By Chip Cutter 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 28, 2020).

Robert Iger, the longtime head of Walt Disney Co., stepped aside as CEO this week. But he's not really gone: Mr. Iger has taken on the relatively rare role of executive chairman.

Major corporations are increasingly splitting the positions of chairman and chief executive. Today, more than half the companies in the S&P 500 use such a structure, according to proxy advisory firm Institutional Shareholder Services, up from just 35% in 2009.

But chairmen who hold that sole title at U.S. corporations are typically independent -- an arrangement long supported by pension funds and governance advocates. The position of executive chairman tends to be reserved for company founders or long-serving CEOs who say they want to help ensure a smooth transition, according to Compensation Advisory Partners, a compensation consulting firm.

As more CEOs from the baby boom generation reach retirement age, the position of executive chairman will become more prevalent, says Susan Schroeder, a partner at CAP, citing a desire among founders and long-serving CEOs to keep working while protecting their legacies.

Recent examples include Under Armour Inc. founder Kevin Plank and Nike Inc.'s Mark Parker, who was named executive chairman after a 14-year run as CEO. And Mastercard Inc. said this week that Ajay Banga, its president and CEO for the past 10 years, will become executive chairman in 2021. His successor as chief executive, Michael Miebach, will first move into the position of president in March.

Executive chairmen, unlike their independent counterparts, are often engaged in the day-to-day operations of a business. How deeply they are involved and the authority they wield can vary from company to company.

Some industries, like energy, have a history of executive chairmen. Shale-oil pioneer Harold Hamm relinquished the CEO role at Continental Resources Inc. -- a position he had held since forming the North Dakota company in 1967 at the age of 21 -- to become executive chairman at the start of this year. Scott Sheffield, who built Pioneer Natural Resources Co. into one of the biggest oil pumpers in West Texas, became executive chairman in 2016 when he handed the CEO reins to his chief operating officer -- only to take them back in early 2019 as oil prices and the company's stock slumped.

Such arrangements work when an executive chairman cedes enough control to give the new CEO autonomy, while remaining present as a sounding board, says Anthony Abbatiello, who heads the leadership and succession-planning practice at Russell Reynolds Associates, an executive-search firm. Transitions can crumble if the newly installed chairman insists on micromanaging operations, he said.

When Jim McCann, the founder and longtime CEO of 1-800-Flowers.com Inc., became executive chairman in 2016 and handed the reins to his brother, Chris McCann, he says he tried to clearly separate the roles. He stopped attending some meetings and quarterly gatherings of managers, and refrained from participating in corporate earnings calls. Instead, he took on projects focused on innovation and better serving customers, leaving his brother to handle day-to-day operations.

A mentor advised the two executives to never let others drive a wedge between them. "That's rung in our ears," Jim McCann said.

Moving from CEO to chairman takes some adjusting. For years, Daniel Lubetzky, the founder of snack-bar maker KIND LLC, had a quick answer when people asked him about his job: "I'm CEO." Last year, Mr. Lubetzky relinquished that role and became executive chairman, a title he says doesn't carry the same kind of recognition in social settings.

"I'm the executive chairman, what the hell does that mean?" he jokes.

But the transition has been smooth, he says, in part because he and the company's new CEO, Mike Barkley, communicate freely. Their offices are adjacent and they chat several times a day. Mr. Lubetzky now focuses on new products and creative endeavors, giving Mr. Barkley space to run the business. Mr. Lubetzky says he is quick to praise his successor for decisions, and describes Mr. Barkley as a better manager than himself.

In such situations, competition between the executives, even unconscious, could destroy a company, Mr. Lubetzky says. "You manage your egos so you're there for each other."

Only one in five non-CEO board chairmen have executive status, according to a study by CAP. That is partly because corporate-governance watchdogs have been calling on boards to appoint independent, nonexecutive chairmen to serve as a check and balance on CEO power.

Executive chairmen typically participate in executive compensation programs, including a base salary and long-term incentives, albeit not at CEO levels. The executive chairman's total compensation is often about 60% of the CEO's, CAP's Ms. Schroeder said. Mr. Iger, who will still work full time as executive chairman, is expected to draw the same compensation under his existing contract.

Mr. Iger's pay package has drawn criticism in the past, including from Abigail Disney, a granddaughter of the company's co-founder. Mr. Iger earned about $47.5 million in total compensation last year, corporate filings show.

Disney has defended its compensation arrangements, saying it has improved pay for hourly workers and that much of Mr. Iger's pay is based on the company's performance.

While Disney's announcement Tuesday that theme-park chief Bob Chapek would become CEO and Mr. Iger executive chairman caught some company insiders off guard, some outsiders say the arrangement could work well.

Appointing an executive chairman is often successful when a company is already performing well and doesn't need a change of strategy, says Jeffrey Sonnenfeld, a professor at the Yale School of Management who studies executive succession. He says this is the case with Disney.

"It's a really good model for continuity if you're on the right track," he said. "If you're veering off a cliff, then this is the last thing you want because it's not going to let the new player cut their own trail."

In elevating Mr. Iger, Disney's board is ensuring that Mr. Chapek has ample time to learn and grow in the CEO role alongside the company's longtime leader, said Peter Crist, chairman of executive recruitment firm Crist Kolder Associates.

"I view this as a longer succession process," he said, describing the dynamic as Mr. Chapek being groomed for a position for which he already holds the title.

Mr. Iger will stay on to oversee the company's creative endeavors through the end of 2021, when his contract expires, Disney said when announcing the change.

"If it goes off the rails over the next two years, will Iger go away?" Mr. Crist asks. "Probably not."

--Lynn Cook and Inti Pacheco contributed to this article.

Write to Chip Cutter at chip.cutter@wsj.com

 

(END) Dow Jones Newswires

February 28, 2020 02:47 ET (07:47 GMT)

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