The Business Roundtable long has been a leader in Corporate Governance thought leadership. They have written Principles of Corporate Governance going back to 2002. This is the fourth in a series of articles that summarizes their principles.
Boards of American corporations have taken a variety of approaches to board leadership, with some boards combining the positions of CEO and chairman and others appointing a separate chairman or designating a “lead” director. No one leadership structure is right for every corporation at all times, and boards of different corporations may reach different conclusions about the leadership structures that are most appropriate for their corporations at any particular point in time.
The board should decide whether to combine or separate the positions of CEO and chairman of the board based on its assessment of what is in the best interests of the corporation and its shareholders based on the corporation’s particular circumstances, and the board should evaluate its leadership structure periodically. In addition, in connection with the CEO succession planning process, the board should consider the appropriate board leadership structure.
Whatever leadership structure a board chooses, independent board leadership is critical to effective corporate governance. To provide independent leadership for the board, the board should consider appointing a lead director (or presiding director with comparable responsibilities) if it combines the positions of CEO and chairman or has a chairman who is not independent. The lead director should be appointed by the independent members of the board and should serve for a period of at least one year. At some corporations the lead director is appointed annually, while at others the lead director serves for a longer term or an indefinite period of time.
Lead directors perform a range of functions, depending on the needs of the board. One of the primary functions of the lead director is chairing executive sessions of a board’s independent or non-management directors. The lead director should have the authority to call executive sessions, and should coordinate and oversee appropriate follow-up on matters discussed in executive sessions to maximize the effectiveness of these sessions.
Other key functions of the lead director may include chairing board meetings in the absence of the chairman of the board, reviewing and/or approving agendas and schedules for board meetings and information sent to the board, and being available for engagement with long-term shareholders as appropriate. The lead director also may play a key role in overseeing performance evaluations of the CEO and the board, and leading the board in crisis situations. Depending on the responsibilities associated with the position of the lead director or independent chairman, the position may involve substantial responsibility and require a significant time commitment on the part of a director.
— Steve Odland