Have you been hearing the term executive board chair more frequently? The role has become more ubiquitous, likely partly due to Amazon’s high-profile announcement that Jeff Bezos would be moving from CEO to Executive Board Chair. How does an Executive Board Chair differ from a board chair?
According to Spencer Stuart’s 37th annual Board Index, 15% of the S&P 500 board chairs are listed as executive board chairs. A recent Harvard Business Review article examined data over the last 20 years to see how the board chair’s role has evolved.
Historically, board chairs are responsible for board leadership, organizational oversight, and providing strategic advice. If the board chair is also the CEO, they are more involved in the strategic responsibilities, whereas a board chair who is not also the CEO will pay more attention to board leadership and oversight.
In looking at what makes an executive board chair different, most often, it is their relationship with the company. Like Jeff Bezos at Amazon, they tend to be a previous company leader. According to the article, 40% were the company’s retired CEO (but not a founder or member of the founder’s family), 35% were the firm’s founder, and 11% a member of the founder’s family. This prior leadership level means that executive board chairs have significant institutional knowledge about the company.
This is an excellent alternative for companies abandoning the CEO chair in favor of a better balance between management and oversight. The executive board chair has strategic knowledge about the company but is now independent. And the position is paying dividends. Companies with an executive board chair average 33% higher profitability.
Having an executive board chair has its challenges too. There are blurred lines for responsibilities between an executive board chair and the CEO. The report suggests boards answer the following questions when determining if they need an executive board chair.
How powerful is the CEO?
Powerful CEOs tend to make more unilateral decisions. An executive board chair can provide oversight and monitoring due to their previous involvement in strategic decision-making.
How complex is the organization?
As companies become more complex, they become harder to manage. This is especially true for companies that grow through acquisition(s). An executive board chair involved in strategic decisions could be one voice too many if the person doesn’t allow the CEO unity of command.
How demanding is board leadership?
Board chair responsibilities are growing. In addition to recruiting and developing directors, they are responsible for diversity, equity, and inclusion initiatives and have more of a public eye on them than in the past. With executive board chairs’ involvement in strategy, they can quickly become overwhelmed. If this sounds like your company, a non-executive board chair may be a better fit.
Whether the executive board chair is a way to stay close to the company or an interim role during a CEO succession, there are different considerations to ponder. Understanding how the role is different can help determine when you need an executive board chair.
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