No Link Between Company Performance and Leadership Structure: Study
The Agenda article, “No Link Between Company Performance and Leadership Structure: Study,” quotes Russell Reynolds Associates Consultant Constantine Alexandrakis about his insights on splitting leadership roles within organizations. The article is excerpted below.
A new study from law firm Simpson Thacher & Bartlett and Rivel Research Group shows that there is no correlation between financial performance and whether a company separates or combines the CEO and chair roles.
This comes as more companies continue to receive requests from investors to split the role. As of July 17, shareholders had voted on 40 independent chair proposals this proxy season, averaging 30% of support, with none of them passing, according to Sullivan & Cromwell.
“The motivation [to separate the roles] is more around mitigating risk for the company and putting in structural guardrails that prevent an overconcentration of decision-making or influence in the boardroom or within the corporation,” says Constantine Alexandrakis, leader of Russell Reynolds’s U.S. practice and global leadership and succession practice.
Sources say there are competing studies that link the leadership structure to financial performance, but it’s difficult to prove that correlation is necessarily causation.
To Split or Not to Split
Alexandrakis says companies should look at the issue from two viewpoints: what is happening inside the business and inside the board. Inside the business, companies should look at the level of stability the CEO has been able to achieve, how deep the succession bench is, how financial performance has been, the state of various initiatives and the company report card.
“Inside the board, you need to look at the stability of the board, succession of the board and the board’s relationship with the CEO,” Alexandrakis says. For example, the role is often split when a new CEO steps in who may not have previous CEO experience or a company is going through a major transformation and needs a strong chairman as an added aid.
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