Who keeps a powerful chief executive in check? In most well-run companies, the answer is the chair of the board. Yet for decades some of the world’s most valuable businesses had no separate chair at all, or combined the two jobs in one person. When something goes wrong at the top, that choice suddenly matters a great deal, as Nvidia found this week when it named its first-ever board chair alongside an interim chief executive.
Two jobs, two purposes
The chief executive runs the company day to day. They set strategy, hire the senior team and are judged on results. The chair runs the board of directors, the group that represents shareholders. The chair sets the board’s agenda, leads meetings, oversees how the chief executive is performing and, if needed, leads the process of replacing them.
Put simply, the chief executive manages the business and the chair manages the people who supervise the chief executive. When one person does both, they are effectively marking their own homework.
Why splitting the roles is common in the UK
The UK Corporate Governance Code says the roles of chair and chief executive should not be held by the same person, and that the chair should be independent when appointed. Most FTSE 100 companies follow that approach. In the United States, combined roles have been more common, particularly at founder-led technology companies, although many large US firms now have a separate chair or a lead independent director.
Supporters of combined roles argue that one leader means faster decisions and a clear line of responsibility. Critics argue it concentrates too much power and makes it harder for the board to challenge a dominant chief executive, especially one who founded the business.
Why it matters in a crisis
The chair’s role becomes most visible when things go wrong. If the chief executive faces a scandal, falls ill or loses the board’s confidence, someone needs to lead the response, speak for the company and organise a succession plan. A strong independent chair can do that quickly and credibly.
Where there is no independent chair, the board may look leaderless at exactly the wrong moment. Investors tend to dislike that uncertainty, and it can add to what is sometimes called a governance discount, where shares trade at a lower valuation because investors trust the oversight less.
What traders should look at
You do not need to read every annual report to use this. A few quick checks help. Is the chair independent, or a former chief executive of the same company? Has the company published a clear succession plan? How long has the chief executive been in place, and how much influence do they have over the board?
When a company separates the roles after a crisis, the market often treats it as a step towards better oversight. It rarely moves shares much on its own, but it can help steady confidence while bigger questions, such as who the permanent leader will be, are resolved. Our guide to key person risk explains why so much can hinge on one individual.
A beginner’s takeaway
Good governance is dull until it suddenly is not. A separate, independent chair is a form of insurance for shareholders: it costs little when things go well and proves its worth when things go badly. When you weigh up a company, especially one built around a famous founder, ask who would take charge if that person left tomorrow.
If you want to sharpen how you assess risks like this before you place a trade, take our free Trader Assessment and see where your process stands.
