THE IMPACT OF CEO DUALITY ON FIRM FINANCIAL AND

MARKET PERFORMANCE DURING THE PERIOD OF 2008

THROUGH 2010: A PERIOD OF FINANCIAL CRISIS

by

Samuel E. Ferrara

A Dissertation

Submitted to the University at Albany, State University of New York

in Partial Fulfillment of

the Requirements for the Degree of

Doctor of Philosophy

Organizational Studies Ph.D. Program

School of Business

2013
 UMI Number: 3591132

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THE IMPACT OF CEO DUALITY ON FIRM FINANCIAL AND

MARKET PERFORMANCE DURING THE PERIOD OF 2008

THROUGH 2010: A PERIOD OF FINANCIAL CRISIS

by

Samuel E. Ferrara

COPYRIGHT 2013
 ABSTRACT

Firm’s practicing CEO Duality have been under continuous pressure from

shareholder activists and others to separate the positions of Chief Executive Officer and

Board Chair. Sarbanes-Oxley, (2002) and Dodd-Frank, (2010) provided additional

pressure to separate the two positions. Management theorists frequently align themselves

with Agency Theory suggesting that CEO Duality is unlikely to be beneficial to a firm’s

performance. However, academic studies are generally inconsistent in findings related to

this negative performance assumption (Dalton, Daily, Ellstrand, & Johnson, 1998; Dalton

& Dalton, 2011; Rhoades, Rechner, & Sundaramurthy, 2001). This study assesses CEO

Duality within the context of the most recent financial crisis and examines performance

from both financial and market perspectives. It includes the population of 2011 S&P 500

firms that employed either separate or combined leadership structures for the calendar

years 2008 – 2010 (n = 271 firms). Relying on nonparametric statistical analysis it was

discovered that firms practicing CEO Duality are associated with higher levels of

financial performance. However, CEO Duality is associated with lower levels of market

performance. Findings are explained, study limitations are discussed, and suggestions for

future research are offered.

iii
 DEDICATION

This dissertation is dedicated in memory of my parents, Theresa and Samuel Ferrara.

iv
 ACKNOWLEDGENTS

Sitting down to write these acknowledgements, I am reminded of the many times

that I did not think that this day would ever come. As such, I would like to thank those
who made it possible. I am especially grateful for the guidance and encouragement
provided by my mentor and committee chair, Dr. Raymond Van Ness. It has been my
privilege to have the opportunity to benefit from Dr. Van Ness’s intellect, insights, and
when needed, patience and affability. Without his steadfast guidance and support,
completion of this dissertation would not have been possible.
Thank you also to my committee members, Dr. Paul Miesing and Dr. Charles
Seifert, for advice on the study and its model and the example of their scholarly research.
I would also like to thank Dr. Gary Yukl, whose scholarly excellence is a model that I
will always strive to emulate. Dr. Cecilia Falbe was tremendously generous with her
time, insights and support of my success. I appreciate Dr. Martin Fogelman’s generosity
of spirit, inclusiveness and thoughtful insights and support of my work.
And, thank you to those who are always near to my heart. I would like to extend
my deepest love and gratitude to members of my family: my sisters Alayna, Celeste and
her husband Christ, Denise and her husband Larry, and Elysa; my nieces Jill and her
husband Jake, Tessa and her husband Matt, Elayna and her husband Josh, and Lydia; my
nephews Dan, David and his wife Marlena, Joel and his wife Mindy, Matthew, and
Andrew; my great nieces Olivia and Aleah; my great nephews Rowan and Sam, and
another great nephew soon to come courtesy of Jill and Jake. Thank you all.
And to those of you who are always asking “Are you done yet,” I can now
answer, yes I am.

v
 TABLE OF CONTENTS

Abstract .............................................................................................................................. iii

Dedication .......................................................................................................................... iv

Acknowledgement ...............................................................................................................v

Table of Contents ............................................................................................................... vi

List of Tables ..................................................................................................................... ix

List of Figures .................................................................................................................... xi

Chapter 1: Dissertation Overview .......................................................................................1

Introduction ..............................................................................................................1

The Anti CEO Duality Pressure ...............................................................................2

Status of CEO Duality and Evolution of the Research Questions ..........................4

Research Objective ..................................................................................................7

Research Rationale: The Financial Crisis and Assumptions About

CEO Duality ............................................................................................................8

Research Methods ....................................................................................................9

Definitions of Research Terms ..............................................................................10

Research Delineation .............................................................................................12

Chapter II: Context of Pressures to Separate the CEO and Board Chair Positions ...........14

History....................................................................................................................14

Theories Relating to Top Management Self-serving Decision-making ................17

Legal Consequences of Anticipate and Actual Top Management

Malfeasance ...........................................................................................................20

Corporate Malfeasance and the Sarbanes-Oxley Act ............................................21

The Financial Crisis and the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2012 ...........................................................................................25

vi
 TABLE OF CONTENTS (Continued)

U.S. Corporate Governance in the Post Financial Crisis Period: Issues,

Challenges, and Implications .................................................................................28

Chapter III: Literature Review ..........................................................................................32

Introduction ............................................................................................................32

The Management and Monitoring Responsibilities of the Board of Directors

and the Role of the Board Chair ............................................................................32

The Theoretical Arguments For and Against CEO Duality...................................35

Empirical Evidence of the Impact of CEO Duality on Firm Financial and

Market Performance...............................................................................................39

Summary of Research Supporting The Null Hypothesis ...........................39

Summary of Research Supporting Agency Theory ..................................40

Summary of Research Supporting Stewardship Theory ............................42

Summary of Research Contingency Theory ..............................................45

The Implications of Previous Research For Current and Future Research ............48

Chapter IV: Research Hypotheses ....................................................................................52

Chapter V: Research Methods ..........................................................................................55

The Research Problem ...........................................................................................55

Research Design.....................................................................................................56

Research Sample ....................................................................................................56

Research Variables.................................................................................................57

Data Analysis Procedures ......................................................................................57

Ethical Considerations ..........................................................................................63

Chapter VI: Data Analysis and Results .............................................................................64

Data Set Descriptive Statistics ...............................................................................64

vii
 TABLE OF CONTENTS (Continued)

Analysis of Data Distribution and Data Set Normality ........................................65

Analysis of Outliers ...............................................................................................65

Kendall’s Tau Nonparametric Correlations of Variables ......................................66

Analysis of the Dependent Variables and Tests of Research Hypotheses ............67

Replication of Nonparametric Hypotheses Tests ..................................................76

Chapter VII: Discussion .....................................................................................................77

Summary of Empirical Findings ...........................................................................77

Limitations and Implications for Future Research.................................................78

Stakeholder Implications .......................................................................................79

References: ........................................................................................................................84

Appendices: .......................................................................................................................92

Appendix A: Research Sample by Firm, CEO, and Type of Leadership

Structure ................................................................................................................92

Appendix B: Firm Financial and Market Performance 2008 – 2010.....................99

Tables: .............................................................................................................................106

Figures: ...........................................................................................................................124

viii
 LIST OF TABLES

Table 1: Fortune 200 200 Shareholder Proposals to Separate the CEO and Board
Chair Position (January 1, 2013 – May 31, 2013) ................................................2

Table 2: S & P 500 Companies Board Leadership Structures (2003-2011) .......................5

Table 3: Comparison of Agency Theory and Stewardship Theory ..................................38

Table 4: Summary of Research Supporting the Null Hypothesis .....................................39

Table 5: Summary of Research Supporting Agency Theory ............................................40

Table 6: Summary of Research Supporting Stewardship Theory .....................................42

Table 7: Summary of Research Supporting Contingency Theory ....................................45

Table 8: Summary of Research Variables ........................................................................57

Table 9: Descriptive Statistics ..........................................................................................64

Table 10: Results of the Kolmogorov-Smirnov Test of Normality of the Data Set .........65

Table 11: Results of the Kolmogorov-Smirnov Test of Normality of the Data Set
in the Absence of Outliers................................................................................65

Table 12: Kendall’s Tau Nonparametric Correlations of Variables .................................66

Table 13: Descriptive Statistics for Average Net Profit Margin ......................................67

Table 14: Results of Levene’s Test of Equality of Error Variances for Average
Net Profit Margin ..............................................................................................68

Table 15: Results of the Mann-Whitney U Hypothesis Test for Average Net Profit
Margin ..............................................................................................................68

Table 16: Results of the Test of Equality of Medians Hypothesis Test for Average
Net Profit Margin ..............................................................................................68

Table 17: Descriptive Statistics for Average Return on Assets .......................................69

Table 18: Results of Levene’s Test of Equality of Error Variances for Average
Return on Assets ..............................................................................................69

Table 19: Results of the Kolmogorov-Smirnov Hypothesis Test for Average Return on
Assets ................................................................................................................70

ix
 LIST OF TABLES (Continued)

Table 20: Descriptive Statistics for EPS ..........................................................................70

Table 21: Results of Levene’s Test of Equality of Error Variances for Average
Earnings Per Share ...........................................................................................71

Table 22: Results of Mann-Whitney U Hypothesis Test for Average Earnings

Per Share ..........................................................................................................71

Table 23: Results of the Test of Equality of Medians Hypothesis Test for Average
Earnings Per Share ............................................................................................71

Table 24: Descriptive Statistics for Average Dividends Per Share .................................72

Table 25: Results of Levene’s Test of Equality of Error Variances for Average
Dividends Per Share .........................................................................................73

Table 26: Results of the Mann-Whitney U Hypothesis Test for Average Dividends
Per Share ..........................................................................................................73

Table 27: Results of Test of the Equality of Medians Hypothesis Test for Average
Dividends Per Share .........................................................................................73

Table 28: Descriptive Statistics for Market Return .........................................................74

Table 29: Results of Levene’s Test of Equality of Variances for Market Return ...........75

Table 30: Results of the Mann-Whitney U Hypothesis Test for Market Return ............75

Table 31: Results of Test of Equality of Medians Hypothesis Test for Market
Return ...............................................................................................................75

x
 CHAPTER I

DISSERTATION OVERVIEW

Introduction

Chief executive officer (CEO) duality, wherein the CEO is also the Chairman of

the Board of Directors (Board Chair), is a contentious issue that has attracted significant

attention among researchers, investors, and policymakers around the world. Despite the

lack of consistent empirical evidence indicating the benefits of separating the CEO and

Board Chair positions, the pressure to do so continues unabated.

The practice of CEO duality has generated considerable controversy and is

considered objectionable by many agency theorists, shareholder activists, government

officials, and corporate watchdogs such as Institutional Shareholder Services,

Shareholders Rights Project, and Shareowneres.org. However, despite powerful

objections to the practice of duality, leadership structure literature offers varying

conclusions about the impact of duality on a firm’s financial and market performance.

While some studies have found a link between performance and duality many others have

failed to do so (Dalton, Daily, Ellstrand, & Johnson, 1998; Rhoades, Rechner, &

Sundaramurthy, 2001). Interestingly, even where studies agree that a link exists, they

often reach opposing conclusions. Some have found a positive effect of duality on a

firm’s performance, while others have found a negative effect (Boyd, 1995; Dalton, et al.,

1998; Dalton, Hitt, Certo, & Dalton, 2008; Finkelstein & D’Aveni, 1994; Rhodes, et al.,

2001). Nevertheless, despite inconclusive empirical evidence there is an increasing

convergence of the views of institutional investors, labor unions, and shareholder

activists who do not support CEO duality (Fa leye, 2 0 0 7 ; Da lt on et a l., 2 0 0 8 ).

1
The Anti-CEO Duality Pressure

For several reasons, regulators and shareholder activists across various

jurisdictions have strongly discouraged CEO duality. First, they are concerned that CEO

duality changes the balance of power between the CEO and board members, potentially

compromising the board’s oversight of management activities. Second, CEO duality

engenders information asymmetry between the CEO and the board, thereby weakening

the effectiveness of the audit committee in monitoring reporting and management quality.

Simultaneously, the federal government has sought more influence over corporations by

increasing its role in establishing and enforcing new corporate laws and regulations. In

2002 Sarbanes-Oxley reforms (enacted in the wake of the collapsed Internet stock bubble

and frauds at Enron and other large companies), and in 2010 the Dodd-Frank Wall Street

Reform and Consumer Protection Act measures were enacted in the wake of the 2008

financial crisis. The new federal rules have themselves empowered shareholders and

reinforced a particular form of shareholder activism, namely, proposals submitted by

shareholders at the annual meetings of publicly traded corporations.

The 2012 proxy season saw a resurgence of shareholder proposals requesting that

companies separate the CEO and Board Chair roles. Among S&P 500 companies, as of

the end of May, 2012 there were 38 filed shareholders proposals calling for the separation

of the CEO and Board Chair roles, as compared to 25 in all of 2011 (Morphy, 2012).

Among Fortune 200 companies, in the first five months of 2012, 29 Fortune 200 firms

faced shareholder proposals to separate the two roles as compared to 15 in all of 2011

(proxymonitor.org, sponsored by the Manhattan Institute’s Center for Legal Policy, May

2012). Table 1 provides a list of the Fortune 200 companies where shareholders sought

2
such governance changes, reflecting an array of corporations across industry segments

from finance and insurance to manufacturing and investment. The data also demonstrates

the emergence of activists in the form of pension fund managers, trade unions and private

investors. Importantly, these votes were called, without respect to whether there were

already strong independent director roles in place.

Government regulators have also expressed support for board reforms that restrict

a company’s CEO from serving as Board Chair. Current and former commissioners of the

Securities Exchange Commission (SEC) have spoken in favor of separating the positions

as a means of controlling the power of the CEO over the board. For example, In support

of separating the CEO-COB positions former SEC Commissioner and now SEC

chairperson Mary Schapiro cited former SEC chairman Harold William’s view, “that the

CEO should not serve as the board chair, because, control of the agenda and pace of the

meeting is a powerful control.”

Congressional legislators have also promoted legislation to separate the CEO and

Chair positions. In 2009, Senators Charles Schumer (D-NY) and Maria Cantwell, (D–

WA) introduced the Shareholders Bill of Rights Act of 2009 (S. 1074) and House

Representative Gary Peters (D-MI) introduced the Shareholders Empowerment Act of

2009 (H.R. 2861). Both bills contained a provision requiring public companies to have

an independent board chair.

In sum, various stakeholder groups have vociferously advocated for separation of

the CEO and COB positions. They believe that this separation of power will improve

strategic decision making and help prevent accounting and financial abuses similar to

those experienced at Enron, WorldCom, Adelphia, and others. Specifically, investor

3
activists believe the separation of power (separating the positions of CEO and Board

Chair) is fundamentally essential for ensuring a more vigorous oversight of the

company’s strategic decision-making. Further, the activists believe separating the roles

will help neutralize questionable practices such as stock option backdating and excessive

risk-taking (Coffee, 2012; Gordon, 2009. The growing concerns about the potential for

abuse of power by combined CEO/Board leadership were fueled in the first decade of this

century by the economic climate, abuses of power, and lack of Board control that led to

firm failures and dramatic drops in value. These concerns continue to drive the call for

separation of roles. These concerns and efforts to eliminate CEO duality, however, have

not been fueled by empirical evidence.

Status of CEO Duality in the U.S. and Evolution of the Research Questions

CEO duality has been the dominant leadership structure in the United States since

the late 20th Century. According to the 1989 Forbes Executive Compensation survey, out

of 661 large U.S. firms, approximately 81% of the firms maintained a leadership structure

where one individual occupied both the CEO and Board Chair titles; 14% of the firms

had different people in the two positions; and 5% of the firms did not have a Board Chair

position. A shift in corporate leadership structures began to emerge in the early part of

this century. For example, a study of 1500 companies in the U.S. during the period from

1996 to 2006 showed that duality decreased from 76 percent in 1996 to 69 percent in

2000, and 60 percent in 2005 (Balsam & Upadhyay, 2009).

An investigation focusing specifically on S&P 500 companies reveals a similar

pattern of conversion from duality to separate leadership structure over time. The

percentage of S&P 500 companies that combine the two roles has decreased from 77% in

4
2003 to 59% in 2011 (see Table 2). Concomitantly, the percentage of S&P 500

companies with an independent non-executive Board Chair has also increased, from 9%

in 2004 to 21% in 2011. Furthermore, the number of S&P 500 companies that have a

formal policy to separate the positions of Board Chair and CEO increased from 6 in 2010

to 18 in 2011 (Spencer Stuart U.S. Board Index, 2012).

Shareholder proposals for separating the positions of CEO and Board Chairs are

similarly growing. ProxyMonitor.org, sponsored by the Manhattan Institute’s Center for

Legal Policy reports that these proposals ranked third among proposals put forth by

shareholders during the 2012 proxy season (Morphy, 2012). Additionally, Institutional

Shareholder Services’ (ISS) 2012 Proxy Season Scorecard reported that for the first six

months of 2012 there were 48 vote results relating to shareholder proposals to separate

the CEO and Board Chair positions, with an average rate of total shareholder support of

35.6% (Morphy, 2012). This is compared with full year 2011 results, when there were

just 26 shareholder proposals to separate The CEO and Board Chair positions, with an

average rate of total shareholder support of 36.8% (Morphy, 2012).

The U.S. financial crisis that began in 2007 further highlighted growing concerns

over the roles and responsibilities of executives and board members. The numbers

suggest that the pressures exerted on corporations by shareholder activists and

government agencies contributed to the growing separation of the positions of CEO and

Board Chair. This study examines the empirical evidence to determine whether the rush

to separate the positions is financially justifiable. That is, does the empirical evidence

demonstrate that firms with separate CEO and Chair positions exceed those with dual

5
leadership on financial and market performance measures during a period of financial

crisis?

Advocates of splitting the roles of CEO and Board Chair argue that if the CEO is

also the Board Chair, agency costs increase since the board’s ability to monitor the CEO

is reduced (Fama and Jensen, 1983; Jensen, 1993). They are further concerned that dual

leadership will tempt the CEO/Board Chairs to act in their own short-term economic

interest to the detriment of shareholders (Jensen, 1993). On the other hand, proponents

of CEO duality argue that vesting the position to one individual provides a unified

command, reduces information costs and decision-making time, and provides an

incentive system to new CEOs during a management transaction period (Brickley, Coles,

& Jarrell, 1997). Others note that, notwithstanding the conventional criticism of

combining the roles of the CEO and Board Chair, both types of leadership structure have

potential benefits and costs. These researchers argue that it is not theoretically obvious

which leadership structure is best (Boyd, 1995; Brickley, et al., 1997; Faleye, 2007;

Finkelstein & D’Aveni, 1995).

