We are commenting on the efforts of Norges Bank Investment Management, a branch of the Norwegian central bank which, among other things, manages the Norwegian Government Pension Fund to influence governance practices in the United States.  NBIM has submitted four shareholder proposals calling for the separation of chairman and CEO.  The targeted companies?  Harris Corporation, Clorox, Cardinal Health, and Parker Hannifin.

In the United States, the position of chair and CEO are ordinarily combined.   We've written on this topic before, pointing out the anomalous position of the US in global financial markets.  The Economist has likewise indicated the unusual nature of the US approach.  As the article notes:

• America is unusual in the power that it awards to chief executives. Splitting the two jobs is commonplace in Canada, Australia and much of continental Europe (though France is a notable exception: even AXA, one of the few French firms to separate the roles, now wants to fuse them). In Britain 95% of companies in the FTSE 350 list have an outside chairman. But in America 53% of Standard & Poor’s top 1,500 companies combine the two jobs.

The only thing wrong with the quote is that it understates the issue in the United States.  For the largest companies, the percentage combining the positions is closer to 70%.  As the article further notes, the premise for separating the two positions is basic and goes to the heart of the board's function.

• The case for separation is based on the simple principle of the separation of powers. How can boards discharge their basic duty—monitoring the boss—if the boss is chairing its meetings and setting its agenda? How can a board act as a safeguard against corruption or incompetence when the possible source of that corruption and incompetence is sitting at the head of the table?

Other reasons to do it? 

• Dual-purpose bosses make it more difficult for the board to manage the succession from one chief executive to another. . . . Two-timers also reinforce popular doubts about the legitimacy of the system as a whole, conjuring up images of bosses writing their own performance reviews and setting their own salaries.

Yet the opposition in the United States to a separation continues.  Moreover, even the Economist can't quite give up on something approaching a market solution.

• But these objections nevertheless suggest some important caveats to the case for driving bosses out of the boardroom. There is no one-size-fits-all solution. Smaller companies, particularly start-ups, may benefit from the simplicity and clarity provided by bosses with two hats. Separating the two jobs is only one element of better corporate governance, as the many disasters presided over by independent chairmen demonstrate. Companies need to devote as much thought to the chemistry between the boss and chairman as they do to getting the structure right.

As a result:  "The best solution to the corporate problem is evolutionary, rather than revolutionary: pressure from activists and investors rather than sweeping legislation from Congress."  

Of course, the paean to the market is knee jerk and not well reasoned.  The only real criticism is that the requirement may not be best for small companies.  But the current proposal in Congress to separate the two positions would only apply to companies traded on the stock exchange (the Schumer Shareholder Bill of Rights), not all public companies, particularly not the smaller ones. 

It is true, though, that a separation is not a silver bullet and is only one aspect of good corporate governance.  But it is an obvious and necessary one.