Corporate Governance: Critical Review of CEO Duality and Its Impact

This report provides a critical analysis of CEO duality within the context of corporate governance. The introduction defines CEO duality as the practice of a single person holding both CEO and Chairman roles, highlighting its controversial nature and the lack of definitive supporting evidence. The mai...Read More

Corporate Governance - a critical review
analysis

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Objectives having the CEO and Chairman roles being occupied by the same person.......1
2. Pros and Cons of CEO Duality...........................................................................................2
3. Recommendations to address the issues in the improvement the governance of the business.
................................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
CEO duality is the practice of a single person who serving as both CEO and board of
chairman as well. This is the most widely discussed corporate issue with having their own pros
and cons. This topic still unsettled due to lack of supporting evidences. Present study based on
the topic corporate governance where the research discusses the issue of CEO duality which is
one of the major issue found in corporate governance. Assignment will critically discuss and
analysis the topic by presenting the pros and cons of CEO duality. In order to analyse the issues
study will be taking JP Morgan case study on CEO duality.
MAIN BODY
1. Objectives having the CEO and Chairman roles being occupied by the same person.
Corporate Governance is the combination of rules, processes or laws under which
business is operated, regulated or controlled. The major important topic includes in Corporate
governance is TMT Top Management Team & Corporate boards. CEO duality is one of the issue
in Corporate governance which is related to the corporate boards (Ashraf, Bashir and Asghar,
2017). This issue raised by the two positions served by one single person those positions are
CEO and Chairman. It has been analysed that argument in favour of CEO duality where the CEO
has given the positive impact on the company performance. On the same side, argument against
stated that CEO duality is asserting that it also has been given the negative image of the firm as
well. According to Aslam and et.al., (2018) CEO Duality is not an important for non-existent in
firms with a two tier board structure some of the example of such countries are Germany and
Netherlands. There are many researchers who has been stated the against argument on CEO
Duality. According to them it is an wrong activity for the firm performance. It is the difficult call
for board to remove CEO that are also the chairman of the firm too. In light of such issues it is
made clear that there must be have two people for the separate position within the organization.
Reason behind this separation of the Chairman is the person who take decisions regarding hiring
or firing the person on the position of CEO. So if the CEO is also the chairman it would be the
difficult call for that. Another reason to not favour in CEO Duality because if the one person
handling two positions it will difficult for him to ignore their personal interests which is not good
for the firms position. According to Barroso Casado and et.al., (2016) board will be more
productive with an independent chairman because in such situation there are less possibilities of
conflicts of interest. As per the another objection it has been analysed that, the interest of
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shareholders are separated because it is less possible for CEO to give higher interest towards
shareholders. Another objectives has been created on the basis of roles and responsibilities of
each person. Like there should not be any confusion between the role of a CEO and that
chairman of the board. like the CEO is the person who take decision at the top operational while
on the other hand, chairman is responsible for preserving the stakeholder interest (Qu and et.al.,
2018). Or in terms of position so Chairperson is more superiors and senior than CEO. So these
are the above objections made clear that CEO Duality is not good for the business.
2. Pros and Cons of CEO Duality.
CEO duality generally more focuses on the topic which relates to the analyze whether the
CEO officer should serve the position of Chairman or not (Chandrakumara, McCarthy and
Glynn, 2018). It is one of the debatable argument which changes the thought process of the
organization. In other words, the relationship between CEO duality and corporate governance
has been addressed in different manner on the global devastation of the CEO duality which affect
the performance over a four year period from 2008 to 2011.
Pros of CEO Duality
Clear Direction of a single leader : Person who has a position of Bod as well as CEO
having a special power within the company. This advantage has been gained by the CEO duality
in JP Morgan (Palanissamy, 2015).
Efficiency and effectiveness : In the CEO duality there is one advantage that company
could gain that they does not need to spend money to hire both the profiles also they minimize
their salary as well. Also, CEO duality is helpful in making decision process to accomplish the
target of the company.
Cons of CEO Duality
Segregation of Duty : The disadvantage of this method is that to creating and duality
because it create a clear direction of a single leader. But on the same side, it will be proving less
effective for the company because if a single person handling multiple power within a company
it will might be create segregation of duty somewhere (Courtney, 2018).
Lack of transparency : Lack of transparency might happen because individual person
having strong power possessed by the CEO and provides an opportunity to hide whatever is in
the company which resulting in lack of transparency of the company.
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3. Recommendations to address the issues in the improvement the governance of the business.
In order to get over from the issue of corporate governance there are given some
strategies which can helpful to ensure the effective service qualities and also make sure the