Proponents of agency theory report that independent leadership structures ensure

a balance of power and authority. With a CEO and separate Board Chair, no individual

has unfettered powers of decision. The CEO is responsible for the initiation and

implementation of plans and policies; the chairman of the board is responsible for

ensuring that the board of directors counsels and monitors the CEO. Conversely,

considering the chairman is responsible for the decision control functions, the chairman

should not be responsible for the decision management functions as well (Fama &

Jensen, 1983; Jensen; 1993). By combining the roles of CEO and chairman, one

6
individual is dominating the board of directors, potentially rendering the board ineffective

in monitoring opportunism leading to scandals and corruption.

In contrast, a number of studies support stewardship theory based view of duality,

wherein there is a positive relationship between CEO duality and firm performance.

Stewardship theory suggests that a leader is motivated by the need for achievement,

responsibility, recognition, and the intrinsic satisfaction in successfully performing

challenging tasks (Donaldson and Davis, 1991). In addition, CEO duality provides for

unity of command. Anderson and Anthony (1986) suggested that a firm needs a single

point of leadership so that there is no confusion as to who is in charge and who is

responsible. In other words, there is no room for ambiguity.

Considering the mixed results, finding one optimal leadership structure remains

elusive (Baliga, Moyer, Rao, 1996; Boyd, 1995; Elsayed, 2007; Finkelstein and D’Aveni,

1994; Lam & Lee, 2008). Studies have indicated results differ based on variables,

measures, and contingencies included in each study, and researchers have concluded that

independent leadership may be good in certain circumstances and CEO duality in others

(Boyd, 1995; Lam and Lee, 2008). Contingency theorists seek to identify factors within

a firm and its environment that are related positively or negatively to CEO duality (Boyd,

1995; Finkelstein & D’Aveni, 1994).

Research Objective

The primary objective of this study is to contribute to the academic literature by

identifying and evaluating new data relating to leadership structure that will provide

regulatory agencies, oversight communities, corporations, and other stakeholders with

current information on the relationship between duality and firm financial and market

7
performance in the U.S. during a major financial crisis period. Hence, this research

addresses the following questions:

1. Are there significant differences in financial performance among firms

who practice CEO duality and firms that separate the CEO and Board

Chair positions?

2. Are there significant differences in market performance among firms who

practice CEO duality and firms that separate the CEO and Board Chair

positions?

Providing empirically based result on the relationship between financial and

market performance and firm leadership duality during a period of financial crisis is a

new contribution to the literature. In addition to informing the literature, the study results

are expected to contribute to firm documentation of firm performance in compliance with

Sarbanes-Oxley and Dodd-Frank Acts. It is further anticipated that the information will

empower regulatory agencies, oversight committees and other stakeholders with current,

empirical findings on the relationship between dual leadership and firm financial and

market performance in the U.S. financial crisis period.

Research Rationale: The Financial Crisis and Assumptions about CEO Duality

The U.S. financial crisis is considered to be the worst financial crisis since the

Great Depression of the 1930s (Eichengreen and O’Rourke, 2009). What began as a

bursting of the U.S. housing market bubble and a significant increase in housing

foreclosures fueled a domestic and global financial and economic meltdown. The

symbiotic relationship between the economy in the U.S. and the Eurozone economic

8
problems contributed to the magnification of troubles throughout the world. The results

of the crisis included the threat of total collapse of large financial institutions, the bailout

of banks by national governments, downturns in stock markets around the world, failures

of key businesses, declines in consumer wealth estimated in trillions of US dollars. The

multiple downturns in economic activity led to the 2008–2012 global recession thus

contributing to the European sovereign-debt crisis. Given the symbiosis of the U.S

interconnectedness with the global economy in trade, finance and investments, the

financial problems in the U.S. and the Eurozone quickly spread to other countries.

The financial crisis has brought renewed attention on the effectiveness of

corporate boards and executive management. A key question that remains to be

empirically answered is whether firms practicing CEO duality performed differently from

those with separate leadership structures during this period of financial stress. Investors,

regulators, and legislators have chosen to place emphasis on the need for independent

judgment at the head of corporate boards in the absence of meaningful findings either in

support or to the contrary of this structure.

Research Methods

This study’s sample was derived from a 2011 listing of S&P 500 companies. The

final research sample consists of those 2011 S&P companies where the same person

either held only the CEO position or both the CEO and Board Chair positions for the

three year period immediately following the onset of the financial crisis (2008 – 2010).

S&P 500 companies were selected for this study for several reasons. First, since the

1960s, the vast majority of academic and institutional studies have used the S&P 500 as

the benchmark most suited to representing the U.S. stock market. Second, S&P 500

9
companies proportionately represent the leading industry sectors within the U.S.

economy. Third, a multitude of corporate leaders of S&P 500 companies are under the

intense scrutiny of the media, investors, and the federal government.

This study utilized S&P 500 archival data. Data analysis included descriptive

statistics, correlation analysis, and non-parametric hypotheses tests involving one

categorical independent variable and five continuous dependent variables.

The categorical independent variable is:

1. Leadership Structure (LS) of which each firms leadership structures is

categorized as either:

a. Separate Leadership Structure

b. Combined Leadership Structure

The five continuous dependent variables for each of the companies included in

this study are:

1. Average Net Profit Margin (ANPM)

2. Average Return on Investment (AROI)

3. Average Earnings Per Share (AEPS)

4. Average Dividends Per Share (ADPS)

5. Market Return (MR)

Definitions of Research Terms

Combined leadership structure is defined as one individual serving the role of CEO and

Chairman of the Board.

Separate leadership structure is defined as one individual serving the role of CEO and

another individual serving as board chairman.

10
Net Profit Margin (NPM) is a ratio of profitability calculated as net income divided by

revenues, or net profits divided by sales. It measures how much out of every dollar of

sales a company actually keeps in earnings. Net Profit margin is very useful when

comparing companies in similar industries. A higher net profit margin indicates a more

profitable company that has better control over its costs compared to its competitors with

lower net profit margins. Profit margin is displayed as a percentage; whereby a 10%

profit margin, for example, means the company has a net income of $0.10 for each dollar

of sales.

Return on Assets (ROA) is a measure of a firm’s profitability relative to its assets. It

determines how effectively a firm turns its funding into earnings. ROA is calculated by

dividing earnings or net income by the firm’s total assets for the reporting period. The

higher the ratio the better the firm is in using its assets to generate value. ROA varies

from industry to industry and is best used to compare firms within the same industry.

Return on assets is displayed as a percentage; whereby a10% return on assets, for

example, means the company has a net income of $0.10 for each dollar of assets.

Earnings Per Share (EPS) is a measure of a firm’s performance from the perspective of

investors. It reveals the amount of earnings available to shareholders and the potential

return on individual investments. EPS is calculated by dividing total earnings by the total

number of ordinary shares outstanding. EPS is regarded as a considerable indicator of a

firm’s performance as it may be more accurate as a performance indicator than the trend

in profit. Earnings per share is displayed as a dollar amount; whereby a $1.00 earnings

per share, for example, means the company $1.00 of net profit each share of common

stock outstanding.

11
Dividends Per Share is the amount of dividends that a publicly-traded company pays per

share of common stock, over the reporting period that dividends were issued. The

remainder of the company's net income which is not paid out as dividends is retained by

the company for growth and is known as retained earnings. Dividends are a form of

profit distribution to the shareholder. Having a growing dividend per share can be a sign

that the company's management believes that the growth can be sustained. Dividends per

share is displayed as a dollar amount; whereby a $1.00 dividend per share, for example,

means the company has distributed $1.00 in dividends for each share of common stock

outstanding.

Market Return (MR) represents an increase or decrease in the price of a firms’ stock over

a specific period of time. It is calculated by subtracting the price of the stock at time one

by the price of the stock at time two. The obtained value is then divided by the price of

the stock at time one. Market return is displayed as a percentage; whereby a 10% market

return, for example, means the share price has increased 10% from time one to time two.

Research Delineation

The remainder of this dissertation is organized as follows:

Chapter 2 examines the evolution of U.S. corporate governance, and the

naissance of two crucial corporate governance theories: agency theory and

stewardship theory and the application of these alternative theories to

contemporary corporate governance issues and the legal implications of the

separation of corporate ownership from management.

Chapter 3 provides an overview of the management and monitoring

responsibilities of the Board of Directors and the role of the Board Chair,

12
presents the theoretical arguments for and against CEO Duality, reviews the

empirical research that has investigated the impact of CEO Duality on firm

financial performance and market performance, and synthesizes the evidence

to date, the limitations, and the implications of previous research for current

and future research.

Chapter 4 presents this study’s hypotheses.

Chapter 5 details the methodology used to collect and analyze these data.

Chapter 6 provides the results of the statistical analysis of these data.

Chapter 7 discusses the results and limitations of this research and provides

recommendations for future corporate leadership structure research.

13
 CHAPTER II

CONTEXT OF PRESSURES TO SEPARATE THE CEO AND BOARD

CHAIR POSITIONS

History

Early in the 19th Century a small number of industrialists controlled the majority

of corporations. However, as they began to transfer shares of ownerships to their

descendants a predictable consequence of evolving firm leadership occurred. The new

corporate shareholders generally had little or no knowledge of the business. Therefore,

they typically transferred responsibility of day -to-day business activities to key

employees. These key employees became the top management team which ultimately led

to conflicts of interests between these new decision-makers and the business owners

(Chandler 1962; Fligstein, 1990; Galbraith, 1967). The effects of the separation of

ownership from the executive functions of the corporation had been anticipated by early

thought leaders. For example: Adam Smith, in his classic work The Wealth of Nations

stated:

The directors of such companies [joint-stock] companies, however, being

the managers rather of other people’s money than of their own, it cannot
well be expected that they should watch over it with the same anxious
vigilance with which the partners in a private copartnery frequently watch
over their own. Like the stewards of a rich man, they are apt to consider
attention to small matters as not for their master’s honour, and very easily
give themselves a dispensation from having it. Negligence and profusion,
therefore, must always prevail, more or less, in the management of the
affairs of such a company. It is upon this account that joint stock
companies for foreign trade have seldom been able to maintain the
competition against private adventurers (The Wealth of Nations, Book 5,
Chapter 1, Part 3, Art. 1, 1776).

Berle and Means' classic work, The Modern Corporation and Private Property

(1932) reflects this basic concern with the separation of ownership from control in large

U.S. corporations and its impacts on managerial performance and owner value. In an

14
examination of the 200 largest U.S. nonfinancial corporations in 1929, Berle and Means

found that 44 percent of them had no individual ownership interest with as much as 20

percent of the stock, a share that they viewed was an approximate minimum necessary for

control. Berle and Means classified these 88 firms, which accounted for 58 percent of the

total assets among the top 200, as management controlled. In only eleven percent of the

firms did the largest owner hold a majority of the firms’ shares.

Although Berle and Means are best known for their focus on ownership and

control, that topic represents only one component of their discussion. They also argued

that capital in the U.S. had become heavily concentrated during the previous few decades

and that this vested a relatively small number of companies with enormous power. As

these firms grew, it became increasingly difficult for the original owners to maintain their

majority stockholdings, and stocks became dispersed among a large number of small

shareholders. Berle and Means suggested that the consequence of this dispersal was the

usurpation, by default, of power by the firm's managers, those who ran the day-to-day

affairs of the firm. These managers were seen as having interests not necessarily in line

with those of the stockholders. For example, whereas owners preferred that profits be

returned to them in the form of dividends, managers preferred to either reinvest the

profits or, in more sinister interpretations, to further their own privileges, in the form of

higher salaries or “perks.” Removed from the pressures of stockholders, managers, for

Berle and Means, were now viewed as a self-perpetuating oligarchy, unaccountable to the

owners whom they were expected to represent.

Thus, as early as 1932, scholars were beginning to challenge the impact on value

of the firm when managers had little ownership interest. While, at this juncture, they

15
could not envision a future where managers and CEOs would control the corporation,

Berle and Means were prescient in their concerns about the lack of controls:

Have we any justification for assumption that those in control of a modern

corporation will also choose to operate it in the interests of the owners?
The answer to this question will depend on the degree to which the self-
interest of those in control may run parallel to the interests of ownership
and, insofar, as they differ, on the checks on the use of power which may
be established by political, economic or social conditions….If we are to
assume that the desire for personal profit is the prime force motivating
control, we must conclude that the interests of control are different from
and often radically opposed to those of ownership; that the owners most
emphatically will not be served by a profit-seeking controlling group
(Berle and Means, 1932: 113-114).

Berle and Means concerns about the rise of the modern corporation during a

similar era of great financial turmoil are consistent with the wave of issues that have led

to the current era of the corporation. This new era is characterized by corporate

oligarchies which need and are now required to consciously balance their power and

authority with corporate performance. They are further required to demonstrate greater

transparency and accountability to both their stakeholders and government oversight

agencies. Corporate governance is regarded as a mechanism where a board of directors is

a crucial monitoring device to minimize the problems brought about by the principal-

agent relationship. In this context, agents are the managers, principals are the owners and

the boards of directors act as the monitoring mechanism (Mallin, 2004). Since Berle and

Means seminal work, corporate governance concerns have increasingly focused on the

separation of ownership and control which results in the principal-agent problems arising

from the dispersed ownership in the modern corporation.

As economists raised questions about the behavioral implications of Berle and

Means’ managerial thesis, their conclusions attracted considerable attention from two

16
emerging branches in the field, transaction cost economics and agency theory. Oliver

Williamson, the leading contemporary proponent of transaction cost economics, used

Herbert Simon's bounded rationality assumption to develop a model in which managerial

goals, of which profit maximization was just one, could vary across conditions

(Williamson, 1964). In future work, Williamson drew on the historical analyses of

Alfred Chandler to show the importance of managerial decision-making (Williamson,

1975). Williamson concluded that the managerial decision to internalize production

and/or distribution or to rely externally on markets is predicated on the assumption of

managerial discretion (Williamson, 1975). If the transaction cost approach was based on

the assumption of managerial discretion, agency theory, takes the degree of managerial

autonomy as being far more problematic to the owners of a firm (Jensen & Meckling,

1976; Fama & Jensen, 1983).

Theories Relating to Self-Serving Top Management Decision-Making

Within the broad arena of the impact of separation of ownership and control of the

corporation CEO duality has come under particular scrutiny (Fama & Jensen, 1983;

Jensen & Meckling, 1976). There are found approaches and sets of findings examining

duality of firm leadership. First, there is a body of literature whose findings conclude

that there are no predictable differences between combined and separate leadership in

firm financial performance. That is, other factors than leadership duality explain firm

performance. Second, agency theorists view the role of corporate governance as making

decisions and overseeing corporate resource use, strategy, and executive assessment.

These researchers are skeptical about dual leadership and its impact on the firm. Third,

stewardship theorists, as its name suggests, report that executives are good stewards of

17
the firm and that unitary decision making of a single leader providers greater opportunity

for these stewards to lead successfully. Finally, the contingency theorists suggest that

both agency and stewardship theorists have their place and demonstrate that intervening

variables can help predict which environmental and other firm factors are successfully

related to CEO Duality.

Among the various theories of corporate governance, the agency theory

perspective has received a great deal of attention from academics (Fama & Jensen, 1983;

Jensen & Meckling, 1976) as well as practitioners. Agency theory is concerned with the

dynamics that arise when delegation occurs between two agents and, in particular,

focuses on such occurrences where incentives and goals can conflict or be misaligned. It

has been used by scholars in fields from accounting, to marketing, to political science and

organizational behavior (Eisenhardt, 1989). Specifically, agency theory addresses

situations where the goals of the principal and the agent are in conflict and the ability of

the principal to verify and oversee the agent’s actions is limited or difficult. Agency

theory prescribes actions that focus on the protection of the investment of the principal

against the harmful behaviors of the agent. The agency perspective views the agent as

being rational, individualistic and, primarily, self-serving. Agents are expected to use

their rationalism to act in their own interest, as they perceive it to be, irrespective of

whether it is at the expense of principals (Jensen & Meckling, 1976).

In contrast to agency theory, stewardship theory presents a different model of

management, where managers are considered good stewards who will act in the best

interest of the owners (Donaldson & Davis, 1991). The fundamentals of stewardship

theory are based on social psychology, which focuses on the behavior of executives. If

18
agency theory views human nature as primarily driven by self-interest and is rooted in

economic theory, then stewardship theory views human nature as self-actualizing, rooted

in behavioral theory rather than economic theory. Stewardship theory presumes that

individuals are motivated toward achieving a collective good, and, it is only in this way

that personal needs can be fully met. The steward is thereby motivated to maximize

organizational performance and, in the words of agency theory, the interests of

themselves, the agents, and the principals.

In the firm, the executive who acts as steward is aligned with the principals, and

the factors for control and risk mitigation that are essential under agency theory, are less

relevant. Firms can then empower rather than keep the steward in check. Because the

individual is motivated to achieve organizational outcomes, anything that limits the

action of the individual could actually be counterproductive to the organization and lower

the individual’s motivation and effectiveness. In 1991, Donaldson and Davis argued that

the steward should have both authority and discretion. The steward who is both CEO

and Chairman of the Board can be most effective, according to this research and point of

view (Donaldson & Davis, 1991). When corporate Boards of Directors act as stewards,

they are acting on behalf of the long-term success of the organization, the well-being of

its employees, and cognizant of the firm’s impacts on communities, the environment, and

the general good.

Isolated studies can be found to support the predictions of both agency theory and

stewardship theory concerning the relationship between, for example, the proportion of

outside directors or CEO duality and corporate performance. Dalton, et al., (1998)

conducted an extensive meta-analysis involving 54 empirical studies comparing board

19
composition to financial performance and 31 empirical studies comparing leadership

structure to financial performance found no significant relationship in either. Further,

these researchers concluded that the results of their meta-analysis indicated that there was

little evidence to support either the agency theory (as it relates to the need for

independent oversight) or the stewardship theory (as it relates to the value of internal

directors). In a similar meta-analysis (Rhoades, et al., 2001) concluded that board

composition, or more specifically the proportion of outside directors, had a small positive

relationship with firm performance. Overall there is a general lack of consistent evidence

of any significant relationship between the composition of boards of directors and

corporate performance (Dalton et al., 1998; Dalton, et al, 2008; Johnson, Daily, &

Ellstrand, 1996; Rhodes, et al., 2001).

