Last week, Morgan Stanley announced that its chairman, John Mack, who earned the nickname on Wall Street ‘Mack the Knife’ for his aggressive cost-cutting measures, would be retiring at the end of the year.
James Gorman will serve as the company’s new chairman and chief executive starting in early 2012, increasing his power and influence at the global financial services firm.
Mack had also held the chairman and CEO titles in 2005 after Phil Purcell, the company’s former chairman and chief executive, made a move to step down. Having the same individual serving in both roles seems to be a tradition at the Wall Street behemoth.
But what does combining these two high-powered jobs mean for Morgan Stanley’s future? Some argue that things have gone reasonably well for the company over the years; others reckon Morgan Stanley is tempting fate.
A recent article in Forbes notes that scandal-ridden companies such as News Corp, Deere, Enron, Total and Tyco have one thing in common: they all combine the roles of chairman and CEO. In the wake of the corporate scandals at these companies, the call for a split between the chairman and CEO positions is gaining momentum.
‘For the first time in modern corporate history, the clear trend in the US is to split the roles [of chairman and CEO],’ says Dr Stephen Davis, executive director of Yale University School of Management’s Millstein Center for Corporate Governance. ‘Separation adds a large measure of accountability because it makes clear that the CEO will be assessed.’
Driving transparency has become a very important part of shaping corporate culture and the best way to start is by separating the roles of these executives so each can be evaluated based on the execution of their fiduciary duties. In light of this, companies like Citigroup, Bank of America, Depository Trust & Clearing Corporation and BlackBerry maker Research In Motion have all tweaked their governance models to allow for the separation of the roles.
Davis (pictured left), a corporate governance veteran, says the latest data reveal that close to 40 percent of S&P 500 companies have now dropped the axe between these roles. ‘If the jobs are combined, risks become higher of a board being too compliant,’ Davis adds.
There is still debate about the marriage of the chairman and CEO roles, however. Some corporate governance experts feel, in today’s economy, combining the roles gives the business a competitive advantage.
Commenting in a recent Reuters article on Mack’s move to step down, Douglas Park, principal of DYP Advisors, a California-based corporate governance advisory firm, said: ‘Giving the CEO both positions is a vote of confidence [and] the board is saying it has confidence in Gorman's leadership and the direction he's taking the firm.’
It is essential to remember that a CEO reports to a chairman, but splitting the roles is not a magic elixir that will save companies on the brink of failure. After all, Morgan Stanley remains an industry heavyweight and one of the best-run companies around. But the lessons from scandals at News Corp, Total and Tyco might persuade companies to begin considering separating the two top roles.
