Do you know that more companies are hiring an executive chairperson for their management ranks? For instance, Jeff Bezos stepped down from his CEO position to take up the coveted board chair role. Per a Spencer Stuart study, S&P 500 enterprises have converted 15% of their board chairs into executive chairs in 2021. But what is the role of this executive chairperson on the board? Do you really need to nominate someone for the position? In this article at Harvard Business Review, Markus Menz, Robert Langan, and Ryan Krause explore the option of having an executive chair in your company.
Why Do You Need an Executive Chair?
The authors surveyed respondents from 289 S&P 1500 companies that had an executive chair on their board between 2003 and 2017. Menz and his co-authors also went through the press releases and compared the organizational performance results between companies with board chairs and executive chairs.
Board Chairs vs Executive Chairs vs Others
Board chairs have responsibilities for oversight, strategic advice, and board leadership.
A non-executive counterpart focuses activities more on oversight and board leadership but has limited strategic roles.
A CEO chair looks after strategic decision-making and execution but has no role in oversight or board leadership.
Interestingly, 35% of the candidates for an executive chair are former founders, 11% are from the founding family, and 40% are retired CEOs. This role provides the “benefit from a chair’s strategic acumen and managerial experience while still remaining independent from management to provide effective oversight.” The authors observed. Evidently, companies with executive chairs earned 33% higher profits than their rivals with board chairs.
Questions Before Hiring an Executive Chair
What Power Does the CEO Hold?
If CEOs are increasingly becoming powerful, it is best to hire an executive chair. The chairperson’s responsibility would be to evaluate if the CEO’s decisions are in the company’s best interest.
Is the Organizational Complexity Too Much to Handle?
Since the executive chairperson will be more strategically involved, friction might develop between the chair and the CEO. However, when your organization is diverse and complex, the benefits of having an executive chair outweigh the challenges.
What Responsibilities Does the Board Leadership Have?
Board leadership is responsible for “director recruitment and development, board culture, diversity, equity, and inclusion (DE&I) initiatives, and overall board effectiveness” and more. The authors inform. If your board leadership’s duties are more than the executive chair’s, it is best not to rock the boat.
To view the original article in full, visit the following link: https://hbr.org/2022/11/does-your-board-need-an-executive-chair