Legal Consequences of Anticipated and Actual Top Management Malfeasance

The concern over the growth in dispersed public ownership of companies,

coupled with the stock market’s collapse in 1929, were catalysts for the passage of a

number of laws, one of which created the Securities and Exchange Commission in 1934.

The legislation creating the SEC sought to provide greater rights to shareholders by

empowering the SEC to write rules whereby proxies would be solicited to prevent the

recurrence of abuses which had frustrated the free exercise of the voting rights of

stockholders. Hence, these laws were less geared toward mandating how companies

should be governed, and more toward what information they would be required t0

disclose to the public. The corporate governance milestones that were realized during

this period included the following:

20
 In 1955, the SEC began to require public companies to issue semiannual earnings

reports.

In 1965, Henry Manne, a professor of law at George Mason University, published

an academic article arguing that corporate takeovers, or the mere threat of them,

were likely to yield improvements in corporate governance and corporate

performance (Manne, 1965).

In 1977, the New York Stock Exchange required each listed company to establish

an audit committee composed of outside directors, which was a catalyst for the

vast majority of public companies to create boards where more than half of the

directors were independent.

In 1992, the SEC reformed its proxy rules, giving shareholders new opportunities

to communicate with each other (previously, any meeting of 10 or more

shareholders was technically prohibited unless the group had filed a proxy

statement with the SEC (Special Supplement Securities and Exchange

Commission Final Rules on Shareholder Communications and Disclosure on

Executive Compensation.

Corporate Malfeasance and the Sarbanes Oxley Act

The multiple corporate failures, starting with Enron in December 2001, and

culminating, although by no means ending, with WorldCom six months later, sparked the

federal government to act on grassroots concerns. On July 30, 2002, President George

W. Bush held a major ceremony at the White House to sign the Sarbanes-Oxley Act of

2002 (PL 107-204) bill into law. SOX, as this bill is commonly known, emerged as a

landmark government call for reform to help restore corporate integrity and public

21
confidence. SOX placed considerable emphasis on correcting the most critical

manifestations of lax corporate governance practices, including:

Senior management’s efforts to effectively deal with an environment full of

pervasive conflicts of interest;

Lack of strict transparency, reliability, and accuracy standards in financial

reporting;

Lack of independence of the key players in corporate governance (the board of

directors, management, and auditors);

Lack of adequate enforcement tools at the disposal of regulators; and

Widespread conflicts of interest influencing securities market transactions.

SOX is a sixty-six page bill, relatively short in these times, that focuses on

transparency and accountability. The legislation established, for example, federal

requirements for public disclosure, certification of financial reports by chief executive

officers and chief financial officers, and new accounting reforms which created an

environment of enhanced and rigorous corporate governance. Furthermore, SOX gave

rise to broad-based Securities and Exchange Commission (SEC) initiatives cutting across

many aspects of the securities laws. In addition, in November 2003, the SEC approved

the rule changes put forward by NASDAQ and the NYSE. Sox and the revised NYSE

and NASDAQ listing standards changed board composition and audit committee

requirements and created new corporate governance standards. When taken in their

entirety, these changes created a fundamental shift in the balance of power in corporate

America, away from management and in favor of independent directors, audit

committees and shareholders. These reforms were a watershed moment in U.S corporate

22
governance, and, as such, the resulting requirements that represent the current corporate

regulatory and quasi-regulatory environment are presented below:

Board of Directors: A majority of the board of directors of a listed company must be

independent. Audit, nominating, corporate governance, and compensation committees of

NYSE-listed companies must be comprised entirely of independent directors. An

independent director is one who is not affiliated with the company, nor receiving any

compensation other than board fees from the company. An executive session limited to

independent directors must be held at least once a year. All independent directors, rather

than just the compensation committee, must approve CEO compensation. For NASDAQ

companies, audit committees must be entirely independent. The compensation or

nominations committee, or a majority of the independent directors, must recommend

certain actions to the full board for determination, rather than taking those actions

unilaterally. If a NASDAQ company has a nominating and compensation committee, it

must be comprised of independent directors. A formal resolution must be adopted by the

board with respect to the nominations process. In addition, directors may not have any

material relationship with the listed company in order to meet independence

requirements. The basis for the independence determination must be disclosed in the

annual proxy statement under NYSE and NASDAQ rules. Both NYSE and NASDAQ

have certain cooling off periods that apply to the no material relationship requirements

that permit a company and a director to transition affiliations. Care must be taken to

review all affiliations of a director to determine director independence. Evidence that all

of these safeguards have been met must be documented and is auditable. The results of

the enhanced independent board requirements are increased involvement by board

23
members, longer and more frequent board meetings, more board committees and

continuing director education.

Audit Committees: The audit committees of listed companies must be comprised of

three or more members. Audit committee members must be independent and may not

accept any consulting, advisory or other compensatory fees from the company (other than

fees for serving as a board or committee member). An audit committee member who is

not an executive officer, director or shareholder of more than 10% of any class of the

company's equity securities will not be deemed to control the company, and thus not be

deemed to be an "affiliate" of the company. Each issuer registered with the SEC

(including non-listed reporting companies) must disclose in its SEC reports whether it has

one member of its audit committee who is a "financial expert." Many companies without

a "financial expert" are seeking qualified accountants or individuals with accounting

backgrounds to serve as an independent director who fulfills the "financial expert"

requirement. Audit committees have significant responsibilities under SOX which

mandated that they:

Be responsible for the appointment, compensation and oversight of the issuer's

auditors, and the auditors must report directly to the audit committee;

Create and maintain procedures for the receipt, retention and treatment of

complaints regarding accounting, internal accounting controls or auditing matters,

and the confidential, anonymous submission by employees regarding questionable

accounting or auditing matters; and

24
 Have the authority and adequate funding to engage independent counsel and other

outside advisors to fulfill their duties.

Section 16 Reporting: Officers, directors and 10% shareholders must report

electronically any changes in beneficial ownership of equity securities within two (2)

business days of the transaction which provides greater transparency when compared

with rather the previous requirement of reporting within ten (10) days after the end of the

month in which the transaction occurred.

Prohibition on Loans to Directors and Officers: Loans by a registered company to

directors or officers are prohibited under Sarbanes-Oxley.

The Financial Crisis and the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010

The financial crisis that began in 2007 spread and gathered intensity in 2008,

despite the efforts of central banks and regulators to restore calm. The beginning of the

end came on September 7th 2008 when the U.S. government announced the government’s

takeovers of both Fannie Mae and Freddie Mac. Another huge financial firm, Lehman

Brothers, filed for bankruptcy on September 14th 2008, after being turned down for

support from the U.S. Federal Reserve. On that same day, The Bank of America was

bought by Merrill Lynch. Two days later AIG received $85 billion of aid from the

Financial Reserve in an effort to maintain solvency. With this seeming domino effect of

collapsing organizations that Fall, the recession hit hard, and stock markets all over the

world collapsed and became devalued. More and more banks started to fail in the coming

days and President George Bush signed a $700 billion dollar bill to bail out the banking

industry.

25
 The financial crisis led to widespread calls for changes in the regulatory system

(Ewing, 2011). In June 2009, President Obama introduced a proposal for a "sweeping

overhaul of the United States financial regulatory system, a transformation on a scale not

seen since the reforms that followed the Great Depression (Obama, 2009). These

reforms were initially introduced by the Obama Administration in June 2009, when the

White House sent a series of proposed bills to Congress. A version of the legislation was

introduced in the House in July 2009. On December 2, 2009, revised versions were

introduced in the House of Representatives by Financial Services Committee Chairman

Barney Frank, and in the Senate Banking Committee by Chairman Chris Dodd.

Named the Dodd-Frank Act, after the committee chairs, the Act was described by

its supporters as major “Wall Street reform” and Washington's response to the financial

crisis. The law’s implementation relies heavily on SEC rulemaking to define the

requirements of firms (SEC - Pub.L. 111-203, H.R. 4173, 2010). The wide sweeping

legislation impacts financial institutions, investment management and trading and

markets around the globe in addition to corporations. For corporations the law impacts

on board composition, executive compensation, providers for greater external and

internal accountability to stakeholders and the public and contains whistle blower

protections and incentives. Concerns with executive compensation and corporate

governance practices at public companies (including companies outside of the financial

services industry) culminated in specific provisions of the Dodd-Frank Act that required

new stock exchange listing standards, mandated resolutions for public company proxy

statements, and expanded disclosures for all public companies soliciting proxies or

consents. As a result of these provisions, companies will potentially have to change the

26
composition and operation of their compensation committees, adopt new governance and

compensation policies, and prepare for an advisory vote on executive compensation.

As of April 2013, the SEC had adopted 103 final rules before the 279 rule-making

deadlines lapsed. Additionally 148 of the total 398 required rules have been adopted

while 129 have not yet been proposed (Dodd-Frank Resource Center, 2013). For

example, in 2010, the SEC enhanced its proxy disclosure rules, requiring companies to

file documentation of the boards’ justifications for how the organizational structure

ensures that the corporation, first and foremost, strives for the corporation’s success and

profitability. Collectively, these SEC actions are intended to strengthen corporate

oversight and accountability to the public and shareholders. The rules also impact

corporate officer compensation, the structure and independence of the Boards of

Directors and their committees, publicly available information on corporate

compensation, and other forms of corporate reporting and transparency. The concerns

relating to executive compensation and corporate governance practices at public

companies (including companies outside of the financial services industry) culminated in

specific provisions of the Dodd-Frank Act that require new stock exchange listing

standards, mandated resolutions for public company proxy statements, and expanded

disclosures for all public companies soliciting proxies or consents. As a result of these

provisions, companies will potentially have to change the composition and operation of

their compensation committees, adopt new governance and compensation policies, and

prepare for an advisory vote on executive compensation.

The provisions of the Dodd- Frank Act also created a whistleblower “bounty”

program which allows the SEC to pay significant monetary awards 10 percent to 30

27
percent of sanctions over $1 million to persons who provide the SEC with “original”

information about violations of the securities laws, while also affording whistleblowers

anti-retaliation protections. These whistleblower bounties are available to company

employees (including, in some circumstances, those engaged in the wrongdoing) and to

people outside the company. And the final rules implementing Dodd-Frank made it clear

that employees are not required to report “up the ladder” internally before reporting a

potential violation directly to regulators. Hence, the Dodd-Frank ACT represents a shift

in emphasis from the “watch dog” model established by SOX to a regime that financially

incentivizes corporate employees to bypass internal controls and speak directly to

regulators.

Collectively, these actions were intended to strengthen corporate oversight and

accountability to the public and shareholders. They have impacted corporate officer

compensation, the structure and independence of the Boards of Directors and their

committees, publicly available information on corporate compensation, and corporate

reporting and transparency. These provisions also include requirements for filing

documentation of the boards’ justifications for how the organizational structure ensures

that the corporation, first and foremost, strives for the corporation’s success and

profitability.

U.S. Corporate Governance in the Post Financial Crisis Period: Issues, Challenges,
and Implications

Concerns about the responsible use of corporate power remain high in the wake of

the financial crisis. Although these concerns have been focused primarily on the

financial sector, there is spillover to firms in every industry. Tough economic conditions,

slow job growth, political dysfunction and general uncertainties about the future continue

28
to undermine investor confidence and fuel public demonstrations of distrust, for example

the multi-city, cross country “Occupy Wall Street “ movement. This in turn intensified

the scrutiny of corporate actions and board decisions.

SOX and the Dodd-Frank Act have created costs and problems, but, on the whole,

these hallmark reforms have contributed to improved financial reporting, however,

whether they have improved financial performance remains unanswered.

Notwithstanding the reforms put in place by SOX and the Dodd-Frank Act,

shareholder activism continued to grow on a number of fronts. The Occupy Wall Street

movement has held massive outdoor protests and has inspired an offshoot entity called 99

Percent Power that has put some major companies’ risk management and corporate

governance strategies to the test. In some locales these demonstrations have resulted in

local actions to require or remove permits, close down demonstrations for public health

or safety reasons, and in some cases have resulted in injuries to demonstrators. The

group has shown up at the annual meetings of corporations, causing confusion and

pushing for governance reforms. The movement made its debut at Wells Fargo’s annual

meeting, which according to the Huffington Post spiraled out of control and was

unexpectedly halted after demonstrators claimed proxy votes might be invalid because

the bank had acted illegally in prohibiting some shareholders from attending the meeting

(Huffington Post, 2012). Few firms can afford to ignore the prospect of annual meeting

disruptions. Even traditional shareholder and labor groups are making their presence

known due to their continuing frustrations with executive unwillingness to adjust certain

polices including separating the CEO and Board Chair Positions.

29
 Nearly six years have passed since the 2007 financial crisis and its

reverberations continue to shake the global economy. While there is little doubt that

extant corporate governance reforms have shifted corporate governance in a direction

favored by investors, investors’ expectations have yet to be fully met. In particular,

retirement funds and many other investors are seeking to recover on losses incurred

during the early days of the financial crisis. In addition, those who have also been caught

in the dramatic plunges in housing values may find themselves with no equity in their

homes in addition to substantial losses in their investments or retirement funds.

Stakeholders are increasingly demanding a meaningful voice at the table regarding the

performance of organizations and the quality, transparency, and timing of the information

they disclose about their activities. Corporations are responding to these demands.

Social media and new mobile technologies are transforming the way organizations

interact with their stakeholders, enabling them to open new communication channels to

attract customers, employees, and investors. New regulations continue to be introduced

around the globe.

For the firms themselves, complying with all these changes is challenging,

particularly in the face of continuing uncertainty. As in the case of the SEC

implementation of the Dodd-Frank Act, these rules often arrive in piecemeal fashion,

leaving organizations to sort out their responses and implement changes without being

able to fully anticipate future regulations that will be adopted to implement newly

existing laws.

In light of the new SEC disclosure requirements regarding a firm’s choice of and

rationale for their chosen leadership structure and the increasing numbers of shareholder

30
proposals to separate CEO and Board Chair positions, the decision of whether or not to

separate the chairman and chief executive roles remains an important governance topic

for firms. In jurisdictions where investors can apply pressure through voting practices,

separation of the chairman and CEO roles may be more common. In the U.S., proponents

of a split CEO/chairman structure assert that this model is the most beneficial for

companies and best positions them for strong performance. Opponents of dual

leadership, including investors and their representative activist groups, emphasize that

there is no irrefutable data demonstrating that companies that split the roles fare better

than companies that combine them (Faleye, 2007; Dalton et al., 2008). Both the firms

and their stakeholders require objective information on this volatile leadership topic.

Such data may help to reduce the polarization of views which is likely to continue

unabated as board membership shifts to independent directors under the new laws.

Sound, empirical data may be a bridge that closes the knowledge gap between firms and

their stakeholders and enables informed decision-making on firm leadership.

31
 CHAPTER III

LITERATURE REVIEW

Introduction

The extant research literature on CEO Duality has taken two different analytical

approaches: creating the theoretical underpinnings of CEO Duality and evaluating the

empirical effects of CEO Duality on discrete performance variables. The growing

prevalence of CEO Duality in corporate America underscores the importance of

understanding this leadership structure and its impact on firm performance. Hence, this

chapter reviews relevant literature relating to the debate over optimal firm leadership

structure. The initial section of this chapter identifies the management and monitoring

responsibilities of the Board of Director. This sets the stage for understanding the varying

responsibilities that the Board Chair and CEO are expected to hold. The second section

of this chapter reviews the competing theoretical arguments over optimal firm leadership

structure, with agency and stewardship theorists continuing to debate the advantages and

disadvantages of CEO Duality. The third section reviews the empirical results of

quantitative analysis of the relationship between CEO Duality and firm performance. The

final section of this review discusses the implications of previous research for current and

future research.

The Management and Monitoring Responsibilities of the Board of Directors and the
Role of the Board Chair

Legally, the Board of Directors is the highest authority in the corporation. Boards

of Directors are charged with overall responsibility for the firm, specifically the oversight

of management and oversight. Boards of directors have a fiduciary duty to represent the

32
shareholders’ interests and to assure that there is alignment between the interests of the

managers and the shareholders. In legal terms Board of Directors have three core duties:

1. Duty of Loyalty – The duty to act in the interests of the company, and not in

their own individual self-interests. A key prerequisite to fulfill the duty of

loyalty is to devote sufficient time to and be well informed about company

affairs.

2. Duty of Care - The duty to pay attention and strive to make good decisions.

3. Duty of Disclosure - The duty to provide reasonably complete disclosure to

shareholders in two cases: when shareholders are asked to vote, and when the

company completes a potential conflict-of interest transaction.

The Board of Directors’ duties and responsibilities are achieved through

monitoring and evaluation of the firm’s leadership through mechanisms such as

reporting, auditing, and setting and reviewing policies. Epstein & Roy (2010) suggested

the three primary responsibilities of the board of directors include the following:

1. Corporate accountability - Ensure appropriate financial disclosures, provide

systems for improving governance, transparency, and ethical behavior, and

review policies related to internal controls, risk management, and code of

conduct, financial and all external compliance issues.

2. Staffing and evaluation of top management - The selection and compensation

of executives, setting performance goals and evaluating their achievement,

and succession planning.

3. Strategic oversight - The review and approval of strategic plans, risk

management policies, and major investments.

33
 The Board Chair is responsible for leading the Board in its activities and for

serving as the principal liaison between management and the Board. With respect to

leading the Board in its activities, the Chair is primarily responsible, with the input of

committee chairs and other directors, for setting Board meeting agendas and for

determining whether and when special meetings should be held. The essential duties of

the Board Chair are to keep the board organized, informed, and on task. Often, here is

some degree of public relations work involved as well, in addition to acting as an adviser

to the CEO. More specifically, the responsibilities of the Board Chair include the

following:

Facilitate/Preside over Meetings- Board Chairs are required to "chair," or

facilitate and preside over, company board meetings. More specifically, a

chairman is expected to determine the agendas of Board of Directors

meetings, encourage discussion and participation from all directors and board

members and relay pertinent information regarding current events within or

pertaining to the company.

The Board Chair is also expected to point issue discussions and debates

toward a consensus stance, upon which the majority of the board agree, and

which can therefore be acted upon for the expected benefit of the company or

organization.

Organizing The Board - For productive meetings to take place, the board in

question needs to consist of an effective balance of members in regards to the

board members' ages, work experience, diversity and personalities. This

organizational or compositional process is ongoing; as a person carries on in

34
 their role of chairperson, s/he will find that board members will either leave of

their own volition or will need to be replaced. Additionally, a chairman needs

to involve directors already on the board to mentor new directors who are new

to their position.

