The report of the committee on corporate governance states: 'Given the importance and particular nature of the chairman's role, it should in principle be separate from that of the chief executive. If the two roles are combined in one person, it represents a considerable concentration of power. We recommend, therefore, that there should be a clearly accepted division of power and authority, such that no one individual has unfettered powers of decision.'
There are two main arguments against combining the role. Unfettered power can lead to over-rapid expansion, inflated salaries or ill-advised and expensive acquisitions. Moreover, the roles of chairman and chief executive are quite distinct: the latter involves the day-to-day running of a company, with its inevitable concentration on the here and now, while the chairman should stand back from the fray, handle external relations, think strategically, and manage the board.
Mike Sandland, chairman of the Institutional Shareholders Committee and chief investment manager at Norwich Union, says: 'As chairman you are meant to arbitrate between the non-executive and executive elements on the board, and provide a balance. As chief executive you must be an advocate of your company in a more committed way. It can prove very difficult to take off one hat and put on another.'
Recent business history is littered with fallen heroes who succumbed to just such pressures. Others, such as Gerald Ratner, saw the writing on the wall before it was too late. He recently brought in Jim McAdam, formerly deputy chairman of Coats Viyella, the textiles group, as his chairman, to the undoubted benefit of the company.
Yet nearly one in four UK quoted companies has a chairman-cum-chief executive at the helm - and many of them are very successful, well-managed operations, such as Grand Metropolitan (Sir Allen Sheppard), Kingfisher (Geoff Mulcahy) and Thorn EMI with Colin Southgate.
The Cadbury panel recognises there are exceptions to the rule. In such cases, however, it says, 'It is essential that there should be a strong independent element on the board.'
Investors and analysts are also realistic: 'Companies develop in a multiplicity of ways,' says Hugh Jones, deputy chairman of the investment committee of the Association of British Insurers. Noting that the 'theoretical ideal' is separate roles, he says combining the top jobs can be tolerable - provided there are other checks and balances, going beyond the non-executives recommended by Cadbury.
Overall board structure is a prime concern, including strong divisional managing directors as well as non-executives. The ABI would also like to see the role of the chairman - whether executive, non-executive, or combined with the chief executive's job - subject to ratification every three years. 'That would encourage shareholders to focus on whether they thought the board structure was working and as such would extend accountability,' Mr Jones says.
Many of the companies that combine the top jobs adhere to other tenets of good corporate governance aimed at curbing top-level power. For example, Sir Allen Sheppard is surrounded by strong managers and non-executives, including Sir John Harvey-Jones, the former ICI chairman, and Sir Richard Giordano, former boss of BOC. He describes them as 'tigers loose from their cages'. Non-executives also monopolise GrandMet's audit and remuneration committees.
Reed International is another company where a combined chairman and chief executive officer, Peter Davis, poses no problem to investors. Pearson, the FT-to-Madame Tussauds conglomerate, is also viewed as a well-run company, despite Lord Blakenham holding both top jobs. One media analyst says: 'I've seen none of the ego problems that often characterise the combined role, like making silly acquisitions or paying silly prices.' Again, both companies have strong divisional heads and non-executive directors, and provide detailed information on pay.
Claims by some top bosses that they can handle both roles because they delegate many of their executive responsibilities do not cut much ice with investors. 'Why do they need both titles then?' asks one. 'It suggests the kind of power kick that the recommendation to split the roles is designed to stamp out.'
There are cases where it is felt such a move would benefit the company. Pentos is deemed to be one, says one analyst. 'Terry Maher runs that company. He is the man. The board needs beefing up.' Mr Maher would not comment.
Bass is another singled out by analysts. It is struggling with problems in two of its five businesses, brewing and its Holiday Inns hotel chain in the US. The difficulties are reflected in its financial performance. Analysts say Ian Prosser is overstretched in his function as chairman and chief executive, but he is relatively young and presumably would not take kindly to the idea of being 'kicked upstairs' or giving up the chairmanship.
Some companies anticipate separating the roles later. When Sir Allen retires from GrandMet in three years' time, for example, he will probably be succeeded by two people.
County NatWest analyst Michelle Proud predicts that within 'a very short period' the roles of chairman and chief executive will be separate within most FT-SE 100 companies.
Guinness is indisputably successful and well-managed. Chris Davidson, public affairs director, offers a plausible defence for combining the two roles: 'Our two businesses of brewing and spirits are headed by senior executives. While another layer of management may be logical if we had more than two businesses, as we are it creates an unnecessary tier.' And of course, it has a powerful non-executive contingent.
The City is assured that combining the role of chairman and chief executive will not hurt Guinness's performance. But when the bulk of the investment community wants companies to comply with the proposed Cadbury code, should Guinness not be setting an example to less successful and less well-managed organisations?
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