CEO Duality

CEO Duality

🔥 CEO duality refers to the situation when a Chief Executive Officer (CEO), besides running the corporation at the highest level, also holds the position of the Chairman of the Board. This phenomenon can only be found in One-tier Boards. In simpler wording, it's when a firm's CEO wears 2 hats: the CEO-hat and the Chairman of the Board-hat. CEO Duality obviously affects the company in question in multiple ways, which may be positive or negative.
I would like to kick off this discussion page on CEO Duality by answering the question:

How does the CEO duality impact on the effectiveness of the company's corporate governance system?

There are at least 4 areas to consider for answering this question:

1. BOARD EFFECTIVENESS: CEO duality night make the board of directors members and managers feel that their contribution will not make a lot of difference, because the decisions and implementations are in the hands of one person. This creates an imbalance of the power within the firm and enables one person to carry out all matters of the organization, which quickly results in highly biased and potentially ineffective decisions.
2. BOARD INDEPENDENCE: The Cadbury Report recommends that all listed companies should have no role duality to ensure a balance of power and authority leading to more independent boards. CEO duality increases the concentration of power in the hands of one person, where the chairman plays the role of a decision-maker, supervisor, and executive manager at the same time. That will reduce the essential check over the management's performance and diminish the board's independence.
3. EFFECTIVENESS OF MONITORING AND CONTROLLING MANAGEMENT: When two important positions are held by one person, her/his own interests might be advanced over the company's interests. Insecure directors might evaluate the firm's performance less reliably because they fear the powerful Chairman+CEO person. This may lead to long-term strategic drift. So CEO duality weakens the board's effectiveness in monitoring and controlling management. A separation of the two positions will provide checking against the possibility of ambitious plans by the Chairman/CEO. That is very important for monitoring the management.
4. DISCLOSURE AND TRANSPARENCY: A merge of the CEO and Chairman role could lead to a conflict of interests and that could increase the chances of wrong disclosure or of decreased reporting quality. The concentration of power in CEO duality is therefore associated with reduced transparency and lower quality of corporate governance information. A separation between the two positions helps to improve the quality of supervision and reduces any advantages gained by the CEO from withholding information.

All in all, it could be said that CEO duality negatively affects the effectiveness of a firm's corporate governance system.

⇨ I am looking forward to your reactions on the effect of CEO Duality on Corporate Governance as well as other effects of CEO Duality. Please, if you have any related information, share it here.

References:
1. B. Ram Baliga, R. Charles Moyer, Ramesh S. Rao, (1996), CEO Duality and Firm Performance: What's the Fuss?, Strategic Management Journal, Vol. 17, No. 1, pp. 41-53.
2. G. Vintnla, (2013), Study on CEO Duality and Corporate Governance of Companies Listed in Bucharest Stock Exchange, Revista Română de Statistică – Supliment Trim II, pp. 88-93.
3. K. Kong-Hee, R. Buchanan, (2008), CEO Duality Leadership And Firm Risk-Taking Propensity, The Journal of Applied Business Research – First Quarter, Vol. 24, No. 1, pp. 27-42.

		Comments Sort by date Sort by rating Rating
		3 Graham Williams Management Consultant, South Africa
	How Does the CEO Duality Impact on the Effectiveness of the Company's Corporate Governance System? In most cases I believe that the roles of Board, Leadership and Management vary sufficiently to warr... Sign up

		1 chaovalit Director, Thailand
	CEO Duality Trade-off To the point, the CEO Duality will be working well for small private company. Otherwise there will b... Sign up

		1 Helen Strong Business Consultant, South Africa
	King IV Report Considerations for CEO Duality @ Graham Williams: I agree that definitely the larger the organisation, the more important it is to ... Sign up

		0 Graham Williams Management Consultant, South Africa
	King IV Report Considerations Agree Helen. King IV principles are very sound. Very apt in this world requiring sustainability, dec... Sign up

		1 John Henry Project Manager, United States
	An Organization Requires Cooperation at All Levels Whenever we start with creating a one size fits all, it does not fit, anyone. First, what is the ro... Sign up

		1 Cecilia Calderon Kohler Accountant, Chile
	CEO DUALITY La problemática Director Ejecutivo-Presidente del Directorio es vista como una opción para minimizar... Sign up

		0 Graham Williams Management Consultant, South Africa
	CEO Duality Agree Cecilia. A clear, concise, well-thought-out viewpoint supported by good research sources. Than... Sign up

		4 Jaap de Jonge Editor, Netherlands
	CEO Duality (or Not) is Complex. Multiple Interests are at Stake As Mohammad Hamdan wrote so clearly, there are at least 4 major ways in which CEO Duality (or Not) i... Sign up

		1 Manoj Rambajan (MBA) Mauritius
	CEO Duality - the Power Game CEO Duality has a direct impact on corporate governance system as it relates to the power game in th... Sign up

		1 Jaap de Jonge Editor, Netherlands
	Success Factors of Co-CEOs Model Don't mix up "CEO Duality" with the concept of "Co-CEOs". Co-CEO's is a more informal, less legal wa... Sign up