Spokesperson/Representative - Depending on the company or organization,

the scope and frequency of public relations duties for a Board Chair may

range from practically nonexistent to major responsibility. The spokesperson

responsibilities of a chairman generally involve relaying the mission statement

of the company or organization to the public, along with adequately

describing to the public the policies of the company or organization.

In summary, a firm’s Board of Directors’ management and monitoring

responsibilities requires directors to set firm policies and to make key business decisions

involving such matters as financing, growth strategies, and executive compensation the

Board Chair is responsible for ensuring that the board works as it should in counseling,

guiding, and monitoring the CEO. Since the Board Chair is expected to perform

important control functions, it is often suggested that a separate person apart from the

CEO should occupy this position (Fama & Jensen, 1983; Jensen, 1993; Jensen &

Meckling, 1983).

The Theoretical Arguments For and Against CEO Duality

The implications of firm leadership structure for firm performance have been

richly debated in the literature. The market’s growing volatility, the demand for evidence

on the impacts and risks of CEO Duality sparked growing research. The arguments

against dual leadership or alternatively in favor of separate leadership are largely based

on the agency theory. CEOs of modern corporations have decision rights but not control

35
rights of shareholder capital. As a result, CEOs have conflicting interests and do not

always act to maximize shareholder value. The Boa r d of Dir ect or s is a t t h e a p ex

of t h e d ecis ion con t r ol s ys t em of m od er n cor p or a t ion s , wh ich m it iga t es

a gen cy p r ob lem s wh en t h er e is s ep a r a t ion of own er s h ip a n d con t r ol

(Fa m a & J en s en , 1 9 8 3 ). Ha vin g CE Os lea d t h is d ecis ion con t r ol

h ier a r ch y, a ccor d in g to a gen cy t h eor y, lik ely com p r om is es th e

effect iven es s of t h e con t r ol s ys t em a n d exem p lifies t h e u lt im a t e con flict -

of-in t er es t . S u p p or t in g t h is con flict -of-in t er es t a r gu m en t , em p ir ica l

s t u d ies fin d t h a t wh en t h e t it les of CE O a n d Boa r d Ch a ir a r e com b in ed ,

CE O com p en s a t ion is h igh er a n d t h e s en s it ivit y of CE O t u r n over t o fir m

p er for m a n ce is lower (Cor e, Holt h a u s en , & La r ck er ). Prop on en t s of

s ep a r a t e lea d er s h ip a ls o a r gu e t h a t it a llows t h e CE O t o focu s on

r u n n in g t h e b u s in es s , wh ile t h e Boa r d Ch a ir r u n s t h e b oa r d . Pr op on en t s

of s ep a r a t e lea d er s h ip s t r u ct u r es a ls o p r op os e t h a t a n in d ep en d en t a n d

exp er ien ced Boa r d Ch a ir ca n b e a va lu a b le r es ou r ce a n d a s ou n d in g

b oa r d for t h e CE O (Da lt on , et al., 1 9 9 8 ).

Fama and Jensen (1983) were among the first to argue that CEO Duality violates

the principle of separation of decision-management and decision-control and hinders the

board’s ability to perform its monitoring functions. Extending this logic, Jensen

recommended the separation of the CEO and chairman functions in his 1993 Presidential

Address to the American Finance Association:

The function of the chairman is to run board meetings and oversee the
process of hiring, firing, evaluating, and compensating the CEO. Clearly
the CEO cannot perform this function apart from his or her personal
interest. Without the direction of an independent leader, it is much more

36
 difficult for the board to perform its critical function. Therefore, for the
board to be effective, it is important to separate the CEO and chairman
position (Jensen, 1993).

While Jensen and other proponents of agency theory consider CEO Duality to be

detrimental to firm performance, stewardship theorists propose that CEO Duality

facilitates effective action by the CEO, and subsequently leads to higher performance

(Donaldson and Davis, 1991). Scholars who support CEO Duality emphasize the

unparalleled firm-specific knowledge of the CEO and the benefits of strong stewardship.

For example, a CEO, who is also in charge of the board, should also be able to coordinate

board actions and implement strategies more quickly giving the firm the competitive edge

particularly in tough business conditions (Brickley et al., (1997). CEO Duality also

provides streamlined chain of command and clarity regarding the leadership and direction

of the firm, which promotes efficient decision-making and effective dealing with external

parties (Dalton et al., 1998). Additionally, by combining the CEO and Board Chair

positions a firm is able to avoid the potential confusion of having two public

spokespersons addressing firm stakeholder (Davis, Schoorman, & Donaldson, 1997;

Donaldson & Davis, 1991). Fu r t h er m or e, t h e Boa r d Ch a ir t it le is a n in t egr a l

p a r t of CE O in cen t ive con t r a ct . If t h e fir m d oes n ot a wa r d t h e a d d it ion a l

t it le of Boa r d Ch a ir , CE Os m a y b e les s m ot iva t ed t o wor k h a r d a n d m igh t

even con s id er lea vin g t h e fir m . S ep a ra t in g t h e d u a l r oles cou ld a ls o

in t er fer e wit h s u cces s ion p la n n in g, wh er eb y, t h e r et ir in g CE O r em a in s

on t h e b oa r d a s t h e Boa r d Ch a ir a n d r elin qu is h es t h e Ch a ir Boa r d t it le t o

th e n ew CE O on ly a ft er th e n ew CE O s u cces s fu lly p a s s es th e

p r ob a t ion a r y p er iod (Br ick ley et al., 1 9 9 7 ; Br ick ley, Coles , a n d Lin ck ,

37
1 9 9 9 ). Fin a lly, supporters of stewardship theory also maintain that if CEO Duality

were not an effective and efficient leadership structure, most public companies could not

maintain CEO Duality and still survive in the competitive environment (Anderson &

Anthony, 1986; Donaldson & Davis, 1991).

Ta b le 3 p r ovid es a com p a r is on of t h e va r iou s a s p ect s of a gen cy

t h eor y a n d s t ewa r d s h ip t h eor y a n d t he respective advantages reported by

researchers who advocate either agency theory or stewardship theory approaches to firm

leadership structure is provided below:

Agency Theory: Separate CEO and Board Chairs

Avoids CEO entrenchment

Increases board monitoring effectiveness

Enables the Board Chair to function as advisor to the CEO

Establishes independence between the board of directors and firm management

Stewardship Theory: CEO Duality

Enables strong unambiguous leadership and unified focus

Promotes internal efficiencies through unity of command

Eliminates potential for conflict between CEO and board chair

Avoids confusion of having two public spokespersons addressing firm

stakeholders

In summary, CEO Duality provides benefits to Boards of Directors in their

management role, but CEO Duality also carries substantial risks to Boards of Directors

monitoring role. Conversely, having a nonexecutive Board Chair appears to bring

considerable benefits to the Board of Directors’ monitoring role, but a nonexecutive

38
Board Chair may have less knowledge about the internal workings of the firm than an

executive Board Chair. Finkelstein & D’Aveni (1994) conceptualize this dichotomy in

their juxtaposition of CEO Duality as “a double-edged sword”. They conclude that:

On the one hand, CEO Duality can firmly entrench a CEO at the top of an
organization, challenging a board's ability to effectively monitor and
discipline. On the other hand, the consolidation of the two most senior
management positions establishes a unity of command at the top of the firm,
with unambiguous leadership clarifying decision-making authority and
sending reassuring signals to stakeholders (Finkelstein & D’Aveni, 1994:
1079-1080).

Empirical Evidence of the Impact of CEO Duality on Firm Financial and Market
Performance

The contrasting approaches of agency theory and stewardship theory used to

weigh the CEO duality firm performance debate are clear-cut. Empirical findings,

however, are not. With this in mind, the literature review of empirical research is

organized into four sections as follows: The first section reviews studies that support the

null hypothesis that there is neither a detectable or consistent relationship between firm

leadership structure and firm performance. The second section reviews empirical studies

that support agency theory. The third section reviews empirical studies that support

stewardship. The final section reviews empirical studies that support a contingency

theory approach to duality.

Summary of Research Supporting the Null Hypothesis

A preponderance of studies that have examined the impact of CEO Duality on

firm financial and/or market performance have had mixed or inconclusive findings. A

summary of the studies is provided in Table 4. Berg & Smith’s (1978) examination of

Fortune 200 firms found no significant difference between type of leadership structure on

three measures of market performance; change in value of common stock, dividend

39
growth, and total return to investors. Chaganti, Mahajan, & Sharma (1985) research of

21 matched pairs of bankrupt and non-bankrupt firms found a non-significant relationship

between firm leadership structure and the likelihood the firm would become bankrupt.

Rechnar & Dalton (1989) conducted research on 141 Fortune 500 firms over the six year

period of 1978 – 1983 and found no significant differences between type of leadership

structure and common stock risk adjusted returns in any of the six years or over the six

year period. Baliga, Moyer, & Rao (1991) investigated 181 Fortune 500 firms and

similarly found that the market is indifferent to changes in a firm’s leadership structure.

They also found no evidence that operating performance levels varied by a firm’s type of

leadership structure and, that, after controlling for other factors that might impact firm

performance, there was, at best, only weak evidence that leadership structure affects

long-term performance. Daily & Dalton (1993) examined 186 small U.S. firms finding

no significant differences between type of leadership structure and return on assets.

Dalton, et. al. (1998) meta-analysis of 31 studies incorporating 69 samples and 12,915

firms found no significant relationship between type of leadership structure and financial

performance measures. They also concluded that firm size did not have a significant

moderating effect on the leadership structure/firm financial performance relationship.

Schmid & Zimmerman (2008) investigated 152 Swiss firms and, once again, found no

significant differences between type of leadership and Tobin’s q. Likewise, Wang &

Cleft’s (2008) examination of 243 Australian firms found no significant differences

between type of leadership structure and their financial performance measures; return on

assets and return on equity or their market performance measure; increase in shareholder

wealth.

40
Summary of Research Supporting Agency Theory

Table 5 provides a summary of research supporting agency theory. Rechner &

Dalton (1991) examined the impact of firm leadership structure on return on investment,

return on equity, and profit margin. Their research sample included 141 Fortune 500

firms over the six –years from 1978 – 1983. They found that separate leadership

structure is statistically significantly positively related to return on investment and return

on equity and that separate leadership structure is positively but not statistically

significantly related to profit margin.

Pi & Timme (1993) analyzed the impact of CEO Duality on return on assets and

production cost efficiency. Their research sample included 112 U.S. Banks over the

period of 1987-1980. Control variables included CEO share ownership, institutional and

large block shareholders, and the proportion of insider/outsider Board members. They

found a statistically significant negative relationship between CEO Duality and the

performance variables; return on assets and production cost efficiency. Their results also

indicated that CEO share ownership was statistically significantly positively related to

return on assets and production cost efficiency. They also found a non-significant

relationship between proportion of inside/outside Board members and firm performance

and that neither institutional shareholders nor large block shareholders was significantly

related to firm performance. The concluded that their results suggested that TMT

structure effects firm performance and that the internal and external monitoring devices

may not be as effective as predicted in the literature.

Rhodes, et. al. (2001) conducted a meta-analysis that examined the relationship

between firm leadership structure and firm financial performance that included 22

41
independent samples from 5,731 firms. They found that separate leadership structure is

statistically significantly positively related to firm financial performance and that

decision context moderates the relationship between type of leadership structure and firm

financial performance.

J er m ia s (2 0 0 7 ) fou n d s u p p or t for a gen cy t h eor y a n d in d ep en d en t

lea d er s h ip wh en in ves t iga t in g th e effect s of CE O d u a lit y, b oa r d

in d ep en d en ce, a n d m a n a ger ia l s h a r e own er s h ip on t h e r ela t ion s h ip

b et ween r es ea r ch a n d d evelop m en t exp en d it u r es a n d fir m p er for m a n ce.

Th e r es ea r ch s a m p le in clu d ed 2 7 4 Ca n a d ia n fir m s d u r in g th e p er iod of

1 9 9 7 t o 2 0 0 1 , equ a tin g t o 5 4 7 fir m yea rs . Dep en d en t va r ia b les in clu d ed

r et u r n on a s s et s a n d Tob in ’s q. Con t r ol va r ia b les in clu d ed fir m s ize,

in s t it u t ion a l own er s h ip , b oa r d s ize, a n d in d u s t r y. His r es ea r ch id en t ified

a s t a t is t ica lly s ign ifica n t n ega t ive r ela t ion s h ip b et ween CE O Du a lit y a n d

r et u r n on a s s et s a n d a s t a t is t ica lly s ign ifica n t n ega t ive r ela t ion s h ip

b et ween CE O Du a lit y a n d Tob in ’s q. Th e r es u lt s of t h e s t u d y a ls o

in d ica t ed t h a t CE O Du a lit y n ega t ively im p a ct s t h e r ela t ion s h ip b et ween

r es ea r ch a n d d evelop m en t exp en s es a n d fir m p er for m a n ce.

Summary of Research Supporting Stewardship Theory

Table 6 provides a summary of research supporting stewardship theory.

Donaldson & Davis (1991) examined the relationship between firm leadership structure

and two measures of performance; return on equity and shareholder returns. The research

sample consisted of 337 large U.S. firms from 1985 – 1987. They found that CEO

42
Duality is positively related to firms’ return on equity and that neither CEO duality nor

separate leadership is related to a firm’s shareholder returns.

Daily & Dalton (1993) examined the impact of CEO Duality on return of assets in

small U.S. firms. Their research sample consisted of 186 small U.S. firms and the results

of their studies indicated there is a positive relationship between CEO Duality and small

firms’ return on assets.

Brickley, Coles, & Jarrell’s (1997) research examined the relationship between

changes in firm leadership structure and subsequent firm market performance. Their

research sample included 661 1988 Forbes firms and a subsample of 31 Forbes firms that

made changes in their leadership structures. The dependent variables in their subsample

analysis were subsequent return on capital and industry adjusted return on capital. They

found that firms that changed their leadership structure to CEO Duality statistically

significantly outperformed firms that made changes in their leadership structure whereby

the current CEO left the company.

Shridharan & Marsinko (1997) investigated the impact of CEO duality on firm

financial performance in the Paper and Forest Products industry from 1988 to 1992.

Their research sample consisted of 11 firms that employed a combined leadership

structure and 11 firms that separated the CEO and Chair positions. The results of their

study indicated that return on assets were higher, but not statistically significantly, for

firms with a combined leadership structure (4.80% for dual firms versus 4.05% for non-

dual firms). Return on equity was statistically significantly higher for firms with a

combined leadership structure (12.06% for dual firms versus 5.69% for non-dual firms).

Profit margin was statistically significantly higher for firms with a combined leadership

43
structure (16.30% for dual firms versus 13.45% for non-dual firms). Average annual

sales growth was higher, but not statistically significantly, for firms with a combined

leadership structures (5.20% for dual firms versus 0.79% for non-dual firms). The

natural log of the market value of equity was statistically significantly higher for firms

with a combined leadership structure (21.50 for dual firms versus 19.87 for non-dual

firms). Book value of assets was statistically significantly higher for firms with a

combined leadership structure ($5,710 for dual firms versus $5,710 for non-dual firms).

The debt ratio, which provides an indication of a firms’ financial leverage, was

statistically significantly higher for firms with a combined leadership structure (34.74%

for dual firms versus 24.17% for non-dual firms). Average annual change in debt was

statistically significantly higher for firms with a combined leadership structure (24.04%

for dual firms versus -0.53% for non-dual firms). The current ratio, which provides an

indication of a firm’s market liquidity and ability to meet creditor’s demands, was

statistically significantly lower for firms with a combined leadership structure (1.552 for

dual firms versus 1.998 for non-dual firms).

Van Ness, Miesing, & Kang (2010) examined the influence of corporate boards

on firm performance in the post Sarbanes-Oxley period. Their research sample included

200 randomly selected 2007 S&P 500 firms for the two-year period 2006-07.

Independent variables in this study included leadership structure, board independence,

percentage of females on the board, average age of board members, average years of

board members tenure, heterogeneity of board members tenure, board size, board

members areas of expertise, heterogeneity of board members area of expertise, firm size,

and industry segment. The dependent variables in their study included percent change in

44
return on assets, percent change in revenue, percent change in leverage, percent change in

free cash flow to net income, and percent change in market price to book ratio. The

control variables in the study were firm size and industry segment. The results of this

research found that CEO duality is statistically significantly positively related to

increases in return on assets. The researchers also found a negative, but not significant,

relationship between CEO Duality and revenue growth, a negative but not significant

relationship between CEO Duality and increase in leverage, a positive but not significant

relationship between CEO Duality and increase in free cash flow to net income, and a

positive but not significant relationship between CEO Duality and increase in market

price to book ratio.

Summary of Research Supporting Contingency Theory

Table 7 provides a summary of research supporting contingency theory.

Finkelstein & D’Aveni (1994) were among the first researchers to develop a contingency

theory of leadership structure. In 1994, they reviewed the literature and developed a

contingency framework to show that rather than being in conflict, agency and

stewardship theories can act in a complimentary manner to help determine the best

approach to leadership structure for a given firm at a given time. The sample for the three

year study period 1984 to 2986 includes 300 years of firm observations. These include

41 firms and from the printing/publishing industry; 35 firms from the chemical industry

and 32 firms in the computer industry. Their findings related CEO Duality to vigor of

Board oversight and found that vigilant boards could moderate agency theory concerns

about entrenchment while benefiting from the unity of command of CEO Duality. This

study found that the mixed-results of prior studies could benefit from newly conducted

45
re-evaluation that considers the moderating impacts of board vigilance and CEO informal

power. They conclude that, by complimenting economic theory with organizational

theory, greater explanatory power may be achieved and contingencies may be found to

guide Boards’ of Directors decisions on firm leadership structure.

Boyd (1995) examined the moderating effects of environmental munificence,

environmental dynamism, and environmental complexity on the relationship between

firm leadership structure and firm return on investment. His research included 192 U.S.

firms nested within 12 industry segments. He found a non-significant negative

relationship between CEO Duality and return on investment. However, the results of his

research indicated that environmental munificence and environmental complexity

moderate the relationship between firm leadership structure and firm return on

investment. Specifically, he found a statistically significant positive relationship between

CEO duality and return on investment in low munificence environments and a

statistically significant negative relationship between CEO duality and return on

investment in high munificence environments. In addition, he found a statistically

significant positive relationship between CEO Duality and return on investment in high

complexity environments and a statistically significant negative relationship between

CEO Duality and return on investment in low complexity environments. In regards to

environmental dynamism, his research found a non-significant positive relationship

between CEO Duality and return on investment in high dynamism environments and a

non-significant negative relationship between CEO Duality and return on investment in

low dynamism environments.

