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special to the national law journal Thomas E.L. Dewey is a partner at New York’s Dewey Pegno & Kramarsky, a commercial litigation firm. The latest corporate governance vogue-featured most prominently in a recent report of the Conference Board Commission, a business research and forecasting organization-is to separate the positions of chairman and chief executive officer in order to redress the perceived problem of “strong CEOs” exerting a dominant influence over their boards. But consider: There is just as much (arguably more) evidence that the traditional corporate governance model in the United States-under which the chairman and CEO positions are held by the same person-is likelier to create enormous shareholder value than it is to cause bankruptcy and scandal. Michael Dell, Bill Gates, Lou Gerstner and Jack Welch are a few of the “strong CEOs” who hold (or have held) both positions and who have a not-so-shabby record of looking after their shareholders. Conversely, as a dissenting commissioner correctly noted in the report, Enron, WorldCom and Global Crossing all separated the chairman and CEO roles (although their chairmen were not independent as that term is used under New York Stock Exchange Rules ). There is, therefore, good reason to question the commission’s apparent preference for a governance model under which the chairman is one of the independent (nonmanagement) directors, with responsibility for presiding at board meetings and controlling information flow to the board. While the commission does acknowledge the legitimacy of two other governance models- roughly, models under which the chairman is a non-independent director, such as a former CEO, and the chairman and CEO roles are combined-it recommends that each company give careful consideration to having an independent director serve as chairman and affirmatively states that separating those positions in this way is “fully consistent” with the Sarbanes-Oxley Act and proposed revisions to the New York Stock Exchange and Nasdaq listing requirements. No bed of roses The apparent goal of this recommendation-greater oversight of the CEO by the board, as well as more management of the board by the board itself-is commendable. But there are potential pitfalls to the commission’s preferred approach that are nowhere mentioned in the commission’s report. For example, the report explains that “the non-CEO Chairman will devote considerable time to company affairs.” However, involving an independent director to this degree in the affairs of the company necessarily creates the risk that that director will become involved in operational matters that properly are the responsibility (at least in the first instance) of the CEO. To ask a person to invest much time and energy in a company while not engaging in any executive function-particularly when it is likely that he or she will have had significant prior executive experience-is to require extraordinary, perhaps superhuman, discipline. Furthermore, even if the nonexecutive chairman stays focused on matters such as monitoring information flow to the board and setting agendas for board meetings, there is a real likelihood that such an arrangement will create needless conflict with the CEO and management, who understandably will have their own views on matters that are now subject to the chairman’s authority. At a minimum, a nonexecutive chairman will have to steer a careful course between vigorous exercise of his or her oversight authority and maintenance of a good working relationship with the CEO and the CEO’s management team. Lastly, appointing an independent director as chairman also creates risks for the other independent directors, exacerbating the very problems the structure was devised to remedy. For example, other independent directors may feel that having their chairman on the job lessens the need for their own involvement in significant company decision-making-not exactly the incentive the commission sought to create. Similarly, simply shifting responsibility for information flow to the board from management to the nonexecutive chairman risks replicating information bottlenecks that have been so thoroughly and correctly criticized by corporate reformers. To be sure, the commission’s preferred model may work well for some, even many, companies, given their corporate structures, histories and the personalities involved. And much of the commission’s report contains valuable and provocative suggestions on a topic-reform of corporate governance-that could hardly be timelier. But by implicitly favoring one governance model over other, better-established models that have worked well for a large number of American companies, the commission has prescribed the same medicine for patients with very different ailments-and to some patients that have no ailments at all.

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