities of the chairman.

Not all are convinced, however, that separating the leadership positions is the optimal structure for every board. Other governance experts note that the dual sources of authority created with the independent chair may undermine the CEO’s ability to run the company, or may allow the other directors to overly rely on the work of the non-executive chair.

Interestingly, in an announcement earlier this week, Norges Bank Investment Management—the world’s largest sovereign wealth fund—recognized that governance codes cannot be substituted for judgment. It still advocated, however, for separation of the chairman and CEO roles, despite what it sees as a need for additional study.


  • Is James Dimon concerned with excessive shareholder scrutiny, and possible litigation? It seems to be an issue in US, unlike other jurisdictions, many of which have 100% or close to it separation of roles in listed companies. I believe in Germany and Netherlands it is a legal requirement, and In UK it is near universal.

  • It just seems so logical to ensure a split in these roles, as long as the scope of each one is clear. To keep the CEO and the management team on their toes in terms of performance and in terms of governance issues, the independent Chair should be distinguished and separate from the CEO in role and person (see Judge Mervyn King on Corporate Governance, “The Corporate Citizen”). The Chair (and the Board’s functions) is reflective whereas the management team (CEO et al) is active.
    With the legitimacy of leadership in question having regard to numerous scandals and other misdemeanours over the last several years, one would have thought that this split in role and person between CEO and Chair, what some may regard as an inconvenience and an unnecessary overhead should not be a debate at all but an imperative for all well-intentioned corporates.