46
 Tan and Chang (2001) examined the differences in firm value of three subsamples

of Singapore listed firms to investigate the moderating role of environment turbulence on

the relationship between leadership structure and firm value. Their research included

subsamples of 77 firms in 1995, 81 firms in 1996, and 81 firms in 1995. They found a

statistically significant positive relationship between CEO Duality and firm value in 1997

during the Asian financial crisis, but not in 1995 or 1996. Based on these findings the

researchers concluded that CEO duality is the optimal leadership structure during periods

of financial crisis.

Braun and Sharma (2007) investigated the moderating role of percentage of

family ownership on the relationship between leadership structure and buy-and-hold

market adjustment returns. Their research sample consisted of 84 U.S. family controlled

public firms. The results of their study indicated that the relationship between leadership

structure and market-adjusted returns in family controlled firms is contingent on the

family’s ownership stake in the firm. In firms that had separate leadership structure buy-

and-hold market adjusted returns were inversely related to family ownership levels. The

researchers also found that dual family controlled firms did not exhibit any changes in

performance dependent on family ownership levels. Their findings suggest that when

family ownership is low, the separation of the CEO and Board Chair positions is a

mechanism that has a positive relationship with shareholder returns. As the family

ownership level grows, the risk of family entrenchment increases. As this risk grows,

the research findings would suggest that a separate leadership structure can mitigate these

risks.

47
 Elsayed (2007) examined the moderating effects of industry on the relationship

between leadership structure and firm performance. The research sample included 92

Egyptian publicly listed firms nested within 19 industries from 2000 - 2004. Control

variables included board size, institutional ownership, management holdings, debt level,

capital intensity, and year over year trend. The dependent variables in the study were

return on assets and Tobin’s q. The results of the study indicated that the relationship

between type of leadership structure and firm performance varies between performance

measures and industry segments as indicated by 2-digit standard industrial classification

codes. More specifically, the results indicated that CEO Duality was significantly

positively related to return on assets and Tobin’s Q performing industries.

Peng, Zheng, & Li (2007) investigated the moderating roles of environmental

munificence and environmental dynamism on firm performance. Their research sample

consisted of 1,202 firm year observations of 403 Shanghai and Shenzen stock exchange

listed Chinese firms at the end of 1996. The control variables in the study were firm age,

firm size, state ownership, outside directors, prior performance, and industry. The

dependent variables in the study were return on equity and sales growth. The results of

the study indicated that the relationship between leadership structure and the performance

measures in their study were contingent on the environment factors; munificence and

dynamism. In particular, they found a statistically significant positive relationship

between CEO Duality and both measures of firm performance in low munificence

environments and a statistically significant negative relationship between CEO Duality

and both measure of performance in high munificence environments. They also found a

statistically significant positive relationship between CEO Duality and both measures of

48
firm performance in high dynamism environments and a statistically significant negative

relationship between CEO Duality and both measures of firm performance in low

dynamism environments.

The Implications of Previous Research for Current and Future Research

While the pressure being exerted by activist shareholders and regulators would

suggest that most, if not all, firms will benefit from separate CEOs and Board Chairs; the

research literature does not support these sweeping conclusions. The inconclusive

research literature may be reflective of leadership structure decision processes that

primarily focus on economic considerations and other internal and external factors and,

secondarily on concerns about duality’s risks and opportunities. Brickley et al., (1997)

recognized this when concluding that the costs and benefits to separating CEO and

chairman duties are likely to vary across firms.

An implicit assumption of the agency model of firm leadership is that executives

are inherently opportunistic agents who will capitalize on every chance to maximize

personal welfare at the expense of shareholders. Donaldson (1990) voiced concern with

the failure of agency theorists to address and integrate related research in organizational

behavior and organizational theory. Alternatively, an implicit assumption of the

stewardship model of firm leadership is that managers behave as trustworthy stewards of

the organization and focus on the collective good of the constituents in the firm

regardless of the manager’s self-interests (Davis, Schoorman, & Donaldson, 1997;

Donaldson & Davis 1991). This underlying assumption of commonality between

managers and owners runs counter to the assumption of the individualistic, self-serving,

49
opportunists that organizational economists have offered as the model of firm

management in a market system (Donaldson 1991).

With this in mind, some scholars have taken a contingency approach that attempts

to integrate and bridge stewardship and agency perspectives (Finkelstein & D’Aveni,

1994; Boyd, 1995). These studies claimed that “both theoretical perspectives are

correct— under different circumstances” (Boyd, 1995, p.302), while also showing that

both theories are incomplete and thus, at times, misleading. While Finkelstein & D’Aveni

(1994) concluded that the choice of leadership structure reflects the board’s attempt to

achieve the merits of unity of command while avoiding the pitfalls of leadership

entrenchment. Boyd (1995) proposed that the optimal leadership structure is contingent

upon factors in the firm’s external environment, measured as munificence, dynamism,

and complexity. According to Boyd, the greater the environmental uncertainty the

greater the value of leadership duality to the firm.

The contingency theorists have criticized agency and stewardship based research

for overly focusing on measuring performance and failing to understand the nature of

duality and building a theoretical framework for its use (Boyd, 1995). In short, when

starting from a foundation of a specific theoretical bias (agency or stewardship)

researchers generally found weak, but not statistically significant relationships between

CEO duality and their outcome measures. Contingency theorists suggest that the

moderating influences of external factors are critically missing elements in both agency

and stewardship based research studies. Similarly, resource dependence theorists

recognize the significance of considering external factors, Pfeffer & Salancik, (1978)

argue that Boards are directly responsible for understanding and managing for external

50
factors and uncertainties. Peng, Zheng, & Li, (2007) found, for example, that the

relationship between leadership structure and the study’s performance measures was

contingent on the environmental factors; munificence and dynamism. CEO Duality was

significantly related to positive performance in munificent environments and negatively

related to performance in low dynamism environments. Thus, the literature reflects a

growing awareness of a need to reflect environmental factors in leadership structure

decisions and on research to assess structure’s impact on subsequent firm performance.

One of the most compelling, widely-recognized and sweeping environmental

factors of recent times has been the worldwide economic downturn. Tan & Chang (2001)

studied firms in Singapore before and during the Asian economic downturn of 1997.

They found no relationship between CEO Duality and firm value prior to the Asian

economic crisis of 1997. However, CEO Duality had a significant positive relationship

with firm value during the period of the economic crisis. Nevertheless, there is a dearth

of similar studies in the literature. The world financial crisis continues to grow and

impact countries worldwide, with devastating impacts on their economies and their

citizens. If research can inform these economies based on previous economic downturns,

by studying the relationship between leadership structure and firm performance during

periods of economic crises, there is a compelling case for extending research knowledge

in this area.

51
 CHAPTER IV

RESEARCH HYPOTHESES

In t h e Un it ed S t a t es , t h e fin a n cia l cr is is of 2 0 0 7 -2 0 1 0 occu r r ed

con com it a n t wit h a d em a n d for gr ea t er a ccou n t a b ilit y for cor p or a t e

b eh a vior a n d it s im p a ct s . In t h e fa ce of cor p or a t e im p los ion s t h a t

s h r ed d ed t h e fin a n cia l s a fet y n et s of m illion s of Am er ica n s , t h er e wa s a

s t r on g p olit ica l, r egu la t or y, fin a n cia l, s ocia l a n d n a t ion a l gr ou n d s well of

d em a n d for ch a n ge. Wit h in cor p or a t ion s , s h a r eh old er a ct ivis t s wer e

s eek in g gr ea t er Boa r d a u t on om y a n d les s s en ior lea d er s h ip in flu en ce.

Th e cou r t s wer e fin d in g execu t ives gu ilt y wit h la r ge fin es a n d p r is on

s en t en ces . Th e m ed ia wa s r ep or t in g on ever y ca s e of s u s p e ct ed

m a lfea s a n ce a n d it s im p a ct s . Regu la t or s wer e a d op t in g n ew la ws a n d

r u les r equ ir in g gr ea ter d u e d iligen ce on th e p a r t of Boa r d s , in d ep en d en ce

of cr it ica l com m it t ees fr om s en ior op er a t ion a l lea d er s h ip , and

a ccou n t a b ilit y t o t h e p u b lic a n d s h a r eh old er s for t h eir lea d er s h ip

s t r u ct u r e d ecis ion s . In a d d it ion , fir m s a r e lega lly r equ ir ed t o b e h a ve a

m a jor it y of in d ep en d en t d ir ect or s (S OX).

Ma n y of t h es e r equ ir em en t s were p r ed ica t ed on t h e a s s u m p t ion

t h a t CE O Du a lit y r ed u ced t h e in d ep en d en ce of B oa r d s a n d cou ld

com p r om is e t h e in t egr it y of cor p or a t e d ecis ion -m a k in g. While current

regulations do not mandate a separation of the role of the CEO from that of the Board

Chair, a number of firms have opted to split the roles due to pressure from investors. The

52
regulations do require the Boards to make a compelling ca s e for con t in u in g t h is

p r a ct ice.

Mu ch of t h e r es ea r ch lit er a t u r e la ck ed definitive conclusions regarding

the implications of CEO duality for firm performance. Nonetheless, p r ior t o t h e

econ om ic d own t u r n , a n u m b er of r es ea r ch er s wer e d em on s t r a t in g t h a t

CE O Du a lit y im p r oved fir m p er for m a n ce in p er iod s of econ om ic cr is is

a n d d own t u r n . Bu t t h is r es ea r ch d id n ot in for m t h e d is cu s s ion s .

Ra t h er , r es ea r ch fa iled to p r ovid e con clu s ive r es u lt s or u s efu l

in for m a t ion for p olicy m a k er s . Never t h eles s , t h er e is a con t in u in g n eed t o

u n d er s t a n d t h os e m od er a t or s a n d , s p ecifica lly, t h e r ela t ion s h ip b et ween

fir m lea d er s h ip s t ru ct u r e a n d fir m p er for m a n ce d u r in g p er iod s of

econ om ic t u r m oil. Res ea r ch er s h a ve a con t in u in g op p or t u n it y t o in for m

b ot h t h e n a t ion a n d t h e glob e in a wa y t h a t wou ld a s s is t cor p or a t ion s in

r id in g t h e t u m u lt u ou s wa ves in t h eir cu r r en t econ om ies . Th is ca n b e

a ch ieved b y s t u d yin g t h e p er for m a n ce of fir m s u n d er va r yin g cor p or a t e

lea d er s h ip s t r u ct u r es b efor e a n d a ft er econ om ic ch a n ges , in clu d in g t h e

U.S . econ om ic d own t u r n of 2 0 0 7 -2 0 1 0 .

Th is s t u d y is in t en d ed t o con t r ib u t e t o a n d ext en d t h is b od y of

lit er a t u r e. Th e h yp ot h es is is t h a t CE O Du a lit y ca n h elp im p r ove t h e

p er for m a n ce of fir m s d u r in g p er iod s of econ om ic u p h ea va l. Th e

a d va n t a ges of CE O Du a lit y’s , u n it a r y lea d er s h ip , exp ed it iou s d ecis ion -

m a k in g, s t a b ilit y and cer t a in t y p r es u m a b ly s en d s a m es s a ge of

con t in u it y a n d s t r en gt h t h a t ca n t r a n s la t e in t o b et t er fir m p er for m a n ce

53
t h a n for fir m s wit h s ep a r a t e CE O a n d Boa r d Ch a ir p os it ion s . Th is

a p p r oa ch wa s t a k en b eca u s e t h is p oin t of view h a s h a d lim it ed vis ib ilit y

wit h s t a k eh old er s , p olicym a k er s a n d t h e p u b lic -a t -la r ge. New evid en ce

b a s ed on a n econ om ic d own t u r n in t h e U.S . t h a t m os t of t h es e a ct or s

h a ve exp er ien ced , wou ld p r ovid e m ea n in gfu l a n d t im ely in for m a t ion t o

in for m t h eir p os it ion a n d u lt im a t e d ecis ion s on fir m lea d er s h ip s t r u ct u r e

a n d p er for m a n ce.

Th er efor e t h is s t u d y will exa m in e t h es e qu es t ion s b y t es t in g t h e

followin g h yp ot h es es r ela t in g t o t h e im p a ct of CE O Du a lit y on fir m

fin a n cia l p er for m a n ce d u r in g t h e fin a n cia l cr is is p er iod of 2 0 0 8 - 2 0 1 0 :

Hypothesis 1: Firms that combine the CEO and Board Chair positions will have

statistically significant higher levels of average annual net profit margins

than firms that separate the CEO and Board Chair positions during the

financial crisis period of 2008-2010.

Hypothesis 2: Firms that combine the CEO and Board Chair positions will have

statistically significant higher levels of average annual return on assets

than firms that separate the CEO and Board Chair positions during the

financial crisis period of 2008-2010.

Hypothesis 3: Firms that combine the CEO and Board Chair positions will have

statistically significant higher levels of average annual earnings per share

than firms that separate the CEO and Board Chair positions during the

financial crisis period of 2008-2010.

54
Hypothesis 4: Firms that combine the CEO and Board Chair positions will have

statistically significant higher levels of average annual dividends per share

than firms that separate the CEO and Board Chair positions during the

financial crisis period of 2008-2010.

Hypothesis 5: Firms that combine the CEO and Board Chair positions will have

statistically significant higher levels of market return than firms that

separate the CEO and Board Chair positions during the financial crisis

period of 2008-2010.

55
 CHAPTER V

RESEACH METHODS

The Research Problem

The leadership structure of corporations has been under scrutiny for several

decades without consistent results. While organizational and economic researches have

reached some significant findings, based on the inconsistent results of the literature

reviewed for this study, for the most part, the literature is contradictory or inconsistent

and policymakers and firm leaders are no closer to being informed by the research about

corporate leadership structural risks and benefits. The purpose of this quantitative study

is to examine the effects of firm leadership structure on financial performance for

publicly traded corporations during a period of economic upheaval. Unlike most studies,

this research includes a full array of financial measures including average net profit

margin, average return on assets, average earnings per share, and average dividends per

share and firm market performance (percent change in share price) among S&P 500

firms.

This study intends to contribute to the academic literature by identifying new data

relating to corporate leadership structure that will provide regulatory agencies, oversight

communities, corporations, and other stakeholders with current information relative to the

relationship between duality and firm financial and market performance. Rather than

seeking to take a specific view on agency and stewardship theories, this research is

founded in a contingency framework, wherein, environmental factors are specifically

The central hypothesis of this study is that the benefits of CEO duality outweigh the costs

of CEO duality during the financial crisis period. The results of this study may better

56
identify under what circumstances firms with CEO duality might outperform firms that

separate the CEO and Chair.

Research Design

This study investigates corporate leadership structure and subsequent firm

financial and market performance of S&P 500 firms and incorporated a quantitative, non-

experimental methodology in which secondary data was collected, statistically analyzed,

and tested to answer the research questions. Data was collected from secondary sources.

Firm leadership data was collected from The Edgar 10k database. Firm financial data was

collected from Mergent online and Standard & Poor’s Net Advantage. Historic stock

prices were collected from Market Watch.

The study employs descriptive statistics and nonparametric tests to evaluate the

study’s hypotheses. The research design of this study follows the positivist traditions.

Positivists seek out information regarding the relationship between variables and focus on

quantitative methods used to test hypotheses (Swanson and Holton, 2005). The

ontological assumptions of the study are measurable and observable. Additionally, the

epistemological assumptions are quantifiable, as the data collected will be analyzed

through scientific methods.

Research Sample

The research sample was derived from the population of 2011 S&P firms where

the CEO and Board Chair positions were occupied by one individual and firms where the

CEO and Board Chair positions were occupied by two individuals for the period January

1, 2008 - December 31, 2010. A firm was classified as having a separate leadership

structure if, for the period from January 1, 2008 to December 31, 2010 the same person

57
occupied the CEO position but didn’t occupy the Board Chair position. A firm was

classified as having a combined leadership structure if, for the period from January 1,

2008 to December 31, 2010, one individual occupied both positions. This sampling

procedure identified 271 S&P firms during this period. The data collection process

enabled use of all 271 firms which resulted in the identification of 183 dual leadership

firms and 88 firms who separated the positions. Appendix A provides a list of the firms

in the sample, the names of the respective CEOs and indicates whether the CEOs had

Dual authority during the period under study.

Research Variables

This study includes 1 independent variable and 5 dependent variables. The

independent variable is the leadership structure (LS) of each of the firms in the study

sample, either separate or combined. The dependent variables, average net profit margin

(ANPM), average return on assets (AROA), average earnings per share (AEPS) and

average dividends (ADPS), are indicated by averaging each firms’ fiscal year end reports

for 2008-2010 and the dependent variable market return (MR), by the percent change in

each of the firms’ stock price from the stock opening price on January 1, 2008 to the

stock closing price on December 31, 2010. Table 8 summarizes the names, acronyms,

and operational definitions of the variables in this study. Appendix B presents firm

financial performance and market performance data from 2008-10.

Data Analysis Procedures

This quantitative study statistically analyzes the 2008-2010 financial performance

and market performance of 271 S&P 500 firms relative to their firm leadership structure.

58
To do so, the analytical software Statistical Package for the Social Sciences (SPSS;

Version 19.0) was used to complete the analyses.

The data analysis methodology was designed to systematically determine

distribution type and test that distribution prior to conducting tests on the relationships

between the independent and dependent variables. The primary objectives of this

preliminary assessment are to: (1) Determine the normality of the data set. This

assessment of the normality of data is a prerequisite for many statistical tests because

normal data is an underlying assumption in parametric testing. (2) Determine, in the case

of non-normal distribution of the data, whether the data can be transformed to enable

parametric testing, or, whether normality can be achieved through statistical sample

reduction. Based on the results of the above, determine the sample to be used, select the

most robust analyses approach, and complete the analyses; having safeguarded the

integrity of the original data set.

On initial review of the descriptive data the distribution appeared to be non-

normal. The distribution of the data was then tested using the Kolmogorov-Smirnov

statistical test of normality. The null hypothesis for these tests is the groups are the same.

