Dual Leadership in UK Organizations - Essay Example

"Proponents of dual leadership in UK organizations (i.e. having separate individuals hold the two roles of CEO and Chairman) have argued that unitaryleadership (i.e. CEO/Chairman roles held by one person) amounts to the CEO "grading his own homework". Discuss Introduction: This essay deals with the dynamics of the CEO-Chairman partnership and reveals whether a dual leadership in UK organizations is advantageous when compared with the unitary leadership when CEO and Chairman roles are held by the same person. In this context the UK companies separating the role of the CEO and the Chairman could be studied as the CEO runs the company and the Chairman runs the board (Florou, 2005). CEO-Chairman Relationship - Type of Leadership The dynamics of the CEO-Chairman interrelationship and the effects of this on the enterprise have been studied by Kakabadse et al (2006) who adopted a qualitative methodology and provided in-depth interviews of chairmen, CEOs and non-executive directors. The chairman-CEO interactions and their effects were also studied and the findings of the paper have been based on the chairman's role and contribution, nature of the relationship between the chairman and CEO, the attributes or traits of an effective chairman and the impact of the chairman-CEO relationship on board effectiveness (Kakadabse et al, 2006). The study provides a clearer picture of the chairman-CEO dyad and the influence of the dyadic interaction on the formative context of the enterprise. Using data from 2180 Chairmanships from 460 UK firms over a period of 8 years, Florou (2005) suggested that there is a link between the Chairman and CEO in many ways as when a CEO is dismissed, the Chairman is also replaced. The data on dismissal events also suggest that replacement of a Chairman is associated with restructuring of the board and with restructuring, new skills are brought in which might facilitate future corporate decisions. However Florou (2005) claims that the Chairman's previous position does not affect the Chairman removal or the CEO dismissal process although if the Chairman has been responsible for the appointment of the failing CEO, during CEO departure, the dismissal of the Chairman is also likely because they tend to work as a team and one's failure mirrors the other's failure as well. This in turn would suggest effective governance within an enterprise. Sora et al (2004) discuss some resultant problems when the role of the chief executive officer and role of the chairman are merged and when person takes up both the roles. There are controversies to this sort of responsibility as when the responsibilities of the CEO and Chairman are given to one person, there can be a decrease of vigilance and flaws in accountability and operations of the company. As the power for the company centers around one leader, the CEO/Chairman can use this power for his personal gain at the expense of other stakeholders in the company (Sora te al, 2004). Thus a unitary leadership structure with no distribution of power can lead to an environment of greed and corruption resulting in mistrust towards the company and its people. This suggests that the regulation of leadership and distribution of power should be done considering the benefits to the company and the credibility that the company can gain with it governance and management structure. There have been several pressures on US companies to separate the roles of CEO and Chairman because a unitary leadership can lead to too much power given to one person. Shareholder activists and regulators maintain that US firms should separate the titles of CEO and Chairman of the Board as separate titles could reduce agency costs in corporation and improve performance. According to shareholders and regulators, separation of the role of CEO and Chairman has potential costs and benefits and Brickley et al (1997) suggest that costs of such separation would be larger than benefits for most firms. So how can the one man show or unitary leadership judged Does it have any advantage at all Dahya and Travlos (2000) argue that contrary to the pressure given by shareholder activists and regulators to separate titles of CEO and Board Chairman, companies should have their leadership structures according to the optimal board composition for each firm and this composition or board structure could vary across different firms. There are however many differences in the leadership structures and corporate governance between the US and UK. Thus whether one man show or unitary leadership would be beneficial or costly for a company would depend on the structure and management of the firm. The latest management developments bring out the practical implications of research and in an article published by Strategic Direction (2006) by an independent scholar, it is claimed that in the UK (as in the US) there is now increased pressure to the firms to split the roles of chief executive and chairman and one of the examples given was of Morrison's Supermarkets that has made succession plans with dual roles and