The Decline of the Imperial CEO


Richard Fuld’s official title was not “imperial CEO.” He was better known as “the gorilla” after having once torn his shirt off it in a fit of anger. The former chief executive officer of Lehman Brothers, whose speech was filled with expletives, once pushed everything off a manager’s desk for asking Fuld to wait. An elevator was reserved for his private use, delivering him to his office on the executive floor referred to as “Club 31” by employees.

None of this would be especially important, except that in 2008 Fuld presided over the collapse of the fourth largest investment bank in the country, which helped spark the global financial crisis and ultimately became one of the largest bankruptcies in U.S. history. And yet during the entire episode, the board of directors never unseated him. It’s hard to say for sure what the dynamic was between the board and Fuld, except we do know that the risk committee of the board met only two times per year. The executive committee of the board was the most active committee. It had two members on it, one of which was Fuld. Nine of the 10 directors were retired, none were sitting CEOs, and none had any recent financial industry experience. One, quite inexplicably, was a former actress who had appeared in a Katherine Hepburn movie.

The days of the aristocratic CEO sitting on his throne, calling all the shots, are on the wane; almost none of the largest banks that boasted such CEOs survived the financial crisis. The days of the empowered board are upon us. Now more than ever, boards are expected to provide a credible challenge to management. Especially for public company boards, investors and regulators alike are scrutinizing the skill sets and actions of the board of directors, demanding such things as board evaluations, strong nominating committees that pick independent boards members, and scrutiny of management’s strategic plan. More banks are installing independent non-executive chairmen as a counter balance to the CEO. Although research has not shown that such a move improves financial performance, except when the company has withstood financial problems, many more boards are adopting such a structure. Twenty-nine percent of S&P 500 boards had independent chairmen in 2015, compared to just 9 percent a decade ago, according to the executive search firm Spencer Stuart. That leaves the CEO needing collaboration and power sharing skills, and some have adapted commendably to the change.

Collaboration between management and an empowered board is not new-it’s been an important part of well run companies for a long time. But as boards become empowered through increased regulation and heightened expectations for oversight from both regulators and institutional investors, fewer imperial CEOs are making it as the heads of companies. “I think the pendulum was such that CEOs had all the power, but now it’s swinging back to where the board or even the shareholders have a lot more power,” says David Larcker, a professor and faculty member with the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University.

H. Rodgin Cohen, an attorney at Sullivan & Cromwell in New York, who has represented several banking giants, as well as a handful of banks below $50 billion in assets, says the likelihood of other imperial CEOs emerging has been diminished because of the empowerment of boards. He defines an imperial CEO as one who is the opposite of collaborative. He (and it’s usually a he) sets the agenda without consulting the board. But imperial CEOs have almost always been an exception, Cohen says. “From my experience, the best companies had a collaborative process between the CEO and the board.” He mentioned JPMorgan Chase & Co., Goldman Sachs, and American Express as companies whose boards enjoy a more collaborative power structure.

This doesn’t mean that the imperial CEO isn’t alive and well in many smaller banks, says Bryan Cave LLP attorney Jim McAlpin. In fact, it’s rare for banks below $1 billion in assets to have a formal evaluation of the CEO’s job performance. Often, at small banks where the CEO is also the board chairman, there is no formal lead director. For many CEOs, their boards consist of local businessmen and professionals who don’t have much experience in banking. They lean on the CEO for guidance and “there tends to be much more deference to the CEO” than in the boardrooms of larger companies, McAlpin says. This is a fact of life at smaller companies where insiders own a majority of the stock, and where there may be a dearth of outside expertise to really challenge the CEO’s strategic plan in a meaningful way.

Still, many CEOs have noticed their roles have changed, particularly at publicly traded companies. William Aichele, the chairman and former CEO of $2.9 billion asset Univest Corp. of Pennsylvania, says when he was named CEO of the company 15 years ago, he basically brought board nominees to the board for approval. Nowadays, the nominating committee is much more proactive in assembling the slate of candidates for directorship. Also, board members used to receive their board packets the moment they walked into a board meeting. Nowadays, they receive them the Friday before a Wednesday board meeting so they can prepare, and they are typically much longer, 300 to 400 pages, he says. “There is no question that the regulations continue to require boards to be more accountable,” he says. “If you get exam reports and are criticized by regulators, they mention the board and management. There is more emphasis on it now.”

For many, the changing role of the CEO is a good thing. Does it diminish the CEO? No, says McAlpin. “You need to be more of a politician in the boardroom, more adept at listening, more open to constructive feedback. To that degree, you are seeing those skill sets in effective CEOs.”

An empowered board should bring specialized expertise to the table, and a CEO who listens can bring that knowledge to improve the company. “You want diversity of opinion and thought that mirrors the fact that the world is more complicated,” Larcker says. “If someone wants to jam something down the throat of another, that’s not the way it’s supposed to be. You want someone who is smart and competent [as the CEO], but someone who can listen,” he says.

As for the board, a danger of the shift and the increased regulatory focus means the board could veer off into micromanaging the company. The board shouldn’t insist on signing off on every expenditure, says Peter Weinstock, a partner at the law firm Hunton & Williams LLP in Dallas, who has seen that happen. Ideally, management is still making operating decisions, but with proper oversight from a board delving into strategy and risk management. In the end, an empowered board is a good thing, Weinstock says. “It allows the CEO to do a better job. The CEO is truly getting the acumen of what’s hopefully, a very talented board.”


Naomi Snyder


Editor-in-Chief Naomi Snyder is in charge of the editorial coverage at Bank Director. She oversees the magazine and the editorial team’s efforts on the Bank Director website, newsletter and special projects. She has more than two decades of experience in business journalism and spent 15 years as a newspaper reporter. She has a master’s degree in journalism from the University of Illinois and a bachelor’s degree from the University of Michigan.

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