Exploring the Role Separation of Chairman and CEO in the UK

Exploring dual leadership in corporate governance, this article delves into the essential separation of Chairman and CEO roles. Rooted in history and organizational theories, it highlights the delicate balance needed for effective oversight, aligning managerial and ownership interests while acknowledging associated costs

In today’s global corporate landscape, organizations operate on a vastly different scale and structure compared to the past. Gone are the days of small businesses controlled by a single individual or family; instead, businesses now operate on a decentralized decision-making model, often miles away from their administrative headquarters. The need for such a structure became apparent with the evolution of transportation and cross-border trade, exemplified by companies like the East India Trading Company.

The collapse of global giants like Enron and the case of Nadir1 marked significant turning points in traditional corporate governance. Questionable practices led to bankruptcy, causing substantial losses for shareholders and stakeholders. These incidents prompted a reevaluation of corporate governance systems, emphasizing the importance of oversight, control division, and safeguards to protect the interests associated with a company.

This article delves into the debate surrounding the dual leadership roles of Chairman and Chief Executive Officer, exploring how this separation benefits a company and whether the gains justify the associated costs.

Organizational theories, stemming from Adam Smith’s “Wealth of Nations,” suggest that when a firm’s ownership is held by individuals or a group other than the owner, the goals of the head (investor or proprietor) may be compromised. Berle and Means argued that as ownership shifts away from owners, the checks to limit the abuse of power in the business diminish.

That Corporate Governance debate continues with analysts like Craig Deegan contending that managers, assuming responsibility for financial statements, might be inclined to inflate profits to increase their own rewards. On the other hand, Michael C. Jensen and William H. Meckling assert that both leaders and agents seek to maximize their own wealth, potentially neglecting the best interests of owners. Monitoring mechanisms, including external auditors, are proposed to align the interests of managers and owners, but these come with associated monitoring costs.

To balance the conflicting interests of managers and owners, tools such as profit-sharing based on accounting results or performance are suggested. However, these tools come with their own costs, including the expense of producing financial statements (holding costs) and ensuring that actions taken by managers have a meaningful impact on the company (bond costs).

The debate on the necessity of dual leadership roles in Corporate Governance is complex, with arguments on both sides. Yet, it is undeniable that the division of roles between Chairman and CEO provides valuable oversight, addressing the absence of checks and balances in high-profile cases of corporate mismanagement. The theoretical foundations of Corporate Governance, rooted in Stewardship and Agency theory, emphasize the need for safeguards to protect the interests of shareholders and stakeholders in a complex corporate environment.

However, the costs associated with these measures can be burdensome for emerging companies striving for profitability. Striking the right balance becomes crucial to safeguarding the company’s interests and those of its stakeholders while minimizing the risk of mismanagement. The goal is to establish corporate practices that ensure a sustainable and reliable corporate framework.


  1. Polly Peck v Nadir (1992), 4 All ER 769
Leave a Reply

Your email address will not be published. Required fields are marked *

You May Also Like

When the GDPR goes wrong…

This article discusses the unseen danger when the EU data-commissioners start capriciously implying the vague text of GDPR.

Φιλοσοφία του Δικαίου και Θανατική Ποινή

Η κινηματογραφική απόδοση της «δικαιοσύνης» και του ηρωισμού χαράσσει με ιδιαίτερη ευκολία τις συνειδήσεις μας και στην αντίθετη όχθη η, τεθειμένων διαδικασιών, θανατική ποινή ξεσηκώνει την αγανάκτηση και οργή, αντίθεση που προσωπικά την αναγάγω στην ολοένα μειούμενη ταύτιση των κοινωνών προς τα κυβερνητικά όργανα και στην έλλειψη ουσιαστικής κατανόησης της αρχής της πλειοψηφίας και της ελευθερίας της κομματικής δράσεως.