The alternative hypothesis is that the groups differ. The Kolmogorov-Smirnov test

statistically evaluates whether the difference between the observed distribution and a

theoretical normal distribution is small enough to be due to chance. If it could be due to

chance, the distribution would be studied using the same approaches used for a normal

distribution. If the difference between the actual distribution and the theoretical normal

distribution is larger than is likely to be due to chance (sampling error) then the

distribution is considered to be non-normal. The Kolmogorov-Smirnov test also

59
identifies whether data follow any specified distribution, not just the normal distribution.

While the results are discussed in Chapter VI, the population was clearly and

significantly non-normal as a whole and for each of the individual dependent variables.

The next step in the data analysis methodology is an examination for outliers.

Th e s t u d y’s a p p r oa ch t o s cr een in g for ou t lier s t es t ed ea ch of t h e

d ep en d en t va r ia b les s ep a r a t ely. Th e va r ia b les wer e fir s t s t a n d a r d ized

a n d t h en ea ch va r ia b les z s cor es wa s ca lcu la t ed . If a fir m ’s z s cor es h a d

a n a b s olu t e va lu e over 3 .0 , t h e id en t ified ou t lier fir m s wer e r em oved for

p u r p os es of r ep lica t in g t h e p r eviou s n or m a lcy t es t s . Th r ou gh t h is

p r oces s 2 0 fir m s wer e id en t ified wit h z s cor es gr ea t er t h a n t h e a b s olu t e

va lu e of 3 .0 . Th e d a t a r et es t wa s t h en com p let ed , exclu d in g t h es e 2 0

fir m s , u s in g t h e s a m e t es t in g p r oced u r es t h a t wer e u s ed for t h e fu ll

s a m p le. Th is t es t s h owed t h a t r em ova l of t h e ou t lier s d id n ot cr ea t e a

n or m a l s a m p le d is t r ib u t ion . Th is d em on s t r a t ed t h a t t h e ou t lier s d id n ot

a ccou n t for t h e n on -n or m a l d is t r ib u t ion . E m p ir ica lly, t h e n ext qu es t ion

wa s wh et h er t o in clu d e or exclu d e t h es e ou t lier s .

There has been much debate in the literature regarding what to do with extreme

outliers. The presence of outliers can, but does not necessarily, lead to inflated error rates

and distortions of parameter and statistic estimates when using either parametric or

nonparametric tests (Zimmerman, 1998). Nevertheless, there are situations where the

outliers are inherent and inclusion in the data provides more robust and representative

results. The outlier can reflect, for example, random chance in the population. In

addition, sample size contributes to the likelihood of outliers in the data set. While it is

60
more probable that a given data point will be drawn from the most densely concentrated

area of the distribution, rather than one of the tails, the wider the definition of the sample

being studied, the larger the population the more variability will occur and the greater the

likelihood of outliers (Evans, 1999; Sachs, 1982). In these cases the outliers occur as a

function of the inherent variability of the data.

Where outliers are illegitimately included in the data, there is no disagreement

that the data points need to be removed from the sample (Barnett & Lewis, 1994). Where

the outliers are not, on their face, illegitimate, some methodologists would recommend

that the researchers transform or recode/truncate the data. However, such data

manipulation can impact the integrity of the data set making any inferences drawn from

the study suspect (Osborne, 2002). When the outlier is either a legitimate part of the data

or the cause is unclear, the researcher must use available guidelines to make judgment

about data inclusion or exclusion. While some researchers have strong view points

toward excluding data (Evans, 1999; Judd & McClelland, 1989; Barnett & Lewis, 1994)

others are equally committed to retaining data to best represent the population under

study (Orr, Sackett, & DuBois, 1991).

In this study, the decision was made to keep the outliers in the data set. The tests

of normalcy were completed with and without these outliers, with no difference in the

results. In addition, the presence of negative financial values for some of the dependent

variables makes transformation less credible. Given that the study is for a period of

financial turmoil, removal of negative data points would likely dilute or otherwise impact

the findings.

61
 With the completion of the preliminary analysis of the data set, the research

moved to implementation of the hypotheses testing plan. Each of the study’s five

hypotheses’ testing involved the same statistical analyses procedures:

1. Examination of the descriptive statistics (mean, standard deviation,

median, minimum, maximum, range, and 95% lower confidence level) for

both the separate and the combined leadership structures.

2. Kolmogorov-Smirnov test for normality of the data across combined and

separated leadership structures.

3. Levene’s Test for Equality of Variances whereby, the null hypothesis is

that the variances are equal; the alternative hypothesis is that variances are

not homogeneous.

4. Based on the results of these analyses the hypotheses tests that were

applied the data included the Mann-Whitney U test and the test of equality

of medians (if the data demonstrates equality of error variances) or the

Kolmogorov-Smirnov test (if the data demonstrate inequality of error

variances).

The Mann-Whitney U test is a nonparametric test of the null hypothesis that two

populations are the same against an alternative hypothesis, that a particular

population tends to have larger values than the other The test uses the rank of

each case to test whether the groups are drawn from the same population. The

test involves the calculation of a U statistic, whose distribution under the null

hypothesis is known. The Mann Whitney U test adds the ranks for the

observations which came from sample 1. The sum of ranks in sample 2 is now

62
determinate, since the sum of all the ranks equals N(N + 1)/2 where N is the total

number of observations. The maximum value of U is the product of the sample

sizes for the two samples. In such a case, the "other" U would be 0. The p value in

the Mann Whitney U is calculated by dividing U by its maximum value for the

given sample sizes, p is thus a non-parametric measure of the overlap between

two distributions; it can take values between 0 and 1, and it is an estimate of

P(Y > X) + 0.5 P(Y = X), where X and Y are randomly chosen observations from

the two distributions. Both extreme values represent complete separation of the

distributions, while a p of 0.5 represents complete overlap.

Whereas the Mann-Whitney U test compares entire distributions, the

median test performs a nonparametric K-sample test on the equality of medians. It

tests the null hypothesis that K-samples were drawn from populations with the

same medians. In the case of a two-sample equality of medians tests, a chi-square

statistic is calculated with a continuity statistic.

The Kolmogorov-Smirnov two-sample test is a test of whether two

independent samples have been draw from the same population (or from

populations with the same distribution). The two-tailed test is sensitive to any

kind of variation in the distributions from which the two samples were drawn. The

one-tailed test is used to decide whether or not the data values in the population

from which one of the samples was drawn are stochastically larger than the values

of the population from which the other sample was drawn. The Kolmogorov-

Smirnov test is sensitive to differences in both location and shape of the empirical

cumulative distribution functions of the two samples. The null hypothesis is that

63
 both groups were sampled from populations with identical distributions. It tests

for any violation of that null hypothesis (i.e. different medians, different

variances, or different distributions).

6 - Each of the test results is summarized, followed by compilation of the tests

results, and a discussion of the implications of the tests results.

Ethical Considerations

This study was conducted in accordance with the highest ethical standards. Data

was collected from publicly accessible secondary sources. Therefore, ethical treatment of

human subjects as well as researcher bias and conflict of interest were not a concern.

64
 CHAPTER VI

DATA ANALYSIS AND RESULTS

Data Set Descriptive Statistics

Table 9 provides a summary of the descriptive statistics of the study’s

independent and independent variables. The descriptive statistics reveal that 67% of the

CEOs in the data set also serve as Board Chairs. The descriptive data also makes it clear

that there is a wide deviation between firms on the study’s dependent variables. ANPM’s

mean average performance is 8.65%, the minimum reported average net profit over the

period is -25.63%, while the maximum reported average net profit margin is 59.76% with

a standard deviation of 9.29% between firms. AROA has a mean average performance of

6.40%, the minimum reported average return on assets over the period is –13.80%, while

the maximum reported average return on assets is 29.40% with a standard deviation of

6.41% between firms. AEPS has a mean average performance of $2.27, the minimum

reported average earnings per share over the period is –$5.22, while the maximum

reported average earnings per share is $20.03 with a standard deviation of $2.55 between

firms. ADPS has a mean average performance of $0.75, the minimum reported average

dividends per share over the period is $0.00, while the maximum reported average

dividends per share performance is $4.17 with a standard deviation of $0.56 between

firms. MR has a mean change in stock price over the period of 8.36%, the minimum

reported change in stock price is -92.05% while the maximum change in stock price is

356.38% with a standard deviation of 52.38% between firms.

65
Analysis of Data Distribution and Data Set Normality

Before undertaking the hypothesis testing procedures, an initial screening of the

data set was completed to determine the appropriate statistical tests for each of the

study’s hypotheses. As discussed in the previous Chapter, for each of the dependent

variables across both levels of the independent variable, this analysis included an

assessment of the normality of the data distribution, resulting in a finding of non-normal

distribution. The methodology then called for determination of whether to use statistical

tests to reduce the data, and final selection of the sample to be used.

The results of the Kolmogorov-Smirnov test of normality are provided in Table

10. The null hypothesis is that the groups are the same; the alternative hypothesis is that

the groups differ. The results indicate that the five dependent variables are not normally

distributed across the two leadership structure types; the significance are primarily; p <

001. Thus, the null hypothesis is rejected and the alternative hypothesis that the data is

not normally distributed is accepted.

Analysis of Outliers

The next step in the data analysis methodology is an examination for outliers.

Th e s t u d y’s a p p r oa ch t o s cr een in g for ou t lier s t es t ed ea ch of t h e

d ep en d en t va r ia b les s ep a r a t ely. Th e va r ia b les wer e fir s t s t a n d a r d ized z

s cor es ca lcu la t ed a n d t h os e wit h a n a b s olu t e va lu e over 3 .0 , t h e

id en t ified ou t lier fir m s , wer e r em oved for p u r p os es of r ep lica t in g t h e

p r eviou s n or m a lcy t es t s . Th r ou gh t h is p r oces s 2 0 fir m s wer e elim in a t ed

fr om u s e in t h e r et es t of t h e d a t a u s in g t h e s a m e t es t in g p r oced u r es t h a t

wer e u s ed for t h e fu ll s a m p le. Ta b le 1 1 p r ovid es t h e r es u lt of the

66
Kolmogorov-Smirnov test for normality. The results of the t es t in d ica t e t h a t t h e

r em ova l of t h e ou t lier s d id n ot differ from the results when the outliers were

included in the data set. When removing the outliers, the five dependent variables

continued to be normally distributed for both leadership structure types; (p < 001). Thus,

the null hypothesis is rejected and the alternative hypothesis is accepted. Th is

d em on s t r a t ed t h a t t h e ou t lier s d id n ot a ccou n t for t h e n on -n or m a l

d is t r ib u t ion . As d es cr ib ed in Ch a p t er 5 , t h e d ecis ion wa s m a d e t h a t t h e

in t egr it y of t h e d a t a s et cou ld b es t b e m a xim ized b y r et a in in g a ll 2 7 1

fir m s u s in g n on p a r a m et r ic h yp ot h es is t es t in g. Figu r es 1 – 1 0 p r ovid e

h is t ogr a m s a n d n or m a l qu a n t ile-qu a n t ile (Q -Q) p lot s for ea ch of t h e

s t u d y’s d ep en d en t va r ia b les .

Kendall’s Tau Nonparametric Correlations of Research Variables

Ta b le 1 2 p r ovid es a s u m m a r y of t h e Ken d a ll’s τ correlations of

variables. Kendall's τ is a nonparametric method of correlation between two variables,

but has an advantage over Spearman's ρ: Kendall's τ also indicates the difference between

the probabilities that the observed data are in the same order for the two variables versus

the probability that the observed data are in different orders for the two variables. The

test results include the estimated Kendall's τ the critical one-tailed and two-tailed τ(0.05)

and τ(0.01), t statistic, Z statistic and the corresponding p values (two-tailed and one-

tailed).

These findings shows positive correlations between CEO duality and AEPS (τ =

.22, p < .001) and ADPS (τ = .21, p < .001). The findings also indicate that there is a

negative correlation between CEO duality and MR (τ = -.11, p < .05). In regards to the

67
correlations of the study’s financial measures of firm performance, all but the correlations

between AROA and ADPS (τ = -.04, p > .05) are positively correlated. While the study’s

measure of firm market performance (MR) is positively correlated to AROA (τ = .21, p <

.001), it is negatively correlated with ADPS τ (= -.16, p < .001) and not correlated with

ANPM (τ = .07, p > .05) or AEPS (τ = .01, p > .05).

In sum, as evidenced by the above, it can be seen that CEO Duality has a statistically

significant positive correlation with AEPS and ADPS. By contrast, CEO Duality has

statistically significant negative correlation with MR

Analysis of the Dependent Variables and Tests of Research Hypotheses

To determine the relationship between firm leadership structure and firm financial

and market performance among 271 S&P 500 firms for the three year period of 2008 -

2010, 5 hypotheses were developed, as outlined in Chapter 4. This section presents the

descriptive statistics, reports on the tests of normality, and the equality of error variance

testing. The hypothesis test results are also presented here.

Average Net Profit Margin: Figures 11 – 14 provide the histograms and normal Q-Q

plots for ANPM by leadership structure type. Table 13 summarizes the descriptive

statistics for the dependent variable ANPM. Firms with a combined leadership structure

have a mean ANPM of 9.01% and a median ANPM of 8.67% as contrasted to a mean

value of 7.15% and a median value of 7.67% for firms with a separate leadership

structure. The standard deviation of ANPM is 9.76% for firms with a combined

leadership structure and 8.79% for firms with a separate leadership structure. The

minimum value of ANPM is -18.67% for firms with a combined leadership structure and

the maximum value is 59.77% as opposed to a minimum value of -26.63% and a

maximum value of 32.10% for firms with a separate leadership structure. Thus, the range

68
of values for ANPM is higher for firms that combine the CEO and Board Chair positions,

78.44%, as opposed to 57.33% for firms that separate the two positions. The lower limit

of the 95% confidence level of the mean for ANPM is 7.73% and the upper limit is

10.30% for firms with a combined leadership structure as compared to a lower limit of

5.08% and an upper limit of 9.22% for firms with a separate leadership structure.

Further analysis of the data distribution is conducted using the Levene’s test for

equality of variance. The null hypothesis of the Levene’s test of the equality of error

variances is the equality of error variances of ANPM do not vary between firms with

separate leadership structures and firms with combined leadership structures. The results

of the Levene’s equality of variance test are provided in Table 14. The results of the test

indicate that the error variances of ANPM does not vary between firms with separate

leadership structures and combined leadership structures (F = 1.198, df = 1, p = .275).

The data distribution is considered in determining the statistical tests that are most

robust in analyzing the data. Based on the previous analyses, the Mann-Whitney U test

and the test of equality of medians are the appropriate statistical tests to test hypothesis 1.

The null hypothesis for the Mann-Whitney U test is the distribution of the mean rankings

of the values of ANPM does not vary between combined and separate leadership

structures. The null hypothesis for the test of equality of median values is the distribution

of median values of ANPM does not vary between combined and separate leadership

structures. The results of the Mann-Whitney U hypothesis test are provided in Table 15.

The results indicate that the mean ranks of ANPM do not statistically differ between

firms with combined leadership structures and firms with separate leadership ship

structures (grand mean = 8.41%, Mann Whitney U = 7469.50, p > .05). Therefore,

69
hypothesis 1 is not supported. The results of the test of equality of medians of ANPM are

provided in Table 16. The results indicate that equality of median values of ANPM do not

statistically differ between firms with combined leadership structures and firms with

separate leadership ship structures (grand median = 8.30, chi-square = .368, df = 1 p > .05

two-tailed). Therefore, hypothesis 1 is not supported.

Average Return on Assets: Figures 15 – 18 provide the histograms and normal Q-Q

plots for AROA by leadership structure type. Table 17 summarizes the descriptive

statistics for the dependent variable AROA. Firms with a combined leadership structure

have a mean AROA of 6.40% and a median AROA of 5.43% as contrasted to a mean

value of 6.41% and a median value of 5.40% for firms with a separate leadership

structure. The standard deviation of AROA is 95.59% for firms with a combined

leadership structure and 7.86% for firms with a separate leadership structure. The

minimum value of AROA is -7.60% for firms with a combined leadership structure and

the maximum value is 29.40% as opposed to a minimum value of -13.80% and a

maximum value of 24.20% for firms with a separate leadership structure. Thus, the

range of values for AROA are nearly the same between firms that combine the CEO and

Board Chair positions, 38.00%, and firms that separate the two positions, 37.00%. The

lower limit of the 95% confidence level of the mean for AROA is 5.58% and the upper

limit is 7.21% for firms with a combined leadership structure as compared to a lower

limit of 4.74% and an upper limit of 8.47% for firms with a separate leadership structure.

Further analysis of the data distribution is conducted using the Levene’s test for

equality of error variances. The null hypothesis of the Levene’s test of the equality of

error variances is the equality of error variances of AROA do not vary between firms

70
with separate leadership structures and firms with combined leadership structures. The

results of the Levene’s equality of variance test are provided in Table 18. The results of

the test indicate that the error variances of AROA values between firms with separate

leadership structures and combined leadership structures (F = 9.811, p = .292).

The data distribution is considered in determining the statistical tests that are most

robust in analyzing the data. Based on the previous analyses, the Kolmogorov-Smirnov

test is the appropriate statistical test to test hypothesis 2. The null hypothesis for the test

is the distribution of values for ANPM does not vary between combined and separate

leadership structures. The results of the Kolmogorov-Smirnov hypothesis test are

provided in Table 19. The results indicate that ANPM does not statistically differ

between firms with combined leadership structures and firms with separate leadership

ship structures (Kolmogorov-Smirnov test statistic = .280, p > .05). Therefore,

hypothesis 2 is not supported.

Average Earnings Per Share: Figures 19 – 22 provide the histograms and normal Q-Q

plots for AEPS by leadership structure type. Table 20 summarizes the descriptive

statistics for the dependent variable AEPS. Firms with a combined leadership structure

have a mean AEPS of $2.74 and a median AEPS of $2.35 as contrasted to a mean value

of $1.42 and a median value of $1.46 for firms with a separate leadership structure. The

standard deviation of AEPS is $2.77 for firms with a combined leadership structure and

$2.15 for firms with a separate leadership structure. The minimum value of AEPS is -

$5.02 for firms with a combined leadership structure and the maximum value is $20.03 as

opposed to a minimum value of -$5.02% and a maximum value of $10.68 for firms with

a separate leadership structure. Thus, the range of values for AEPS is higher for firms

71
that combine the CEO and Board Chair positions, $25.05, as opposed to $15.90 for firms

that separate the two positions. The lower limit of the 95% confidence level of the mean

for AEPS is $2.34 and the upper limit is $3.14 for firms with a combined leadership

structure as compared to a lower limit of $.96 and an upper limit of $1.87 for firms with a

separate leadership structure.

