Posts Tagged ‘Greg Ruel’

The Costs of a Combined Chair/CEO

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday July 13, 2012 at 9:27 am
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Editor’s Note: The following post comes to us from Paul Hodgson, Chief Communications Officer and Senior Research Associate at GovernanceMetrics International, and is based on a GMI report by Mr. Hodgson and Greg Ruel.

The two most authoritative positions in a boardroom are the CEO and the chairman. However, when these roles are combined, all the authority is vested in one individual; there are no checks and balances, and no balance of power. The CEO is charged with monitoring him or herself, presenting an obvious conflict of interest. Indeed, if the CEO is responsible for running the company, and the board is tasked with overseeing the CEO’s decisions in the interests of shareholders, how can the board properly monitor the CEO’s conduct if he or she is also serving as board chair?

While the theory behind separating the two roles has been the subject of much shareholder and governance activist protest and commentary, an analysis of GMI Ratings’ data suggests that other, more practical considerations would support the separation of the two roles. In addition to the inherent conflict of interest already discussed, CEOs who also command the title of chairman are more expensive than their counterparts serving solely as CEO. In fact, executives with a joint role of chairman and CEO are paid more than even the combined cost of a CEO and a separate chairman. Also, companies with a combined CEO and chairman appear to present a greater risk of ESG (environmental, social and governance) and accounting risk than companies that separate the roles. Furthermore, companies with combined CEOs and chairmen also appear to present a greater risk for investors and provide lower stock returns over the longer term than companies that have separated the roles. Thus having a separate chairman and CEO costs less, is less risky and is a better investment. This report focuses on 180 North American mega-caps, those with a market capitalization of $20 billion or more. This group was chosen because, given the relative complexity of running the companies, it might be expected that the resulting differentials between leadership structures in cost structure, performance and risk exposure would be more marked. Here are some of the main findings of the report:

…continue reading: The Costs of a Combined Chair/CEO

Examining the Largest Golden Parachutes

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday February 26, 2012 at 10:25 am
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Editor’s Note: The following post comes to us from Paul Hodgson, Senior Research Associate at GovernanceMetrics International, and is based on a GMI report by Mr. Hodgson and Greg Ruel. The full report, including detailed information about the severance packages discussed below, is available here. Work from the Program on Corporate Governance about golden parachutes includes Golden Parachutes and the Wealth of Shareholders by Bebchuk, Cohen, and Wang.

After Jack Welch retired from General Electric it wasn’t until a divorce settlement forced the disclosure of his retirement benefits package that anyone took any notice. At that time, the scandal surrounding Mr. Welch was that his perquisites were valued at $2.5 million a year, and included luxuries such as the use of an $80,000-per-month Manhattan apartment owned by the company, court-side seats to the New York Knicks and U.S. Open, seating at Wimbledon, box seats at Red Sox and Yankees baseball games, country club fees, security services and restaurant bills. No one at the time of his departure had valued Mr. Welch’s full retirement package either, which – at almost $420 million – dwarfs the perks package that Mr. Welch ultimately relinquished.

Since then, multi-million dollar severance and other separation packages, commonly referred to as “walk-away” packages, have become so commonplace for CEOs that when HP fired Leo Apotheker with a $12 million guaranteed cash payment it barely registered. Accelerated equity awards along with substantial pensions and other deferred compensation all but guarantee significant payouts at many of America’s largest corporations in every termination situation except for a termination “for cause.” This report goes back to 2000 to examine the largest golden parachutes and other termination packages of the past decade, many of which have never been quantified before.

…continue reading: Examining the Largest Golden Parachutes

 
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