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Should the CEO become the company chairman?

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As a listed company, Experian is expected to adhere to the UK Corporate Governance Code, which sets out best practice for boardroom leadership. One of its provisions is that a CEO should not go on to be a company chairman.

IoD corporate governance adviser, Oliver Parry, said: “Experian have contravened a key provision of the Corporate Governance Code that a CEO should not go on to be Chairman except in the most exceptional circumstances.

“There is no doubt that Mr Robert has been a key player at Experian. However, a desire to maintain continuity should not come at the expense of the board’s ability to exercise independent oversight over the company.

“The chairman’s role is to lead the board in the oversight of the executive team, but without interfering in operational management. The former CEO is likely to find this a challenging task. Due to their previous position as CEO, they may struggle to view the company and its management in a sufficiently objective way. Furthermore, their presence may inhibit the ability of the new CEO to properly manage the company.”

It’s worth bearing in mind that the Code is meant to be used on a “comply or explain” basis. This means that the provisions do not necessarily need to be adhered to if there is a good business reason.

The code says: “If exceptionally a board decides that a chief executive should become chairman, the board should consult major shareholders in advance and should set out its reasons to shareholders at the time of the appointment and in the next annual report.”

On its corporate website Experian justifies the appointment, saying it carried out extensive consultations with shareholders and has set out the reasons why. 

In its annual report, Experian says: “Don has been with Experian for 12 years, the last nine of which have been as Chief Executive Officer. He has an outstanding record of performance and of increasing shareholder value and is highly regarded by all our stakeholders. 

“Your Board firmly believes that he has the right balance of competencies and the necessary experience to provide Experian with the overall leadership it requires through the next phase of its growth and development.”

You can read the reasons in full in Experian’s annual report.

What about private companies?

Private companies have no obligation to observe the corporate governance code, but way want to adhere to it, in full or in part, as a way to reassure investors, suppliers, clients and other stakeholders.

It’s very common for founders to move aside when the company grows beyond their grasp, allowing them to bring in a chief executive with more experience of the corporate world. Staying on as chairman allows them to retain control of the company’s direction without having to be responsible for operations on a day-to-day basis.

There are plenty of companies who this structure works perfectly for. Stepping back allows a visionary founder to make sure they can continue to play a creative role in the business and help it maintain its values and culture, whilst benefitting the support of a more experienced chief exec.

But IoD head of corporate governance Roger Barker told Real Business last month that it wasn’t something that would necessarily be recommended by governance best practice.

He said: “Who you typically want as the chairman is somebody with independence so they are running the board as an independent oversight body in the interests of all stakeholders, not just you the founder, or a major shareholder.”

If you’re an owner-manager it’s ultimately a decision for you to make, and probably one dependant on where you see the business going. If you’re running a family-oriented company which is stable or growing steadily, and you’re passionate about ensuring your business retains its values, it could make more sense for you to become chairman.

If you’re a seriously rapid-growth, scalable company which intends to take on significant amounts of investor funding it’s more likely to be beneficial for you to appoint an independent chairman, who can add value both as a trusted adviser and by way of reassuring investors that your board is operating as independently as it should be. 

Related: How to begin creating a professional board structure

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