Further analysis of the data distribution is conducted using the Levene’s test for

equality of error variances. The null hypothesis of the Levene’s test of the equality of

error variances is the equality of error variances of AEPS do not vary between firms with

separate leadership structures and firms with combined leadership structures. The results

of the Levene’s equality of variance test are provided in Table 21. The results of the test

indicate that the error variances of AEPS does not vary between firms with separate

leadership structures and combined leadership structures (F = 1.498, p = .222).

The data distribution is considered in determining the statistical tests that are most

robust in analyzing the data. Based on the previous analyses, the Mann-Whitney U test

and the test of equality of medians are the appropriate statistical test to test hypothesis 3.

The null hypothesis for the Mann-Whitney test is the distribution of the mean rankings of

the values of AEPS does not vary between combined and separate leadership structures.

The null hypothesis for the test of the equality of medians is the distribution of median

values of AEPS does not vary between combined and separate leadership structures. The

results of the Mann-Whitney U hypothesis test are provided in Table 22. The results

indicate that the mean rank of AEPS significantly statistically differs between firms with

combined leadership structures and firms with separate leadership ship structures (grand

mean = 2.31, U = 5626.500, p =.000 two-tailed). Therefore, hypothesis 3 is supported.

72
At the α = .001 level of confidence the mean rank of AEPS for firms with combined

leadership structures is significantly statistically higher for firms with combined

leadership structure (150.32) than separate leadership structures (106.22). The results of

the test of equality of medians of AEPS are provided in Table 23. The results indicate

that the median values of AEPS statistically differ between firms with combined

leadership structures and firms with separate leadership ship structures (grand median =

$1.95, chi-square = 11.975, p = .001 two-tailed). Therefore, hypothesis 3 is further

supported. At the α = .01 level of confidence the median value of AEPS is significantly

statistically higher for firms with combined leadership structure ($2.34) than firms with

separate leadership structures ($1.46).

Average Dividends Per Share: Figures 23 – 26 provide the histograms and normal Q-Q

plots for ADPS by leadership structure type. Table 24 summarizes the descriptive

statistics for the dependent variable ADPS. Firms with a combined leadership structure

have a mean ADPS of $.90 and a median ADPS of $.68 as contrasted to a mean value of

$.55 and a median value of $.30% for firms with a separate leadership structure. The

standard deviation of ADPS is $1.00 for firms with a combined leadership structure and

$.82 for firms with a separate leadership structure. The minimum value of ADPS is $.00

for firms with a combined leadership structure and the maximum value is $8.73 as

opposed to a minimum value of $.00 and a maximum value of $4.17 for firms with a

separate leadership structure. Thus, the range of values for ADPS is higher for firms that

combine the CEO and Board Chair positions, $8.73, as opposed to $4.17 for firms that

separate the two positions. The lower limit of the 95% confidence level of the mean for

ADPS is $.76 and the upper limit is $1.05 for firms with a combined leadership structure

73
as compared to a lower limit of $.37 and an upper limit of $.72 for firms with a separate

leadership structure.

Further analysis of the data distribution is conducted using the Levene’s test for

equality of error variances. The null hypothesis of the Levene’s test of the equality of

error variances is the equality of error variances of ADPS do not vary between firms with

separate leadership structures and firms with combined leadership structures. The results

of the Levene’s equality of error variances test are provided in Table 25. The results of

the test indicate that the error variances of ADPS does not vary between firms with

separate leadership structures and combined leadership structures (F = 1.498, p = .222)

The data distribution is considered in determining the statistical tests that are most

robust in analyzing the data. Based on the previous analyses, the Mann-Whitney U test

and the test of equality medians are the appropriate statistical test to test hypothesis 4.

The null hypothesis for the Mann-Whitney U test is the distribution of the mean rankings

of values of ADPS does not vary between combined and separate leadership structures.

The null hypothesis for the test of equality of medians is the distribution of median values

of ADPS does not vary between combined and separate leadership structures. The results

of the Mann-Whitney U hypothesis test are provided in Table 26. The results indicate

that the mean ranks of ADPS significantly statistically differs between firms with

combined leadership structures and firms with separate leadership ship structures (grand

mean = $.79, U = 5626.500, p = .000). Therefore, hypothesis 4 is supported. At the α =

.001 level of confidence the mean rank of ADPS for firms with combined leadership

structures is significantly higher for firms with combined leadership structure (149.25)

than firms with separate leadership structures (108.44). The results of the test of equality

74
of medians of ADPS are provided in Table 27. The results indicate that the median value

of ADPS statistically differ between firms with combined leadership structures and firms

with separate leadership ship structures (grand median = .56, chi-square = 10.246, df = 1,

p = .001 two-tailed). Therefore hypothesis 4 is further supported. At the α = .01 level of

confidence the median value of ADPS is significantly statistically higher for firms with

combined leadership structure ($.68) than firms with separate leadership structures

($.30).

Market Return: Figures 27 – 30 provide the histograms and normal Q-Q plots for MR

by leadership structure type. Table 28 summarizes the descriptive statistics for the

dependent variable MR. Firms with a combined leadership structure have a mean MR of

6.68% and a median MR of -.26% as contrasted to a mean value of 18.95% and a median

value of 8.10% for firms with a separate leadership structure. The standard deviation of

MR is 56.31% for firms with a combined leadership structure and 64.4% for firms with a

separate leadership structure. The minimum value of MR is -69.99% for firms with a

combined leadership structure and the maximum value is 560.27% as opposed to a

minimum value of -83.93% and a maximum of 356..38% for firms with a separate

leadership structure. Thus, the range of values for MR is higher for firms that combine

the CEO and Board Chair positions, 627.02, as opposed to 440.31% for firms that

separate the two positions. The lower limit of the 95% confidence level of the mean for

MR is 1.53% and the upper limit is 14.90% for firms with a combined leadership

structure as compared to a lower limit of 5.26% and an upper limit of 32.65% for firms

with a separate leadership structure.

75
 Further analysis of the data distribution is conducted using the Levene’s test of

the equality of error variances. The null hypothesis of the Levene’s test of the equality of

error variances is the equality of error variances of MR do not vary between firms with

separate leadership structures and firms with combined leadership structures. The results

of the Levene’s equality of error variance test are provided in Table 29. The results of

the test indicate that the error variances of MR does not vary between firms with separate

leadership structures and combined leadership structures (F = 3.234, p = .073).

The data distribution is considered in determining the statistical tests that are most

robust in analyzing the data. Based on the previous analyses, the Mann-Whitney U test

and the test of equality of medians are the appropriate statistical test to test hypothesis 5.

The null hypothesis for the Mann-Whitney U ranks sum test is the distribution of the

mean rankings of values of MR does not vary between combined and separate leadership

structures. The null hypothesis for the test of equality of medians is the distribution of

median values of MR does not vary between combined and separate leadership

structures. The results of the Mann-Whitney U hypothesis test are provided in Table 30.

The results indicate that the mean rank of MR significantly statistically differs between

firms with combined leadership structures and firms with separate leadership ship

structures (grand mean = 10.67%, U = 6756.500, df = 1, p = .033). At the α = .05 level of

confidence the mean rank of MR is significantly statistically lower for firms with

combined leadership structures (-0.26%) than firms with separate leadership structures

(8.10%). The results of the test of equality of medians of ADPS are provided in Table 31.

The results indicate that the medians of MR is significantly statistically differs between

firms with combined leadership structures and firms with separate leadership ship

76
structures (grand median = 2.42, chi-square = 5.051, df = 1, p = .025). At the α = .05

level of confidence the mean rank of MR is significantly statistically lower for firms with

combined leadership structures (-0.26%) than firms with separate leadership structures

(8.10%).

Replication of Nonparametric Hypotheses Tests

This study chose to examine five dependent financial performance measures using

nonparametric statistical tests rather than parametric tests. This testing methodology was

selected because of the non-normality of the data distribution. Nevertheless, additional

parametric testing was completed. This testing included t-tests, analysis of variance

(ANOVA), multivariate analysis of variance (MANOVA), and ordinary least-squares

regression. While the study reports exclusively on the findings of the non-parametric

testing, interestingly, the results for each dependent variable were consistent across all

parametric and non-parametric tests.

77
 CHAPTER VII

DISCUSSION

Summary of Empirical Findings

This research examines the impacts of CEO Duality on firm financial and market

performance during a period of financial crises. The results of the study indicate that,

during this three-year period of financial crises, the financial performance of S&P 500

firms with CEO Duality was stronger than for those with separate leadership structures.

In particular, on all but two of the performance measures firms that practiced CEO

Duality outperformed firms that had separate leadership structures. For two of the

dependent variables, average earnings per year and average dividends per share, firms

with combined leadership structures statistically, significantly outperformed firms with

separate leadership structures. In the case of average earnings per share firms with

combined leadership structures resulted in earnings that were nearly two times those of

firms where CEOs did not carry Board Chair responsibilities. Average dividends per

share similarly find that firms with CEOs who were also the Board Chair paid dividends

to their shareholders that were forty percent higher than the dividends paid by firms with

separate leadership structures. Although firms led by dual leadership CEOs had higher

net profit margins than firms with separate leadership structures, the results were not

statistically significant. Average return on assets was equivalent regardless of the

leadership structure in place.

One measure, market return, resulted in an inverse relationship from the findings

for all other dependent variables. That is, for market returns; separation of duties

statistically, significantly outperformed firms with CEO Duality. Interestingly, this was

78
the only dependent variable that primarily reflects on the behavior of the market and not

the value achieved by the firm. Market return was lower for firms with CEO Duality

than those with separation of leadership roles. In fact, market return was 2.8 times

higher for firms with separate leadership. Market behavior, during this period of

uncertainty, was neither driven by firm recent historical earnings per share nor the

dividends paid out per share.

Limitations and Future Research Implications

This study chose to examine five dependent financial performance measures. The

study’s findings are limited to these five measures, although additional measures could be

evaluated in the future (e.g. return on investment, return on equity). There is a

conundrum in evaluating this type of data as the distribution of the data does not support

parametric testing, and using non-parametric testing, each variable’s characteristics needs

to be considered in selecting the most optimal hypothesis test.

A critical element of this study was the development of a robust sampling

database of S&P 500 firms. This database enables future research, but does not include

firms outside of the S&P 500. The study was further limited to include only those firms

that had a consistent leadership structure for the entire three year period. Arguably, firms

whose leadership style changed during this period may have a different story to tell.

Research on firms outside of S&P 500 and those whose leadership style changed, could

provide valuable additional insights to the body of knowledge on CEO Duality. Further

comparing and contrasting variations in financial performance between those that

changed leadership and those that did not would provide information on the relationship

between financial performance and changes in leadership.

79
 It has been over ten years since the passage of SOX and three years since the

passage of the Dodd-Frank Act. Pre and post regulatory reform analyses, with multi-year

data and SOX with and without the Dodd-Frank Act, would inform the literature on both

the market’s response and impacts of this legislation on firm performance.

Replication of this type of study in other markets (e.g. Japanese or European

Common markets) whose regulatory climate is uniquely different from the U.S. could

further inform the literature. These results may vary by industry, and future research in

this area will benefit from the baseline information learned in this study. Finally, and

optimistically, when there is a period of financial stability under the new U.S. regulatory

climate engendered by SOX and Dodd-Frank Acts, replication would provide a better

understanding of how CEO Duality fairs in a period of economic stability and or growth.

Stakeholder Implications

The financial crisis has brought renewed attention to the effectiveness of

corporate boards and executive leaders. A key question that remains to be empirically

answered is whether firms with CEO Duality performed differently from those with

separate leadership structures during this period of financial stress. Investors, regulators,

and legislators have chosen to place emphasis on the need for independent judgment at

the head of corporate boards in the absence of meaningful findings on CEO Duality.

Despite the lack of empirical data, much of the academic literature on CEO Duality is

founded in agency theory that argues that CEO Duality should be eliminated in order to

improve firm accountability and provide a sounding Board for the CEO. Agency theorist

Ralph Walking, a corporate governance researcher at Drexel University exemplifies this

perspective,

80
 It’s sound governance to split the roles. I’ve known some CEOs who were
pretty darn effective at being chairman of the Board. But I still worry
about not having the independence a separate pair of eyes .

Corporate shareholders have similarly latched on to this view that the firm would

be better off by separating the CEO and Board positions, regardless of either performance

or the financial climate. How does this play out in the market in real terms? One

example is the shareholders of Disney who took action to force a Board vote on duality

without seeming regard for the financial performance of the firm. In March 2013,

separating the CEO and Board Chair positions was proposed by the Disney shareholders

representing the Connecticut State employee’s retirement fund. Shareholders representing

the California Teachers Retirement System and the New York City Employee Pension

Fund also supported this proposal. Connecticut’s State Treasurer stated,

A large integrated organization like Disney simply does not work most
effectively when the CEO manages the board responsible for overseeing
and evaluating his performance (as interviewed by Egan, 2012).
Ironically, at the same meeting Robert Iger the CEO and Board Chair reported,

“Yesterday our stock price hit an all-time high. Market cap hit a record $102 billion.”

Clearly, Disney has been outperforming its previous earnings with its Dual CEO. In this

case the Board rejected the proposal, but similar shareholder actions have resulted in

separation of duties. Further, Disney’s Board had stripped the previous CEO of the

Board Chair’s position. CEO Duality did not disempower the Board as agency theorists

would caution and shareholders seek to avoid. The Board took action on concerns with

leadership structure despite the Board Chairs’ point of view. Despite clear and empirical

evidence on the effectiveness and success of a firm, the view that CEO Duality is a risk

remains unshaken with many influential stakeholders.

81
 The influence of large-block shareholders is illustrated in the Disney case. In

addition large block fund such as the AFSCME’s (American Federation of State County

and Municipal Employees) pension fund, have taken on elimination of Dual CEO

leadership in their investment strategy. In the last two years they have challenged, for

example, JP Morgan Chase and Company, Goldman Sachs Group, Exxon Mobil,

American Express, Johnson and Johnson and Lockheed Martin. AFSCME’s

representative told Reuter’s news service, “The financial crisis shows there hasn’t been

enough adult supervision.” thereby attributing the economic crisis to CEO Duality

(Reuters, 2012).

In each of the examples above, agency theories of firm leadership were the

underpinnings of the positions taken by stakeholders. However, there are alternative to

agency theory. Those who advocate stewardship theorist would both expect and concur

with the findings of this study. Contingency theorist would, particularly, recognize that

firm leadership and outcomes would be contingent on such a momentous market

upheaval as the large economic downtown that occurred during the period of this study.

As the predominant theory, which had as noted above, even been blamed for the

economic downturn, it is not surprising that regulators have leaned toward this theory in

their deliberations and economic reforms. Regulators are similarly supportive of the

separation of CEO and Board chair positions, although regulatory actions do not mandate

such separation. In an article entitled “Abolish the Imperial CEO” Green notes that

stakeholders, theorists and researchers have suggested that the failure of SOX to take an

explicit position on CEO Duality is a fundamental omission (Green, 2004). Nevertheless,

in combination, the SOX and Dodd-Frank laws have sought to achieve a balance of

82
leadership power and greater accountability while simultaneously strengthening the voice

of shareholders in the firm. These new regulations require independence of the

compensation and audit committees of the Board. Boards are no longer unaccountable to

their shareholders for leadership structural decisions. Boards are required to explain and

justify their Board structures and any actions take to change that structure. The greater

transparency and expanded opportunities for shareholders to make proposals that were

engendered by these laws has led to an array of new proposals for eliminating CEO

Duality. At the same time that the SEC is promulgating rules on these laws the SEC is

also ruling on multiple requests from both shareholders who seek to force a vote on

separation of the roles and firms that are seeking to stop these votes (SEC, 2012).

This study was specifically conducted to bring greater clarity to the literature on

the hidden assumptions about the relationship between performance and CEO Duality

that have driven much of decision-making in the last decade. The underlying positions of

the agency theorists, popular press and shareholders had not yet been informed by

empirical data during periods of economic uncertainty, which the U.S. economy has been

weathering for more than a decade. Surprisingly, it is the regulators who chose to control

but not to mandate elimination of CEO Duality.

This study has empirically demonstrated that, for those who are primarily

concerned about the financial performance of the firm, CEO duality is associated with

superior performance during periods of financial turmoil on a number of critical financial

performance measures. This study found that average annual earnings per share and

average annual dividend payouts were statistically significantly higher for dual leadership

firms. Further, the findings, once again, demonstrate that the market is not always

83
rational in its behavior. As reported, not only was the market return hypothesis not

supported, market return was significantly higher for firms with separate CEO and Board

Chairs.

For shareholders, fund and pension managers, other investors and corporate

leaders this study reinforces the need for vigilance in understanding firm performance,

especially during periods of financial turmoil. For theorists, this research similarly

suggests that it is a new economic era, characterized by changes in global economies, the

distribution of authority and accountability within firms, and economic fluctuations

unparalled in the last half-century. All stakeholders evaluate, and analyze a firm’s most

recent, as well as, past performance, and not rely on the blogs, headlines, or poorly

substantiated prognostications of theorists. All stakeholders, including the firm and its

Board of Directors must implement strategies that are based on sound evidence. As the

research community continues to test and explore these findings, and especially replicate

similar studies as the economy evolves, new information will be discovered. It is

expected that this study will prompt such research and stakeholders will remain vigilant

in integrating new findings into their corporate, investment and regulatory decisions.

