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Investors in the US have urged the asset management giant Goldman Sachs to split the CEO and Chairman roles held by David Solomon. These investors further broke with management by calling on shareholders to reject the bank's executive pay plans.

The story, which was broken by Reuters and Bloomberg builds on a recurring issue in the industry. The fundamental issues around the topic often come down to whether a board run by an independent Chair will be able to look at issues more objectively and independently with the CEO when ratifying important decisions, such as strategy, and the company’s development orientation.

Reuters said that the recommendations came as Solomon scales down Goldman's consumer operations, which he championed, but “have lost billions”.

Glass Lewis – a proxy adviser - and Institutional Shareholder Services recommended in separate reports in early April that investors back a shareholder resolution calling for the job split, they added.

After the 2008 financial crisis, investors seeking to improve risk oversight mounted efforts to separate the Chair and CEO roles at Goldman and other major players like JPMorgan Chase.

Banks often fended these off by making other changes, such as giving new powers to a lead independent director, which Goldman Sachs did in 2013.

Other issues have also come to the fore related to this ongoing sticking point. On April 16, Fortune published an article about Jamie Dimon, CEO of JPMorgan Chase, who took aim at AGMs. He argued that they’ve been “hijacked by attendees who aren’t acting in good faith”.

Fortune said that in his 2023 letter to shareholders, published Monday, Dimon wrote that annual general meetings have fallen victim to “spiralling frivolousness” and need to be reformed. Fortune added that “Dimon’s sentiment may resonate with other CEOs who have faced shareholder calls over soaring executive pay, separating the chair and CEO role, [and] a company’s climate failings”.

What does the wider industry say?

Many others also back the idea. Legal and General Investment Management have said that “a separate chair and CEO provides a balance of authority and responsibility that is in both the company's and investors' best interests”.

“The roles of chair and CEO are substantially different and therefore require distinct and complementary skills and experience,” it added.

The Harvard Business Review (HBR) published a paper on the background of this issue in 2022, “Why the CEO Shouldn’t Also Be the Board Chair”, which highlighted what it called debacles at Boeing, WeWork, and Facebook that “illustrate why organisations should be wary of giving the CEO job and the board chair job to one person”.

“These cases also confirm what the authors have learned from interviews with accomplished tech industry CEOs, board chairs, investors and founders: As a leadership practice, the Two Job – One Person model can deny the organization talent at the top and lead to blind spots that undermine the organisation’s ability to manage risks,” HBR said.

What are the reasons for one person in a dual role?

From an operational perspective, it can be extremely helpful having one person making the decisions at the top – it offers consistency, timeliness, and a united front for the company, which can be helpful in creating brand awareness.

For back-office reasons, it can help create a one-stop shop for answers to timely queries and an ability to always have that person give the sign-off on decisions without fear of another coming in later and questioning decisions around large financial outlay, operational matters, IT systems, outsourcing, marketing choices, HR decisions or more and trying to undo work that is already being done.

Often it features a leader who has the longevity factor. This means they are aware of many aspects of the company’s operational procedures and have an encyclopaedic knowledge of everything from core clients through to where the Wi-Fi router is.

Joint CEO and Chair roles are frequently observed in the US and other markets around the world, including France.

“Most of the time, they get routinely re-elected by shareholders, provided reasonable counterpowers are put in place such as a sufficiently independent Board composition and the appointment of a senior independent director,” said a report on the practice, from FTI Consulting. “However, the combination of the two positions gets more difficult to justify when the company’s performance deteriorates.”

What are the reasons against it?

From an ESG perspective, the reasons have become legion. “As the complexity around and scrutiny of corporate leaders have intensified in recent years, proposals to abandon the Two Job – One Person model have become the most common type of governance proposal submitted by shareholders,” said HBR’s piece.

In the Goldman Sachs example, Reuters said that investors are “focusing on potential conflicts of interest posed by the two roles”, according toTony Carideo, president of The Carideo Group, a corporate elections inspection service.

In Europe, it’s considered normal for the two to be separated and showed a large cultural difference between there and the US. The Chair is to oversee the company’s overall strategy, whilst the CEO is to undertake day-to-day operations.

From this perspective, the ESG angle centres on the ‘G’, which has been relatively underserved in attention.

“I will turn that around by stating that companies should ask themselves what it would cost to not pay attention to ESG issues,” said Marcela Pinilla, Manager, Financial Services and Impact Investing at BSR in an interview with Fund Operator. “There are a spectrum of risks and opportunities that they should be considering, including license to operate, operational, regulatory, reputational, and value-creation in an ongoing basis.”

“This is why it is so important for ESG or sustainability strategy teams to connect the dots for leadership and boards. Risk management helps businesses avoid costly mishaps,” she said.

HBR warned that “even the most extraordinary founder’s talent set will likely not include both a CEO’s ability to establish a shared set of values, practices”.

Without this, the company will not be enabling itself to build a meaningful future. “[It also affects] a board chair’s ability to direct the board in its oversight and strategy advisory roles. By monopolising both jobs, the Founder-CEO-Board Chair denies the company the opportunity to benefit from the skills, experience and capacity a second corporate leader could provide.”

It added that the “Two Job – One Person” model can weaken the corporation’s ability to manage its risk by undermining the import of feedback delivered to the CEO from the board’s closed executive sessions.

This can appear in many aspects such as operations branding, but also more tangible effects such as recruitment and retention.

In terms of sustainability and governance, said Dr Zeynep Hizir, Digital Transformation Influencer, it is about ensuring that companies and organisations have the appropriate ESG strategy to manage and minimise their operational, reputational, and regulatory risks. “According to a Forrester study, more than half of the Zoomer generation – those born after 1996 – will ensure that a brand’s values align with their principles on corporate governance and social responsibility before making a purchase,” she said.

This, said Hizir, demonstrated that good governance – and the perception of it – is not generic or a gimmick, but “about future proofing the business”.

“The upcoming generations are much more aware, and it is no longer a tick box exercise,” she said. Whether or not this will be followed by Goldman Sachs remains to be seen, but the continued scrutiny of it will continue and the cultural changes it showcases will not be going anytime soon either.

 

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