Upon hearing the words “Chairman and CEO” you most likely would have thought you were meeting one individual. The role of Chairman had almost become a birthright of the Chief Executive Officer. However, scandals at Enron, WorldCom, etc. have created a new environment. Along with strict new financial reporting regulations, we are hearing a widespread call for separating the Chairman and CEO roles. The need for an independent Chairman, not beholden to the CEO has never been more acute.
Early in 2003 the Conference Board (www.conference-board.org) formed the Commission on Public Trust and Private Enterprise to address the widespread abuses that led to many of the recent corporate scandals. Among their recommendations was a strong edict to split the roles of CEO, and Chairman of the Board. In fact they went further to say that the role of Chairman should be assigned to a wholly independent, company outsider, and that company outsiders should comprise a “substantial majority” of board seats.
In our studies of gaming industry boards over the last decade, we have encouraged this practice. In view of the panels’ recommendations, we decided to look at how the gaming industry is dealing with the issue.
Setting the Standard
In order to establish a point of comparison, we took a look at companies in the S&P 500, who make up the largest public companies in the country. Here is what we found:
- 15 instances where the Chairman is not the CEO, and is an Independent Director
- 16 instances where the Chairman is not the CEO, and is an Outside Related Director
- 63 instances where the Chairman is the former CEO
- 3 instances where the Chairman is not the CEO, but is a Company Executive
- 6 instances where the Chairman is not the CEO, and is a former Company Executive
- 391 instances where the Chairman is also the CEO
Currently 79% of the firms in the S&P 500 do not conform to this corporate governance “best practice”. In fact only 3% show the ideal model of having an Independent Chairman. The remaining 18% are in the half measure category, which we believe is preferable to the CEO handling the role, but still not appropriate. Clearly the nation’s largest companies are not setting the bar too high.
Three companies, Harrah’s Entertainment, International Game Technology, and Carnival Corporation would have appeared in both groups, so we took them out of the S&P 500 findings. Percentages are computed on the 497 remaining companies.
The Gaming Industry
In our annual study of best practices in public gaming company boardrooms, which appeared in the January 2004 issue of Casino Journal, we noted that 58% of the 48 firms in the survey had CEO’s who were also the Chairman of the Board. More specifically we found:
- 5 instances where the Chairman is not the CEO, and is an Independent Director
- 10 instances where the Chairman is not the CEO, and is an Outside, Related Director
- 2 instances where the Chairman is the former CEO
- 3 instances of companies who do not identify a Chairman, or Lead Director
With 10% of the companies in gaming already conforming to the standard of having an Independent Chairman, compared to 3% of the S&P 500, it would appear that the industry is ahead of the curve. This is equally clearly illustrated in comparing the 58% of gaming companies where the CEO is still Chairman compared to 79% of the S&P 500. Furthermore, the gaming industry is improving in this regard as 64% of gaming companies CEO’s were also Chairman the previous year. When compared to public companies in general it appears that the gaming industry is taking the responsibilities of quality corporate governance to heart.
Close only counts...
Having applauded our industry for being ahead of the curve in this area of corporate governance, we still feel it necessary to point out that all public companies need to evaluate their commitment to providing responsible corporate governance. The company CEO simply should not also Chair the Board of Directors. It is more than just a reaction to current public mistrust of our capital system. We hope that the instance of a gaming CEO being the Chairman of his companies Board will become an anomaly in the very near future.