Should The CEO Also Be Chairman Of The Board?

Abstract

For some time, practitioners and academics have been trying to determine whether it is better for a company's shareholders to allow the CEO of the company to also be Chairman of the Board (a unitary leadership structure) or whether another person (an independent director) should hold the board Chair position (a dual leadership structure)   Not surprisingly, most executives believe one person should hold both positions while academics hold mixed views on the subject.  The empirical results presented in this study suggest that a dual leadership structure is superior for most firms because it allows the board to better control the opportunistic behavior of the firm's managers.  Specifically, as agency theory predicts, dual leadership firms pay lower compensation to their CEOs, have lower selling, general, and administrative expenses, use more debt in their capital structures, pay out more of their free cash flows to investors, and are more profitable than unitary leadership firms.  Each of these results indicates less opportunistic behavior by the managers of dual leadership firms.