Separation of CEO and chairman roles will be a highlight of proxy season

Activists argue that combining the roles of CEO and chair creates an “inherent conflict of interest”

At a time when U.S. governance is often preoccupied with the highly politicized issues of climate risk and ESG, splitting the roles of chairman and CEO is looming for many large companies this proxy season. This is the old board question of whether or not to do so.

The issue has been a hot topic in recent weeks for executives at financial giants Goldman Sachs, Bank of America and BlackRock, the world's largest fund manager.

In each case, investors argued that two different people should fill the roles held by David Soloman, Brian Moynihan, and Larry Fink, ostensibly for the following reasons: This is because the current arrangement gives one person too much power.

Over the weekend, it was revealed that London-based activist investor Bluebell Capital had submitted a proposal to amend BlackRock's articles of association to require an independent chairman, making Larry the latest target. It was Mr. Fink.

The proposal argues that there is an “inherent conflict of interest in having the CEO exercise his or her own oversight as chair.”

“While each situation must be considered on a case-by-case basis, the lack of independent oversight within BlackRock's board reflects the many inconsistencies between BlackRock's ESG strategy and its implementation. It’s also clear.”

Bluebell argues that an independent chair is also needed because fund managers have failed to tackle “greenwashing” and have “overstretched” boards.
At Bank of America, prominent independent activist John Chevveden is pushing for separation of roles when leadership changes occur. He wrote that a “lead director” is not a substitute for an independent board chairman.

“Having the current CEO as chair means giving up the substantial checks and balances safeguards that are only possible with an independent board chair.”
Goldman Sachs has received a request for an independent chair from the National Law and Policy Center, a think tank focused on ethics in public life. The proposal argues that the roles of CEO and chairman would be “significantly diminished if held by a single corporate officer, weakening the governance structure.”

It would not be surprising if the boards of all three companies recommended voting against these proposals.

BlackRock's response said that having Larry Fink serve as both CEO and chairman is the “most appropriate and effective leadership structure” for the board.

Bluebell also added that it “fails to take into account that a one-size-fits-all approach to board leadership may not suit each company's circumstances.” “Oversight” will be achieved by a board “of which the majority of directors are independent, as defined by New York Stock Exchange listing standards,” the paper said.

The combination of the CEO and chairman at the top was a source of concern for many investors. Some companies have declared in the past that they would vote against all such leaders in their portfolios.

Proxy voting advisor ISS said last year that one in four S&P 500 companies had received shareholder proposals to split the roles of two top executives between different people. Half of them are from John Chevveden. At the time, role consolidation was occurring in less than half of U.S.-listed companies and was in “decline” overall, according to ISS.

The Conference Board, a New York governance watchdog, said in January that 36% of the S&P 500 index had an independent chair, a figure that has remained unchanged since 2021. While 44% of S&P has a mixed role, the average shareholder supports the S&P 500 index. The separation rate was 30%.

A significant number of companies retain CEO-CEO chairs, and this issue is likely to continue to be at the top of many activists' lists. But investors like winners. Unless complex role holders are seen as fundamentally flawed, they are likely to maintain support.