By Chip Cutter
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 command 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 27, 2020 17:01 ET (22:01 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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