WaMu and the Separation of Chairman and CEO

We have written a number of posts that examine the US phenomena of combining the positions of chairman and CEO.  With boards consisting of increasing percentages of independent directors (those without any other relationship with the company), the position of chairman can be used to control the information flow to directors and the agenda for board meetings.  Indeed, eleven out of thirteen directors on the board of WaMu are independent and the CEO is the only inside director serving on the board.  And if it were not so powerful, why would companies like WaMu go to such lengths to create a Lead Independent Director when the position would be unnecessary if the chairman had to be an independent director?   

One of the interesting matters to come up at the WaMu annual meeting earlier this week was the announcement that a proposal calling for the separation of chairman and CEO had passed.  The proposal was precatory.  In other words, it did not require but merely requested that the board separate the two positions.  While this might have been a strategy to garner votes, it was most likely a result of the Commission's encouragement of precatory proposals as a means of avoiding the need to resolve issues under state law.  As the proposal provided: 

• RESOLVED:  Shareholders of Washington Mutual, Inc. (“WaMu”) request that the Board of Directors adopt a policy that the Chairman of the Board shall be a director who is independent from the Corporation.

Efforts to exclude these types of proposals under Rule 14a-8 have generally been unsuccessful.  See Xcel Energy Inc.
(March 12, 2007).  Management, of course, opposed the proposal.  The reasons? 

• The Board values the flexibility it has to select, on a case-by-case basis, the style of leadership best able to meet the Company’s and shareholders’ needs based on the individuals available and circumstances as they exist at the time. The adoption of a mandate that the Chairman be independent would require the separation of the roles of Chairman and CEO and would limit the Board’s ability to select the director best suited to serve as Chairman based on then relevant facts, circumstances and criteria. This mandate would impose an unnecessary restriction on the Board that is not in the best interests of the Company or its shareholders.
• The Board has adopted Corporate Governance Guidelines, available on our web site and discussed in greater detail in the Corporate Governance section of this proxy statement. These Corporate Governance Guidelines are designed to promote effective functioning of the Board’s activities, to ensure that we conduct our business in accordance with the highest legal and ethical standards and to enhance shareholder value. While the Corporate Governance Guidelines do not mandate that the positions of Chairman and CEO be filled by different individuals, these Guidelines, and our other governing documents and charters, do outline the practices adopted to ensure the Board continues to focus on the interests of the Company and its shareholders.

Management even used the prevalence of the practice among large companies as a justification for the continued separation, noting that "65% of all S&P 500 boards have a combined chairman/CEO role and only 35% of the S&P 500 companies separate the roles of chairman and CEO." 

The arguments, which studiously avoided the underlying issue of excessive control of the board by the CEO, apparently were unconvincing.  The resolution passed with preliminary totals showing that it received 51% of the vote.  We'll see whether the board implements the "request."