The Hindu Business Line : Age-old debate

TWO or one at the top? Bifurcate or amalgamate? This debate on whether the posts of the chairman and the chief executive in a corporate should be combined or separated is perhaps as old as the one about chicken and the egg.

Gurus wax eloquent from both sides of the fence, the same guru nimbly finding arguments in favour of either position from time to time. Come the silly season, the media too merrily pick up the pieces from where they had left them the last time. The recent goings on in several corporates in the US has given this topic a new lease of life.

The Washington Post has published a learned disquisition weighted towards separation. It says that about 60 per cent of the companies in Canada and nearly 95 per cent in Britain have two persons at the top: one as the CEO responsible for delivering the goods through effective management and another as chairman of the board of directors keeping the CEO on his toes. Whereas, in the US, only 25 per cent of the companies take this route.

The public sector in India started off with the two posts of chairman and managing director being held by two separate individuals, often to placate a disgruntled or unemployed politician by making him the head the board.

Soon, however, two at the top proved detrimental to harmonious functioning, a single person holding the two posts as the chairman-cum-managing director (CMD) became the rule in most government companies.

The picture in the private sector is a matter of toss, with no definite trend or policy. The ICICI and Infosys, just to mention two instances, follow their own intriguing practices — the former having a chairman emeritus and the latter interposing a novel entity called the mentor.

The case for separation assumes that an independent chairman, with the influence of his position over the other directors of the board, can be a better check on the chief executive and through him, the management, resulting in greater accountability.

The risk here is of an aggressive chairman poking his nose into day-to-day affairs and messing up the lines of command and control within the organisation.

On the other hand, if the same person is both the chairman and CEO, there is a fear that the board will have to go by his assessment of the state of affairs in the company, with little chance of bad news coming to light in time.

Having been a managing director working with a part-time non-executive chairmen and a CMD as well, my firm conclusion is that the combination of the two posts works better. With watchful regulatory mechanisms and shrewd stakeholders, the danger of mismanagement is minimal.