The Activist Investor Blog
The Activist Investor Blog
BoD Chair or Lead Director - Who Really Cares?
Here’s another cause celebre among governance junkies: whether a company should have a Lead Director in addition to a Chairman of the BoD, and then what the Lead Director actually does.
As with our earlier discussion about plurality and majority voting, experienced activist investors already know about this subject. This discussion aims to help others out there, and make a point about the continued entrenchment and power of CEOs today.
The Rise of the Lead Director
AKA “Lead Independent Director” or “Presiding Director”, this member of the BoD has its place in the sun today. According to ISS, about 52% of companies in the S&P 1500 have a Lead Director, representing a steady increase over the past few years.
Lead Directors have their own clubs, too, including the Lead Director Network, run by the consulting firm Tapestry and law firm King & Spaulding. They have a detailed guidebook, from the National Association of Corporate Directors.
Name-brand corporations such as Goldman Sachs named a new Lead Director in 2012. Troubled ones like Green Mountain Coffee Roasters fired the Lead Director this year.
But, What Does it Do?
After perusing the abundant guidance about Lead Directors, we wondered what they actually do, and how the role differs from the BoD Chair. We found the job description for the Lead Director at Pfizer, a company that most governance folks agree has some of the best governance around. Their Lead Director has six jobs:
❖preside at executive sessions of the BoD
❖call meetings of independent directors
❖liase with BoD Chair
❖approves communications sent to BoD
❖authorize BoD consultants
❖communicate with shareholders
We could not find a description of the role of the BoD Chair at Pfizer. According to their separate Corporate Governance Principles, the BoD Chair will preside over shareholder and BoD meetings (rather than meetings of the independent directors), but that’s about it.
And, What’s the Difference?
Seems to us like the Lead Director description should also function just fine for the BoD Chair. The BoD Chair need not “liase” with him or herself, of course. And, it seems that the Lead Director could chair shareholder and BoD meetings just as the BoD Chair does.
Why Have Both, Then?
We can only speculate, since we haven’t yet seen a complete, persuasive explanation of why hundreds of public companies have both a BoD Chair and a Lead Director.
At least in Pfizer’s case, and for many other companies, the BoD appoints a Lead Director when the CEO also serves as BoD Chair, or, less frequently, when the BoD Chair is not independent pursuant to SEC regulations. This latter situation comes up when the BoD Chair is the former CEO, among other times.
(Fortunately, companies probably don’t pay for both. If a company has a Lead Director because the CEO is BoD Chair, then the BoD Chair doesn’t receive any compensation as a director.)
Experienced investors know why companies have both: because the CEO wants the BoD Chair title, and the independent directors can’t or won’t challenge this petty expression of internal power. A good Lead Director really runs the BoD, anyway, so why bother?
Bother because it’s a potent symbol of who is in charge. We don’t like CEOs serving on the BoD anyway, but if they have to, how about sending a message about who works for whom?
In the companies with a Lead Director and a CEO who serves as BoD Chair, let’s dispense with the baloney about what the Lead Director does, how they liase with the BoD Chair, and the clubs and guidebooks. Let’s just have a BoD Chair elected by investors, and a hired CEO who works for investors, ok?
Monday, July 9, 2012