Senators Schumer and Cantwell are reacting to the recession by introducing a "Shareholder Bill of Rights" that, among other provisions, "requires public companies to split the jobs of CEO and Chairman of the Board, and requires the Chairman to be an independent director." This set-up even draws praise from some in the private sector; the Australian hedge fund manager John Hempton, at his Bronte Capital blog, writes, "Corporate governance in America sucks. Only in America is it standard to combine the job of CEO and Chairman of the board – making the CEO answerable to nobody."
One might ask about Mr. Schumer and Ms. Cantwell's expertise on this front. Ms. Cantwell reportedly financed her Senate campaign with $9.2 million in stock in RealNetworks, a company whose founder, Robert Glaser, is both the CEO and the chairman. Mr. Schumer has spent his entire career in government.
But empirical research calls into question the idea that a company with a separate chairman and ceo, or "dual leadership," will do any better than one with a unified executive. A working paper issued in 2000 by three professors reported, "If anything, the evidence suggests that dual leadership is associated with systematically lower cash flows and value." Another study, a doctoral dissertation, found, "firms that have split positions exhibit, on average, no lower or higher performance than other firms...The results imply that the benefits of split positions may be firm specific, that split positions are only appropriate for some firms, and that a net benefit will not be captured by all firms that simply enact a policy of split positions independent of their fundamental characteristics."
It's something that the Senate may want to think about before rushing to change governance practices that have served plenty of American businesses well.