Assessment 2 module 3

The role of the CEO and the chair should not be combined. 1
If the roles of CEO and chairman are merged, all the authority is put down in the hand of one
individual; no checks and balances do exist. The CEO has to monitor him/herself, which
constitutes a conflict of interest. If the CEO is in charge of running the company and the
board has to oversee the CEO’s decisions in the shareholders’ interest, it is difficult for the
board to properly monitor the CEO’s conduct if the CEO is also serving as board chair.
Besides the conflict of interest, CEOs who are as well in the role of a chairman are more
expensive than CEOs who only serve as CEO. They are paid more than even the combined
cost of a CEO and a separate chairman. Additionally, companies with combined CEOs and
chairmen constitute a higher risk for investors and accommodate lower stock returns than
companies with separated roles.2

Swiss company law gives companies freedom to decide whether the roles of CEO and
chairmen should be separated or not. The Swiss Code of Best Practice for Corporate
Governance, which provides companies with recommendations on designing their corporate
governance, does not comment on the cumulation of CEO and Board member; it only
stipulates that a majority of board members should be independent. 3 Nevertheless, the dual
function of CEO and chairman in the same company is quite common in Switzerland.
The different tasks of the executive management and chairmen lead to role conflicts. The
Executive Board, headed by the CEO, manages the company operationally. The board of
directors in turn supervises the executive board and determines the corporate strategy to be
implemented by it. Certain tasks of the board of directors specifically concern the CEO, such
as the design of his compensation package or his dismissal. If the CEO is also a member of
the board of directors of the same company, he can therefore determine his own destiny in
part and also supervise himself in part which leads to concentration of power with the CEO. 4
For those reasons I also take the view that the role of the CEO and the chair should be two
separate roles.

1
Paul Davies, Board Structure in the UK and Germany: Convergence or Continuing Divergence, p.7
2
Noam Noked, Harvard Law School Forum on Corporate Governance,
https://corpgov.law.harvard.edu/2012/07/13/the-costs-of-a-combined-chairceo/
3
Swiss Code of Best Practice for Corporate Governance,
https://www.economiesuisse.ch/sites/default/files/publications/economiesuisse_swisscode_d_web.pdf
4
Martin Gollmer, Finanz und Wirtschaft, Heikle Macht der CEO im Verwaltungsrat, p.1