For a growing number of corporate leaders, chief executive officer isn’t the last rung on the management ladder any more.
Instead, more CEOs announce they’re retiring or “stepping down” to become executive chairs, taking on ill-defined roles that permit them to continue overseeing strategy, and sometimes day-to-day operations, even though a new chief executive has been appointed.
The trend is playing out at institutions of all stripes, from publicly traded companies, to law firms, to private corporations, and it is altering succession plans at every size of enterprise imaginable, from mid-sized businesses to giant corporations.
In Canada, executive chairs have been named at oil sands producer Cenovus Energy Inc., corporate law firm Bennett Jones and office building owner Allied Properties REIT. They’ve also been appointed at parcel giant Cargojet Inc., meat and protein producer Maple Leaf Foods Inc., and private real estate developer KingSett Capital Inc., among others.
The trend has also taken hold in the United States. Three years ago executive search firm Spencer Stuart found 130 publicly traded American companies worth at least US$500-million had named executive chairs. By December, 2023, that figure had jumped 56 per cent, to 203 executive chairs, including one at Netflix Inc.
How the position became so popular, so quickly is still a bit of a mystery, even to those who study it. But one likely reason is that executive chair can mean a lot of things, so it is relatively easy for companies to justify the position. “It’s a fuzzy role,” Jason Baumgarten, head of Spencer Stuart’s global CEO and boards practice, said in an interview.
Sometimes the title is bestowed on a departing CEO who has agreed to help with the transition to a new leader – but only for a fixed time period, maybe one to two years. This scenario played out at Canadian mining giant Teck Resources Ltd. in 2022, when long-time CEO Don Lindsay “retired” after 17 years, only to be named executive vice-chair for another year while Jonathan Price, an outsider hired in 2020, got comfortable in the CEO role.
But in some cases, the title is given to someone who retains heavy input – perhaps a founder who still wants operational control. At technology consultancy CGI Inc., founder Serge Godin stepped down as CEO in 2006, yet remains executive chair and was paid $13.3-million in total compensation in 2023, only slightly less than the $14.4-million CEO George Schindler made. (Mr. Godin controls the company through his multiple voting Class B shares.)
Even more extreme, there are scenarios in which a CEO retires for a brief period, only to take back control. In 2014 long-time Telus Corp. CEO Darren Entwistle transitioned to the role of executive chair and handed the reins to another long-time telecommunications executive, Joe Natale. Less than 18 months later, Mr. Entwistle returned as CEO.
More recently, in April, Waste Connections Inc. founder and former CEO Ron Mittelstaedt returned as chief executive after originally transitioning to executive chair in 2019.
When Spencer Stuart first examined the trend in 2020, Mr. Baumgarten and colleague Amitabh Sharma found there wasn’t yet a large enough data set to really determine whether the position helps or hinders a company’s performance over the long run. However, there was enough evidence for them to lay out some ground rules for how to make the position work.
Among them: The executive chair and CEO need to be clear about the division of labour, the handover should be visible and quick, and the board of directors should be built around the new CEO.
In other words, the position shouldn’t be used to massage an old CEO’s ego, permitting them to linger and get in the new leader’s way.
Mr. Baumgarten says these guidelines still apply. “Everything we researched in 2020 still holds true,” he said in late December.
But if the trend continues, corporate governance advocates may notice some peculiarities with the position, particularly the way it is sometimes marketed as a hybrid of board chair and CEO, two roles that governance experts have tried to split for decades.
Historically, many CEOs also chaired their company’s board, but proxy advisers worried that when a single person has both roles, it can be too hard for a board to dismiss an ineffective CEO. Academics have also argued that having two different people for these roles can curb conflicts of interest, help manage the relationship between the board and CEO, and foster better communication with shareholders.
While many companies that name an executive chair already have a board chair who is separate from the CEO, inserting a new player into that dynamic can erode the split. At the very least, it adds a new degree of difficulty, because now the board must also determine not just what the new CEO’s role is, but also what the board chair does that is separate from the executive chair.
The executive chair title is also being used within the management ranks, which can confuse investors. Royal Bank of Canada recently hired the former CEO of U.S. regional lender Fifth Third Bancorp as the executive chair of its U.S. bank, City National, yet he reports directly to RBC’s CEO, making him more of a group executive than a board member.
There is also the chance that the trend will establish a new norm. It used to be that companies named a president roughly a year in advance of the CEO’s retirement, so that the incoming leader would have a transition period, and investors knew who was taking over. If enough CEOs see their peers getting an extra two years or more as executive chair, they may push for it too, skewing succession timelines.
Tim Kiladze