Qwest and the Separation of CEO/Chairman

A week or so ago, Qwest Communications announced that it has appointed the successor to Dick Notebaert, the CEO who replaced Joe Nacchio. At the time Notebaert took over, Qwest was on the verge of bankruptcy. Whatever uncertain future a telecom like Qwest still has, Notebaert is rightfully credited with having saved the company.  His replacement is Edward A. Mueller, a former chief executive of Ameritech Corp. and Williams-Sonoma. He looks to be highly qualified and a fitting replacement. The announcement made clear that he will serve as both CEO and chairman of the board of directors. 

Combining both positions is a hot button issue in the corporate governance area.  The Chairman ordinarily sets the agenda for the board meeting and has the authority to call meetings.  With the board having the responsibility for overseeing and sometimes replacing the CEO, combining the two positions in the same person arguably makes this less likely. 

Some, therefore, seek to have the two positions separated.  Internationally, the default rule is that the CEO does not also serve as chairman.  The rule in the United States is different.  In most large companies, the CEO holds both positions.  In "2006 Trends in the Corporate Governance Practices of the 100 Largest US Public Companies," a study conducted by the law firm Sherman & Sterling, the data showed that companies embraced independent boards.  In 82 of the top 100 companies, the boards had 75% or more independent directors (the NYSE and Nasdaq only require a majority).  In 37 of the companies, the CEO was the only independent director on the board. 

At the same time, however, they did not embrace an independent chair of the board.  Only 24 of the top 100 companies separated the positions of chairman and CEO and only six companies actually had a policy requiring separation.  The six companies? Wal-Mart, AIG, Hewlett-Packard, Intel, Walt Disney and Bristol Myers. Already, at least one of these companies has abandoned the practice, with HP combining the two positions in the aftermath of the scandal that swept through its board of directors and generated the resignation of the chairperson. This compares with 19 companies that specifically provide that the two offices should not be separated.

And Qwest?  It's practices are consistent with the Sherman & Sterling data.  The company has a history of independent boards but not of separating the position of chairman and CEO.  The company has committed to making a "substantial majority" of the directors on the board independent and, except for the CEO, "[o]ther members of management will not be considered for Board membership."  As a result, Notebaert was the only non-independent director on the board.  See 2007 Proxy Statement ("Applying these standards, the Board has determined that each of our current directors and director nominees, other than Richard C. Notebaert, qualifies as independent.").   As for combining chairman and CEO, Notebaert held both positions (so the last proxy statement indicates) as did Joe Nacchio.  Moreover, a proposal to separate the two offices was put to a vote of shareholders in 2004 and failed.  Mueller, therefore, continues this practice.