sustainability in between the two different roles of CEO and Chairman (Gove and et.al., 2017).
Corporate governance issue might also impact the company reputation growth in the market as
well. In order to resolve the issues it is required to maintained the proper implementation of
strategies and also adhere the different long lasting issue to measure the productive outcomes.
Also, company can develop the strategies to motivate employees and work culture towards
making the high potential services. Clarify in the role of position is the another way through
company can resolve the company governance issue which is CEO Duality. it is important for
the company to better understand the board employs the CEO in order to remove the CEO
duality. A committed engaged board of governors this is the way through this issue can be solved
in effective way. Another way to prevent this issues is to take the right composition of
individuals. Like in which many people came and hire on multiple post as like CEO duality
(Hamid, Ting and Kweh, 2016). So it is necessary to balance out the membership with motivated
and diverse individuals. Conflict of interest is very important to be consider by looking for some
other people. Another way to prevent corporate governance issue which is create transparency
and accountability in decision making process. Another method company could use to solve
CEO duality within the organization which is Reshape Board structure and Add diversity. This
process can have been questionable with some having little to no business experience or dubious
credentials. With the help of mutual concern with the board of directors decision can be done in
proper way. This way of performing the task is helpful to resolve the issue Into more perfectly
manner. Advocates of agency argue that the positions of CEO and chairman should be separate.
Reason to maintained the proper effectiveness is corporate governance is the most essential term
which impact on the company performance directly (Luong, Evans and Duong, 2018). It requires
within the organization in the more systematic manner. Also, it applies the systematic way of
going the best work opportunity. It also helps to cross shareholding is seen as a friendly way to
strengthen business business relations and also maintained the good relation with the
shareholders (Nguyen, Rahman and Zhao, 2018). Also, company hold the cross shareholding to
make the business more strengthen and strong. However, this way of doing the performance can
help to eliminate the issues from the organization and ensure the healthy business environment.
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Also it requires the basic and mainly generalizing information task to be performed in systematic
and effective manner. Corporate governance has significant impact in disciplining a powerful
and independent CEO. To bring the emerging growth market and following the best way of
promoting the task (Yasser and Mamun, 2015).
CONCLUSION
In the above defined report it has been found that CEO duality is the biggest issue of
corporate governance which created dual leadership structure within the organization. Study
explained the concept and impact of this issue on company performance. In order to make sure
the all such things it is very much required to be more effective and challenging into the business
goals. In order to get over from such issues. For that, study has also found some ways and
methods like right composition of individuals, transparency & accountability in decision making
etc. so it has been concluded that company should abide the all Corporate governance activities
to make sure the company effective performance.
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REFERENCES
Books & Journals
Ashraf, M., Bashir, A. and Asghar, N., 2017. Impact of corporate governance on firms’ financial
performance: textile sector of Pakistan. International Journal of Business and
Management Invention. 6(5). pp.13-19.
Aslam, S. and et.al., 2018. Gender Diversity and Managerial Ownership Response to Corporate
Social Responsibility Initiatives: Empirical Evidence from Australia. Journal of
Managerial Sciences. 12(2).
Barroso Casado, R. and et.al., 2016. Shareholder protection: The role of multiple large
shareholders. Corporate Governance: An International Review. 24(2). pp.105-129.
Chandrakumara, A., McCarthy, G. and Glynn, J., 2018. Exploring the Board Structures and
Member Profiles of Top ASX Companies in Australia: An Industry‐level
Analysis. Australian Accounting Review. 28(2). pp.220-234.
Courtney, J., 2018. CEO and Chairman of the Board: The Corporate Governance Controversy.
Gove, S. and et.al., 2017. Reexamining CEO duality: The surprisingly problematic issues of
conceptualization and measurement. Corporate Governance: An International
Review. 25(6). pp.411-427.
Hamid, M. A., Ting, I. W. K. and Kweh, Q. L., 2016. The relationship between corporate
governance and expropriation of minority shareholders’ interests. Procedia Economics and
Finance, 35, pp.99-106.
Luong, H., Evans, J. and Duong, L., 2018, March. CEO Relative Compensation, Takeover
Premium and Bidder Performance in Australia: Efficient Contracting or Managerial
Power?. In 9th Conference on Financial Markets and Corporate Governance (FMCG).
Nguyen, P., Rahman, N. and Zhao, R., 2018. CEO characteristics and firm valuation: a quantile
regression analysis. Journal of Management & Governance. 22(1). pp.133-151.
Palanissamy, A., 2015. CEO Duality–An Explorative Study. In 4th GLOBAL ACADEMIC
MEETING, GAM 2015 10-11 October, Dubai, UAE (p. 33).
Qu, X. and et.al., 2018. Executive stock option vesting conditions, corporate governance and
CEO attributes: evidence from Australia. Accounting & Finance. 58(2). pp.503-533.
Yasser, Q. R. and Mamun, A. A., 2015. The impact of CEO duality attributes on earnings
management in the East. Corporate Governance. 15(5). pp.706-718.
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Online
JP Morgan shareholder Reject Splitting CEO Dimons Dual Roles. 2013. [Online]. Available
through :<https://www.bloomberg.com/news/articles/2013-05-21/victory-for-dimon-as-
jpmorgan-shareholders-reject-ceo-chairman-split>.
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