dual leadership strategy. There is much debate on UK reports on why companies should adopt dual leadership structures and what effects this would have on the performance of the Board (SD, 2006). The operations of the two people in charge would be different and the differences would help in providing strategic insights on the workings of world's leading organizations. This report shows how management and leadership structure could differ when the dual leadership roles of the Chairman and CEO are separate or why they should be separate instead of one. In general the duality of leadership structure has become more acceptable by shareholders and regulators than the one man show structure in which it is argued that too much power is given to one person. A number of committees have been set up to investigate the governance of UK quoted companies and one example used here is the Cadbury Committee with governance structures that included the separation of the CEO and Chairman with significant contributions from non-executive directors. The importance of director independence and setting up of board subcommittees are some of the recommended governance structures although there may be no clear relationship between governance structures and corporate performance (Weir and Laing, 2001). The effective governance structure could be debated along with the emphasis of a more flexible approach towards governance. However one of the disadvantages of having a dual leadership structure would be added costs to the company with high executive compensation as a major company problem (Bebchuk and Fried, 2002; Coakley and Iliopoulou, 2006). Conclusion: Separation of CEO and Chairman role seem to be the most acceptable form of leadership, as seen from studies relevant to management structure of companies in both US and UK. The dual leadership structure can provide more director independence as the CEO and the Chairman have separate roles and their own responsibilities although they remain accountable to each other. Accountability increases when companies distribute or split the role of leadership between two people rather than giving it to one person and power on one individual can lead to a somewhat dictatorial style of leadership and corruption. Thus unitary types of leadership merging the roles of CEO and Chairman are opposed by shareholders and regulators of a company on the basis that such leadership structures are not conducive to company transparency and accountability and would ultimately bring about problems with company performance. Also there may be tension between employees and CEO and with unitary leadership, all conflicts with management becomes difficult to resolve as decisions depend on one person. With a dual leadership structure, decisions are divided, power and responsibilities are also divided and this improves overall company management structure and functions. Bibliography Bebchuk Lucian Arye; Fried Jesse M.; Walker David I. (2002) Managerial Power and Rent Extraction in the Design of Executive Compensation The University of Chicago Law Review, Vol. 69, No. 3. pp. 751-846. Stable URL:http://links.jstor.org/sicisici=0041-9494%28200222%2969%3A3%3C751%3AMPAREI%3E2.0.CO%3B2-5 Brickley J.A.;Coles J.L.;Jarrell G. (1997) Leadership structure: Separating the CEO and Chairman of the Board Journal of Corporate Finance, Volume 3,Number 3, pp. 189-220(32) Coakley Jerry, Iliopoulou Stavroula (2006) Bidder CEO and Other Executive Compensation in UK M&As European Financial Management, Vol. 12, No. 4, 609-631 Dahya J.;Travlos N.G. (2000) Does the one man show pay Theory and evidence on the dual CEO revisited European Financial Management, Volume 6,Number 1, pp. 85-98(14) Exley, Margaret (2007) Managing CEO succession: new models for a new era International Journal of Business Governance and Ethics, Volume 3,Number 2, pp. 139-149(11) Florou, Annita (2005) Top Director Shake-up: The Link between Chairman and CEO Dismissal in the UK Journal of Business Finance & Accounting, Volume 32, Numbers 1-2, pp. 97-128(32) So, are two heads better than one Behind the veil of the CEO and chairman relationship Strategic Direction, Volume 22,Number 11, 2006, pp. 19-21(3) Kakabadse, Andrew;Kakabadse, Nada K.;Barratt, Ruth (2006) Chairman and chief executive officer (CEO): that sacred and secret relationship The Journal of Management Development, Volume 25,Number 2, pp. 134-150(17) O'Sullivan N.;Wong P. (1998) Internal versus External Control: An Analysis of Board Composition and Ownership in UK Takeovers Journal of Management & Governance, Volume 2,Number 1, pp. 17-35(19) Sora, Sebastian A;Natale, Samuel M (2004).The ethical dilemma of merging the roles of CEO and chairman of the board Corporate Governance: International Journal of Business in Society, Volume 4,Number 2, pp. 64-68(5) Townsend, Donley (2007) Engaging the board of directors on strategy Strategy and Leadership, Volume 35,Number 5, pp. 24-28(5) Weir C.;Laing D. (2001) Governance structures, director independence and corporate performance in the UK European Business Review, Volume 13,Number 2, pp. 86-95(10) Read More