A New Balance of Power for Wachovia

The silver lining in the mortgage mess is that it may speed up the separation of the CEO and Chairman role at financial companies. But whether that's a good thing or not remains a subject for debate in some quarters.

The board of directors at Wachovia Corp., voted to replace chief executive G. Kennedy Thompson as Chairman; he will remain CEO. Larry L. Smith, lead independent director of the board of directors, was named chairman. Wachovia posted a loss of close to $400 million in quarterly net income.

The company says that the change isn't a reflection on Thompson's leadership, but rather it will enable him to spend all of his time on improving operations. Many governance experts, however, would say the change is long overdue and that having a separate CEO and Chairman is a best practice that every company should adopt for the benefit of shareholders. Separating the corner office from the boardroom is a well entrenched practice in European and other countries and has gained rapid momentum in the United States since Enron's collapse.

According to a Russell Reynolds study, advocates of division of power say that a separate chairman creates a better environment for the board to express its views on management performance; that the CEO can benefit on performance feedback from a separate chairman; that CEOs should spend all of their time managing the company; and that a separate chairman allows the board of directors to better meet regulatory requirements.

Supporters of a hybrid CEO/Chairman counter that it's easier to recruit a top CEO if the chairman's job is offered; that separating the role can create a power struggle; and that companies prosper when both short-term and long-term strategy is controlled by one person.

There is also disagreement of opinion relating to succession planning. Supporters of hybrid leaders say that succession plans are clearer with only one top job. But the argument can also be made that a more competitive environment is healthy.

Checks and balances protect the common good -- whether it be for the benefit of citizens of a country like the United States with our three branches of government or for shareholders of a corporation with two people in the top power positions.