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High-flying companies make independent chairs look redundant

Farewell then Jeff Bezos, chief executive of Amazon. Sort of. “I’ll reiterate that Jeff is not leaving,” said Brian Olsavsky, Amazon’s chief financial officer, on a call with analysts this week. “He is getting a new job. He’s going to be executive chair of the board — super important role. The board is super active and important in Amazon’s success story.”

Super cool. But also super bad from a traditional corporate governance perspective where the gold standard is an independent chair.

Governance is in a strange place: investors are demanding more of it, some companies are doing less and many boards that persist with unconventional practices are doing fine.

The conundrum is especially pressing in the UK, which has valued corporate governance more than most and this week published proposals for even tougher rules. The relevant UK code states baldly: “The roles of chair and chief executive should not be exercised by the same individual” and “A chief executive should not become chair of the same company”.

The theory behind tighter rules is obvious: the interests of ordinary shareholders should be protected and executive authority checked.

But while investors make more noise than ever about environmental, social and governance standards, the UK’s homegrown are threatening to hoof it to New York where standards are lower. 

“The future is separate chairmanship and CEO roles,” said Kai Liekefett, New York-based co-chair of the shareholder activism practice at law firm Sidley Austin, although he conceded: “Nobody really cares about your corporate governance as long as the money keeps coming in.”

The best argument against corporate governance orthodoxy comes from looking at the world’s top companies. There is no independent chair at 13 of the top 20 by market capitalisation, led by Bezos at Amazon (shares up 1,800 per cent in 10 years).

That group also includes other founder-led companies such as Facebook and Tencent. Facebook board member Marc Andreessen is so close to chief executive Mark Zuckerberg that he once texted him in gangster slang to assure him that the board would protect the founder’s control: “the cat’s in the bag and the bag’s in the river”. The jokey disregard of independence was flagrant, but few large investors seem to care.

It is not just founders. Berkshire Hathaway’s Warren Buffett, Alibaba’s Daniel Zhang, Visa’s Alfred Kelly, JPMorgan Chase’s Jamie Dimon and Johnson & Johnson’s Alex Gorsky all have combined roles.

Chipmaker Nvidia does not believe in having a chair at all: “[Board] members should have an equal voice in the affairs and the management.” Mastercard and Disney have the same structure that Amazon is moving to, with former chief executives becoming executive chairs.

That leaves seven of the top 20 companies with ostensibly independent chairs.

Three of those fall foul of another metric: their chair has been there too long. Preferences differ but the UK rule is no more than nine years on the board, after which any notion of independent safeguarding is surely lost. Art Levinson at Apple has served more than 20. Alphabet’s John Hennessy has been a director at the Google group since 2004, Walmart’s Greg Penner since 2008. 

That leaves four of the 20. We can discount Microsoft’s John Thompson, who will have exceeded nine years on the board in two weeks. It is hard to argue Yasir al-Rumayyan, head of the Saudi sovereign wealth fund, is independent of the state-controlled oil company’s management.

The two finalists are unlikely paragons of governance virtue: Samsung and Tesla. Both of these chairs — Bahk Jae-wan, a former South Korean finance minister, and Robyn Denholm, previously CFO and head of strategy at Telstra — are only there in response to scandals.

Bahk was installed as Samsung’s first outside chair after his predecessor was jailed. Denholm was appointed after chief executive Elon Musk ran into trouble with the Securities and Exchange Commission and agreed to relinquish the role in a settlement.

The Tesla-SEC deal expires this year. Tesla shareholders are unlikely to care if Musk then takes back the chairman title. With barely any truly independent chairs at the top-performing companies, the corporate governance advocates need to prove that independence is worth fighting for.


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