WSJ Article re Trend Toward Independent Chairs

By Cydney Posner

This article is in The Wall Street Journal, "More CEOs Sharing Control at the Top," confirms the growing trend toward separating the positions of CEO and board chair, attributing the move largely to pressure from activist investors. According to the article, more than 20% of the companies in the S&P 500 Index now have an independent chair, up from 12% in 2007.

Commentators contend that "[s]hareholder resolutions have been critical in opening boards' minds to splitting the chair and CEO." While many companies have separated the roles without any direct instigation from shareholders, "investor campaigns have pushed the issue higher on directors' agendas." So far this year, 49 companies have had ballot measures for independent chairs, the highest figure since at least 2007, according to ISS. Last year, four independent chair resolutions passed. Between 2007 and 2011, of the 12 companies with shareholder-approved proposals calling for independent chairs, nine subsequently appointed independent chairs.

The article suggests that having a chair "without ties to their company's management gives board members a better chance of acting as an effective counterweight—a priority for some investors after a decade in which weak board oversight of management has been blamed for contributing to accounting scandals and bank meltdowns." Independent chairs also develop board agendas, run the meetings and play a significant role in recruiting new directors and handling CEO successions.

One example cited in the article is the action to split the two roles taken by Moody's a year after shareholders approved a proposal to put an outside director in the chair post. The two proponents sponsored the proposal for an independent chair to address "concerns the company's board hadn't done enough to restrain management ahead of the financial crisis, when some debt given high ratings by Moody's and other firms quickly went sour." Faced with proposals to split the positions for three years in a row, Moody's continued to voice its opposition in its proxy statements. When the last resolution won 56.6% of the vote, Moody's initially took no action because the resolution was not binding. However, the "sponsors then stepped up the pressure…." The submission by the sponsors of a binding proposal for the 2012 annual meeting triggered a meeting with Moody's CEO and lead director, where the two officials "finally agreed that splitting the roles would work if the outside chairman didn't try to run the business." The proponents then dropped their binding proposal. With no irony intended, I'm sure, a spokesman for Moody's professed that "Moody's values the views of its shareholders."

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