I see Warren Buffett says he’s in favor of Brian Moynihan keeping both the CEO and chairman’s roles at Bank of America. Good for Buffett. Moynihan inherited a godawful mess when he took over as CEO in 2010, and has done a great job in cleaning it up ever since. He’s extremely capable and has an enormous amount of integrity. He’s just about the last man, now that I think of it, who needs to have someone peeking over his shoulder making sure he’s doing his job.
And yet the Wall Street Scold community persists with its weird obsession that splitting the CEO and chairman’s role somehow makes for “good governance.” The usual suspects—Mike Mayo and the gang–are lately chiming in that when BofA shareholders vote on the matter on September 22, of course Moynihan should give up the chairman title. Governance!
Really? First off, if there’s a single piece of empirical evidence that shows that splitting the CEO and chairman improves corporate governance (or plain old shareholder returns, for that matter), I have yet to see it. One would think, rather, that a separate CEO and chairman at a company is a red flag that perhaps not all is well. If a board has so little faith in its CEO that it insists he have a corporate chaperone to potentially second-guess his every move, maybe that CEO isn’t the man for the job in the first place.
Or if the Scolds–who seem to fetishize about appearance over reality in all things, anyway–prefer, how about Moynihan keep the title of chairman, and someone else be named CEO? Maybe we can go one better, and come up with a brand new title that exudes extra-good-governance vibes. How about Grand Pasha? Would that work, Mike?
My point in all this is that CEO-chairman talk is a bunch of useless navel gazing. As I say, its empirical value adds up to zero. And even in theory, it doesn’t make much sense. I can see why Glass, Lewis and ISS are always clamoring for the split. They have a racket to run. But Mike Mayo and the rest are just wrong. First, they seem to not understand what good governance actually involves. For instance, a company whose CEO keeps his board adequately informed on the key issues and risks facing the company, and whose board is in the habit of routinely asking the CEO tough, skeptical questions, can be said to practicing “good governance.” But it didn’t get that way by following some specific structure that ISS and Glass, Lewis approve of, or by ticking off some proxy adviser’s laundry list of best practices. Adequate governance arises out of the culture of a company and the strength and integrity of its leadership. Despite what the Scolds would have you believe, there are no shortcuts to get there. Sorry.
(Disclosure: the funds I manage have a position in BofA. And, yes, we favor keeping the status quo.)
What do you think? Let me know!