Once upon a time, not so long ago, it was more common for the CEO of a company to also be its Board Chair (Chair). The Chair holds a powerful position by setting the agenda of meetings in collaboration with the CEO. When the CEO is also the Chair, it’s important to have a strong lead independent director (LID) to counterbalance the CEO, give voice to independent directors, keep management in check, and moderate conflicts.
According to Spencer Stuart Board Index 2019, the number of independent Chairs is on the rise. This trend is expected to continue, which could explain the decrease in LIDs. In 2019, 34% of S&P 500 boards have truly independent Chairs while 47% of S&P 500 boards are chaired by the CEO of their companies.
The LID is put in a challenging position if the CEO doesn’t embrace the role of the LID. The LID’s role is to provide input from independent directors, whether welcome or not. To be effective, the LID must build relationships with other board members and be a good communicator. The tenure of the LID is generally shorter than that of a regular board member because of the difficulty of the role. The LID generally has limited power and operates on consensus. The LID’s job is even more difficult if the LID’s role and responsibilities are not clearly defined.
Is the vice chair the same as LID? No, the vice chair position is not the same. A vice chair is uncommon in the US. For banks, it’s a regulatory requirement. Sometimes vice chair is just a figurehead, or a position used for succession planning. Other times the vice chair is appointed to mentor a new CEO or may shadow the Chair in preparation for taking over the position later.
BlackRock has great suggestions for LID responsibilities including:
Meetings and Executive Sessions
Preside at all meetings of the board at which the Chair is not present, including executive sessions of the independent directors
Call additional meetings of the independent directors
Facilitate discussion and open dialogue among the independent directors during board meetings, executive sessions, and outside of board meetings
Liaison with the Chair and Management
Serve as principal liaison between the independent directors and the Chair, without inhibiting direct communication between them
Communicate to the Chair and management, as appropriate, any decisions reached, suggestions, views or concerns expressed by independent directors in executive sessions or outside of board meetings
Provide the Chair with feedback and counsel concerning the Chair’s interactions with the board
Oversight of Information Provided to the Board
Work with the Chair to develop and approve board meeting agendas and meeting schedules
Work with the Chair on the appropriateness (including quality and quantity) and timeliness of information provided to the board
Authorize the retention of advisors and consultants who report directly to the Board when appropriate
Board Evaluation and Leadership
In consultation with the NomGov Committee, review and report on the results of the board and committee performance self-evaluations
Discuss board and committee performance, effectiveness and composition, including feedback from individual directors, with the Chairman and meet individually with independent directors as needed
Stockholder Communication.
If appropriate, and in coordination with executive management, be available for consultation and direct communication with major shareholders
Unlike the US, European boards have regimented roles and defined term limits. The Chair position is a powerful one, and the Chair must be completely independent. The Chair is in charge of strategy, and the CEO is in charge of execution. For example, if there is an offer to buy the company, the offer would be directed to the Chair, who has the authority to decide on the offer. There is no LID position in Europe because of the requirement that Chairs be independent.
If the trend towards independent Chairs continues in the US, or if the US, like Europe, adopts laws requiring independent board Chairs, the role of the LID could vanish.
