QUESTION -1

Discuss the advantages and disadvantages of

allowing one individual to act as both
chairman and chief executive of a quoted
company.
 QUESTION -1

Single Role VS Dual Role

 SURVEY RESULT

United States of America (USA)

60 and 80 per cent of all major corporations have the same
person act as both the CEO and Chairman

 Britain, Canada, Japan

10 to 20 per cent of the company has the combined role
 AGENCY THEORY AND
STEWARDSHIP THEORY

 Give us a clear idea on whether the CEO duality

role helps the firm to perform effectively or it
obstructs the firm’s performance.
 AGENCY THEORY
 relationship between the principal (Stakeholders) to its agent
(Management).

 Suggests that to achieve the goals of the organization, the roles of

Board of Directors (BOD) and CEO must be separated.

 a company should not be led by one person who plays a dual

role as the BOD and CEO in a company

STEWARDSHIP THEORY

 Opposite to Agency Theory

 Emphasize more on psychology and sociology

Believe that the stewards are inclined and motivated

to operate in the best interest of their shareholders

 Support the CEO duality in a company

STEWARDSHIP THEORY
 The main purpose of this theory is to reduce the
maintaining and controlling costs
 as there is no need to hire a CEO from outside the BOD
by paying too much if a Board of Director plays the role of
CEO.
 Same person can manage the work more efficiently and
effectively.
Advantages of allowing one
individual to act both as CEO and
Chairman
 C L E A R D I R E C T I O N F RO M A
SINGLE LEADER

all the activities undertaken by the company only rely

on one person
This will provide a clear direction from the CEO to
their managers, stakeholders, and their subordinates
regarding the strategy and business decisions that exist
within the company.
 EFFICIENCY AND
EFFECTIVENESS

As the company does not need to spend more money to hire
CEOs from outside so that it will certainly provide efficiencies for the
company in minimizing their expenses.

 effective in the presence of CEO duality means substantial power

as the BOD and CEO provide the effectiveness of the company in
making a decision to reach the goals of the company;
Disadvantages of CEO Duality
 MISUSES OF POWER

 if a person has enormous power within a company then he/she

can misuse his/her power
 LACK OF TRANSPARENCY

The strong power possessed by the CEO duality

provides an opportunity to hide whatever is in the
company which resulting in lack of transparency of
the company
 EXECUTIVE
COMPENSATION

the board of directors usually votes to increase

executive pay

When the CEO is also the chairman, a conflict

of interest arises, as the CEO is voting on his or her
own compensation
 AU D I T C O M M I T T E E
INDEPENDENCE

 The audit committee should consist of only external board

members.
 This means that no member of management can sit on the
audit committee.
 However, because the committee is a sub-group of the
board of directors and reports to the chair, having the CEO in
the chair role limits the effectiveness of the committee.