Yale's Sonnenfeld: The 'Witch Hunt' Against Jamie Dimon

Friday, 10 May 2013 10:03 AM

By Michael Kling

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The push to separate Jamie Dimon's CEO and chairman roles at JPMorgan Chase amounts to a "witch hunt," Jeffery Sonnenfeld, senior associate dean for executive programs and a professor of management practices at the Yale School of Management, argues in an editorial for The New York Times.

Separating the roles would improve corporate governance, according to proponents.

Not true, Sonnenfeld states. "I have studied corporate governance for 35 years, and I have come across no evidence to suggest that anything would be gained by separating those roles."

Editor's Note:
 
'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

Corporate America is seeing a push to separating CEO and chairman roles in companies as diverse as JPMorgan and Walt Disney to Boeing and DirecTV.

"The leaders of these companies have delivered their shareholders excellent returns and are the envy of their industries for business innovation, candor in governance and reliance on independent lead directors," he declares.

The push to separate the roles often fails. Out of a record 56 shareholder votes to split the jobs last spring, just four were approved. And only 23 percent of the firms in the Standard & Poor's 500 have a truly independent director as chairman.

Many companies tried separating the roles but dropped it, Sonnenfeld notes, citing IBM, Procter & Gamble, Home Depot and others.

"If this governance structure was so universally priceless, why did the 'try it, you’ll like it' experiments fail so quickly, with the very boards that had introduced such role separation recombining the leadership roles?"

Research from Indiana University on 309 companies that separated the jobs between 2002 and 2006 found that it often hurt financial performance.

And some the biggest corporate scandals, including Enron and WorldCom, involved companies with separate roles, Sonnenfeld explains.

"Many times, in addition to confusion over responsibilities and voice, the separation of roles escalates palace intrigue," he adds.

Two proxy advisory firms, Institutional Shareholder Services and Glass, Lewis & Co., have recommended shareholders vote to split the roles at JPMorgan this month. CalPERS, California's state pension plan, has indicated it wants to separate the roles there also.

"There’s a fundamental conflict in combining the roles of chairman and CEO," Anne Simpson, CalPERS' corporate government director, told The Times. "It’s all thrown into stark relief when you’re dealing with a company that's 'too big to fail.'"

The board's main task of overseeing the chief executive is weakened if the CEO also heads the board, Simpson told The Times. "If the person leading that oversight is the overseen, it’s a fundamentally flawed system."

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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