Strategy

Who's the Boss?

The role of 'executive chairman' is gaining prominence - and muddying governance waters.

Running a large publicly traded company these days is hard enough. Shareholders, regulators and board members are all looking over the shoulder of the CEO, trying to tell the chief exec how to run the business. Now a growing number of Canadian CEOs have one more person second-guessing decisions–the executive chairman. Earlier this month Hank Swartout, chairman and CEO of Precision Drilling Trust (TSX: PD.UN), announced that next year he will be relinquishing the role of CEO, but remaining active in the management of the company as its executive chairman.

He joins both Michael Lee-Chin at AIC Ltd. and Galen G. Weston at Loblaw Co. Ltd. (TSX: L), who both announced in the past month they would be becoming executive chairmen. The move gives all three the power to control their boards. It also gives them a role in the day-to-day operations of the company. Just what that role entails, though, is anybody's guess.

Most companies clearly split the roles of the chairman and the CEO. The chair is responsible for managing the affairs of the board of directors; the CEO manages the day-to-day operations of the company. Those roles become muddied when a company appoints an executive chair, says Andrew MacDougall, president of Spencer Stuart Canada, an executive-search and corporate-governance consultant. “I have yet to see the definition of an executive chairman role that answers the question of who is doing what job.”

Having a seasoned chairman straddle both management and the board can give a rookie CEO the time and experience needed to grow into the role. However, that mentoring relationship is hard to manage and can easily lead to the executive chair undercutting the authority of the CEO and hobbling his ability to run the company, says Richard Hossack, president of Mercer Delta Canada. “If the CEO and the chair aren't absolutely on the same page about an issue, you will have people doing end runs around the executive to get what they want.”

Shareholders may also find it confusing. After all, when the CEO is ultimately responsible, you know whom to thank when things go right–and whom to blame. Not everyone is jumping on the bandwagon, though. Eugene Melnyk, founder of Toronto-based Biovail Corp. (TSX: BVF), announced in June he was dropping the executive chairman title. His new title? Chairman.