Corporate Governance and CEO Dominance

Abstract

This article argues in support of state corporate law either prohibiting CEOs from serving as chairman of the board or from serving as directors of public companies. By limiting the ability of CEOs to dominate the governance process and giving directors increased separation and independence from the CEOs’ influence, boards will be better equipped to ask the tough questions of management and hopefully discover problems before they occur. Moreover, by limiting the role of executive management on public company boards, state law can delineate the roles of CEO and director. Separating the CEO’s work as an executive from that of a director benefits the courts as it continues to develop the fiduciary duties of both roles. This article examines the social science data on leadership and group decision-making and argues that such data can improve corporate governance by eliminating the structural reasons for CEO dominance and board groupthink, which exists under corporate laws. Part II examines CEO dominance and firm performance. Part II explores the factors that contribute to CEO dominance, including how the personality traits of CEOs influence decision-making, the environment in which directors fail to critically examine the decisions or information provided to them by CEOs, and the social science data on board groupthink behavior. Part IV examines the pros and cons of CEOs as board members. Part V looks at how separating the role of CEO from chairman of the board can minimize CEO dominance of the board and why removing the CEO as a director offers even more assurance that the CEO likely will not control the board through sheer force of personality. Finally, Part VI proposes solutions to minimize the effect of CEO dominance on board decision-making.

Keywords: CEO dominance, organizational performance, groupthink, corporate law, CEO, corporate governance, management, personality