84
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 APPENDICES

Appendix A: Research Sample by Firm, CEO, and Type of Leadership Structure

Firm CEO Duality

3M Co. George W. Buckley Yes
Abbott Laboratories Miles D. White Yes
Abercrombie & Fitch Company A Michael S. Jeffries Yes
Accenture William D. Geen Yes
ACE Limited Evan G. Greenberg Yes
AES Corp Paul Hanrahan No
Aetna Inc Ronald A. Williams Yes
AFLAC Inc Daniel P. Amos Yes
Agilent Technologies Inc William P. Sullivan No
AGL Resources Inc. John W. Somerhalder, II Yes
Akamai Technologies Inc Paul Sagan No
Allegheny Technologies Inc L. Patrick Hassey Yes
Allergan Inc David E. I. Pyott Yes
Altera Corp John P. Daane Yes
Amazon.com Inc Jeffrey P. Bezos Yes
American Electric Power Michael G. Morris Yes
American Express Co Kenneth I. Chenault Yes
American Tower Corp A James D. Taiclet, Jr Yes
Ameriprise Financial James M. Crocchiolo Yes
AmerisourceBergen Corp R. David Yost No
Amgen Inc Kevin W. Sharer Yes
Anadarko Petroleum Corp James T. Hackett Yes
Analog Devices Inc Jerald G. Fishman No
Aon Corporation Gregory C. Case No
Apartment Investment & Mgmt Terry Considine Yes
Apple Inc. Steven P. Jobs No
Archer-Daniels-Midland Co Patricia A. Woertz Yes
Assurant Inc Robert B. Pollack No
AT&T Inc Randall L. Stephenson Yes
Autodesk Inc Carl Bass No
Automatic Data Processing Gary C. Butler No
AutoNation Inc Michael J. Jackson Yes
AutoZone Inc William C. Rhodes, III Yes
Avalon Bay Communities, Inc. Timothy J. Naughton No
Avon Products Andrea Jung Yes
Baker Hughes Inc Chad C. Deaton No

93
 Firm CEO Duality
Bard (C.R.) Inc. Timothy M. Ring Yes
Baxter International Inc. Robert L. Parkinson, Jr Yes
Bed Bath & Beyond Steven H. Temares No
Berkshire Hathaway Warren E. Buffett Yes
Big Lots Inc. Steven S. Fishman Yes
BlackRock Lawrence D. Fink Yes
Boeing Company W. James McNerny, Jr. Yes
BorgWarner Timothy M. Manganello Yes
Broadcom Corporation Scott A. McGregor No
Brown-Forman Corporation Paul C. Varga Yes
C. H. Robinson Worldwide John P. Wiehoff Yes
Cablevision Systems Corp. James L. Dolan No
Cabot Oil & Gas Dan O. Dinges Yes
Capital One Financial Richard D. Fairbank Yes
Carmax Inc Thomas J. Follard No
Carnival Corp. Micky M. Arison Yes
CBRE Group W. Brett White No
CBS Corp. Leslie Moonves No
CenterPoint Energy David M. McClanahan No
CenturyLink Inc Glen F. Post III No
CF Industries Holdings Inc Stephen R. Wilson Yes
Chesapeake Energy Aubrey A. McClendon Yes
Chubb Corp. John D. Finnegan Yes
Cintas Corporation Scott D. Farmer No
Cisco Systems John T. Chambers Yes
Citigroup Inc. Vikram S. Pandit No
Citrix Systems Mark B. Templeton No
Clorox Co. Donald R. Knauss Yes
Coach Inc. Lew Frankfort Yes
Cognizant Technology Solutions Francisco D’Souza No
Comcast Corp. Brian L. Roberts Yes
Comerica Inc. Ralph W. Babb, Jr. Yes
Computer Sciences Corp. Michael W. Laphen Yes
ConAgra Foods Inc. Gary M. Rodkin No
ConocoPhillips James J. Mulva Yes
Consolidated Edison Kevin Burke Yes
Constellation Brands Robert Sands No
Cooper Industries Kirk S. Hachigian Yes
Corning Inc. Wendell P. Weeks Yes
CSX Corp. Michael Jon Ward Yes
Cummins Inc. Theodore M. Solso Yes
CVS Caremark Corp. Thomas M. Ryan Yes

94
 Firm CEO Duality
Danaher Corp. H. Lawrence Culp, Jr No
DaVita Inc. Kent J. Thiry Yes
Dell Inc. Michael S. Dell Yes
Dentsply International Bret W. Wise Yes
DeVry, Inc. Daniel M. Hamburger No
Dollar Tree Bob Sasser No
Dominion Resources Thomas F. Farrell, III Yes
Donnelley (R.R.) & Sons Thomas J. Quinlan No
Dover Corp. Robert A. Livingston No
Dow Chemical Andrew N. Liveris Yes
Duke Energy James E. Rogers Yes
Eaton Corp. Alexander M. Cutler Yes
Ecolab Inc. Douglas M. Baker, Jr. Yes
Edwards Lifesciences Michael A. Mussallem Yes
Electronic Arts John S. Riccitiello No
EMC Corp. Joseph M. Tucci Yes
Emerson Electric David N. Farr Yes
Entergy Corp. J. Wayne Leonard Yes
EOG Resources Mark G. Papa Yes
Equifax Inc. Richard F. Smith Yes
Equity Residential David J. Neithercut No
Expedia Inc. Dara Khosrowshahi No
Expeditors Int'l Peter J. Rose Yes
Express Scripts George Paz Yes
Exxon Mobil Corp. Rex W. Tillerson Yes
F5 Networks John McAdam No
Family Dollar Stores Howard R. Levine Yes
Fastenal Co Willard D. Oberton No
Federated Investors Inc. J. Cristopher Donahue No
FedEx Corporation Frederick W. Smith Yes
Fifth Third Bancorp Kevin T. Kabot No
Fiserv Inc Jeffrey W. Yabuki No
FLIR Systems Earl R. Lewis Yes
Ford Motor Co Allan Mulally No
Forest Laboratories Howard Solomon Yes
Franklin Resources Gregory E. Johnson No
Freeport-McMoran Cp & Gld Richard C. Adkerson No
Frontier Communications Mary Agnes Wilderotter Yes
Gap (The) Glenn K. Murphy Yes
General Electric Jeffrey R. Immelt Yes
Genuine Parts Thomas C. Gallagher Yes
Genworth Financial Inc. Michael D. Fraizer Yes

95
 Firm CEO Duality
Goldman Sachs Group Lloyd C. Blankfein Yes
Goodrich Corporation Marshall O. Larsen Yes
Google Inc. Erik E. Schmidt Yes
Halliburton Co. David J. Lesar Yes
HCP Inc. James F. Flaherty, III Yes
Health Care REIT George L. Chapman Yes
Heinz (H.J.) William Johnson Yes
Helmerich & Payne Hans Helmerich No
Hess Corporation John B. Hess Yes
Hewlett-Packard Mark V. Hurd Yes
Home Depot Francis S. Blake Yes
Honeywell Int'l Inc. David M. Cote Yes
Hormel Foods Corp. Jeffrey M. Ettinger Yes
Hospira Inc. Christopher B. Begley Yes
Host Hotels & Resorts W. Edward Walter No
Hudson City Bancorp Ronald E. Hermance, Jr. Yes
Illinois Tool Works David P. Speer Yes
Intel Corp. Paul S. Otellini No
IntercontinentalExchange Inc. Jeffrey C. Sprecher Yes
International Bus. Machines Samuel J. Palmisano Yes
International Paper John V. Faraci Yes
Interpublic Group Michael Isor Roth Yes
Invesco Ltd. Martin L. Flanagan No
Jabil Circuit Timothy L. Main No
Johnson & Johnson William C. Weldon Yes
Joy Global Inc. Michael W. Sutherlin No
JPMorgan Chase & Co. James Dimon Yes
Kellogg Co. David MacKay No
Kimberly-Clark Thomas J. Falk Yes
KLA-Tencor Corp. Richard P. Wallace No
Kraft Foods Inc-A Irene B. Rosenfield Yes
Kroger Co. David B. Dillon Yes
Leggett & Platt David S. Haffner No
Lennar Corp. Stuart A. Miller No
Limited Brands Inc. Leslie H. Wexner Yes
Linear Technology Corp. Lothar Maier No
Lockheed Martin Corp. Robert J. Stevens Yes
Lowe's Cos. Robert A Niblock Yes
LSI Corporation Abhijiit Y. Talwalkar No
M&T Bank Corp. Robert G. Wilmers Yes
Marathon Oil Corp. Clarence C. Cazalot, Jr. Yes
Marriott Int'l. J.W. Marriott, Jr Yes

96
 Firm CEO Duality
Masco Corp. Timothy Wadhams Yes
Mattel Inc. Robert A. Eckert Yes
McGraw-Hill Harold McGraw III Yes
McKesson Corp. John H. Hammergren Yes
MeadWestvaco Corporation John A. Luke, Jr. Yes
Medco Health Solutions Inc. David B. Snow, Jr. Yes
MetLife Inc. C. Robert Henrikson Yes
MetroPCS Communications Inc. Roger D. Linquist Yes
Microchip Technology Steve Sanghi Yes
Micron Technology Steven R. Appleton Yes
Microsoft Corp. Steven A. Ballmer No
Monsanto Co. Hugh Grant Yes
Moody's Corp Raymond W. McDaniel Yes
Mylan Inc. Robert J. Coury Yes
Nabors Industries Ltd. Eugene M. Isenberg Yes
NASDAQ OMX Group Robert Greifeld No
National Oilwell Varco Inc. Merrill A. Miller Yes
NetFlix Inc. Reed Hastings Yes
Newmont Mining Corp. (Hldg. Co.) Richard T. O'Brien No
News Corporation K. Ruppert Murdoch Yes
NextEra Energy Resources Lewis Hay III Yes
NIKE Inc. Mark G. Parker No
NiSource Inc. Robert C. Skaggs No
Noble Energy Inc Charles D. Davidson Yes
Norfolk Southern Corp. Charles W. Moorman Yes
Northeast Utilities Charles W. Shivery Yes
Novellus Systems Richard S. Hill Yes
NRG Energy David W. Crane No
Nucor Corp. Daniel R. DiMicco Yes
Nvidia Corporation Jen-Hsun Huang No
Occidental Petroleum Ray R. Irani Yes
Omnicom Group John Wren No
ONEOK John W. Gibson No
Oracle Corp. Lawrence J. Ellison No
O'Reilly Automotive Gregory L. Henslee No
Owens-Illinois Inc Albert P.L. Strouken Yes
PACCAR Inc. Mark C. Pigott Yes
Pall Corp. Eric Krasnoff Yes
Parker-Hannifin Donald E. Washkewicz Yes
Penney (J.C.) Myron E. Ullmann, III Yes
PepsiCo Inc. Indra K. Nooyi Yes
PG&E Corp. Peter A. Darbee Yes

97
 Firm CEO Duality
PNC Financial Services James E. Rohr Yes
Polo Ralph Lauren Corp. Ralph Lauren Yes
PPG Industries Charles E. Bunch Yes
PPL Corp. James H. Miller Yes
Praxair Inc. Steven F. Angel Yes
Precision Castparts Mark Donegan Yes
Priceline.com Inc Jeffery H. Boyd No
Progressive Corp. Glenn M. Renwick No
Public Serv. Enterprise Inc. Ralph Izzo Yes
Quest Diagnostics Surya N. Mohapatra Yes
Raytheon Co. William H. Swanson Yes
Reynolds American Inc. Susan M. Ivey Yes
Robert Half International Harold M. Messmer, Jr. Yes
Rockwell Automation Inc. Kelly D. Nosbusch Yes
Rockwell Collins Clayton M. Jones Yes
Roper Industries Brian D. Jellison Yes
Ryder System Gregory T. Swienton Yes
Safeway Inc. Steven A. Burd Yes
Salesforce.com Marc Benioff Yes
SanDisk Corporation Dr. Eli Harari Yes
SCANA Corp William B. Timmerman Yes
Schlumberger Ltd. Andrew F. Gould Yes
Sealed Air Corp.(New) William V. Hickey No
Sempra Energy Donald E. Felsinger Yes
Sherwin-Williams Christopher M. Conner Yes
Simon Property Group Inc David Simon Yes
Sprint Nextel Corp. Daniel R. Hesse No
St Jude Medical Daniel J. Starks Yes
Staples Inc. Ronald L. Sargent Yes
Starwood Hotels & Resorts Frits van Paasschen No
T. Rowe Price Group James A.C. Kennedy No
Tenet Healthcare Corp. Trevor Fetter No
Teradata Corp. Michael Koehler No
Teradyne Inc. Michael A. Bradley No
The Hershey Company David J. West No
The Mosaic Company James T. Prokopanko No
The Travelers Companies Inc. Jay Steven Fishman Yes
Tiffany & Co. Michael J. Kowalski Yes
TJX Companies Inc. Carol M. Meyrowitz No
Torchmark Corp Mark S. McAndrew Yes
Total System Services Phillip W. Tomlinson Yes
Tyco International Edward D. Breen Yes

98
 Firm CEO Duality
U.S. Bancorp Richard K. Davis Yes
Union Pacific James R. Young Yes
United States Steel Corp. John P. Surma, Jr Yes
UnitedHealth Group Inc. Stephen J. Hemsley No
Unum Group Thomas R. Watjen No
Urban Outfitters Glen T. Senk No
Valero Energy William R. Klesse Yes
Varian Medical Systems Timothy E. Guertin No
Ventas Inc Debra A. Cafaro Yes
Viacom Inc. Philippe P. Dauman No
Vulcan Materials Donald M. James Yes
Walt Disney Co. Robert A. Iger No
Washington Post Co B Donald E. Graham Yes
Waste Management Inc. David P. Steiner No
Waters Corporation Douglas A. Berthiamue Yes
Watson Pharmaceuticals Paul M. Bisaro No
Wells Fargo John G. Stumpf No
Western Digital John F. Coyne No
Whirlpool Corp. Jeff M. Fettig Yes
Windstream Corporation Jeffery R. Gardner No
Wisconsin Energy Corporation Gale E. Klappa Yes
Wynn Resorts Ltd Stephen A. Wynn Yes
Xcel Energy Inc Richard C. Kelly Yes
Yum! Brands Inc David C. Novak Yes
Zions Bancorp Harris H. Simmons Yes

99
Appendix B: Firm Financial and Market Performance 2008-10

Firm ANPM AROA AEPS ADPS MR

3M Co. 14.27 13.37 5.01 2.05 2.35
Abbott Laboratories 15.97 14.63 3.23 3.23 -14.67
Abercrombie & Fitch Company A 4.90 6.03 3.05 0.70 -27.94
Accenture 7.50 14.70 2.58 0.83 34.58
ACE Limited 14.63 2.90 6.72 1.30 0.76
AES Corp 6.10 3.50 0.93 0.00 -43.06
Aetna Inc 4.47 3.77 3.28 0.04 -47.15
AFLAC Inc 8.70 2.00 3.59 1.07 -9.90
Agilent Technologies Inc 2.53 5.50 1.23 0.00 12.77
AGL Resources Inc. 9.10 3.33 2.91 1.72 -4.76
Akamai Technologies Inc 9.13 7.73 0.82 0.00 35.98
Allegheny Technologies Inc 3.33 5.33 2.26 0.72 -36.13
Allergan Inc 10.57 6.83 1.53 0.20 6.90
Altera Corp 29.13 19.20 1.50 0.14 84.16
Amazon.com Inc 3.50 8.00 2.02 0.00 94.30
American Electric Power 9.33 2.77 3.07 1.66 -22.72
American Express Co 10.13 2.23 2.46 0.72 -17.49
American Tower Corp A 15.80 3.10 0.70 0.00 21.22
Ameriprise Financial 29.37 0.47 2.32 0.68 4.43
AmerisourceBergen Corp 0.73 4.13 1.79 0.19 52.05
Amgen Inc 30.07 11.67 4.40 0.00 18.22
Anadarko Petroleum Corp 8.67 2.60 2.69 0.36 15.94
Analog Devices Inc 19.47 14.43 1.65 0.80 18.83
Aon Corporation 8.47 2.70 2.24 0.60 -3.52
Apartment Investment & Mgmt -13.27 -2.03 -1.78 0.63 -11.23
Apple Inc. 17.57 18.77 10.68 0.00 62.84
Archer-Daniels-Midland Co 3.07 6.60 2.81 0.54 -35.21
Assurant Inc 4.50 1.53 3.30 0.64 -42.42
AT&T Inc 12.00 5.53 2.50 1.64 -29.31
Autodesk Inc 9.23 9.37 0.84 0.00 -23.23
Automatic Data Processing 13.90 4.87 2.41 1.24 3.93
AutoNation Inc -8.93 -4.07 -1.37 0.00 80.08
AutoZone Inc 9.80 12.93 12.25 0.00 127.33
AvalonBay Communities, Inc. 11.07 1.27 1.16 4.17 19.56
Avon Products 6.57 10.90 1.62 1.92 -26.49
Baker Hughes Inc 7.93 9.80 2.91 0.59 -29.51
Bard (C.R.) Inc. 17.97 16.13 4.66 0.69 -3.20
Baxter International Inc. 15.00 11.30 3.05 1.06 -12.80

100
 Firm ANPM AROA AEPS ADPS MR
Bed Bath & Beyond 7.20 12.53 2.34 0.00 67.23
Berkshire Hathaway 7.10 2.70 3.63 0.00 -15.42
Big Lots Inc. 3.63 11.13 1.94 0.00 90.49
BlackRock 19.37 1.87 7.52 3.41 -12.09
Boeing Company 3.87 4.07 3.33 1.79 -25.38
BorgWarner 2.33 2.47 1.00 0.19 49.47
Broadcom Corporation 7.50 7.57 0.84 0.11 66.60
Brown-Forman Corporation 16.37 12.80 2.91 1.74 17.42
C. H. Robinson Worldwide 4.40 19.93 2.18 0.38 48.17
Cablevision Systems Corp. 3.97 1.57 0.46 0.36 102.57
Cabot Oil & Gas 17.10 4.47 0.75 0.08 -6.24
Capital One Financial 7.23 0.80 2.60 0.74 -9.94
Carmax Inc 2.27 7.50 0.79 0.00 61.42
Carnival Corp. 14.40 5.77 2.53 0.67 3.64
CBRE Group 1.93 1.87 0.35 0.00 -4.97
CBS Corp. -25.63 -13.30 -5.22 0.49 -30.09
CenterPoint Energy 4.50 2.20 1.13 0.76 -8.23
CenturyLink Inc 12.63 4.47 3.08 2.44 11.36
CF Industries Holdings Inc 14.20 17.97 8.30 0.40 22.80
Chesapeake Energy -16.83 -3.23 -1.92 0.29 -33.90
Chubb Corp. 15.57 4.10 5.95 1.40 9.47
Cintas Corporation 6.87 6.90 1.68 0.44 -16.84
Cisco Systems 18.93 11.50 1.23 0.00 -25.27
Citigroup Inc. -4.47 -0.23 -3.20 3.77 -83.93
Citrix Systems 12.63 7.20 1.15 0.00 79.98
Clorox Co. 10.17 11.93 3.77 1.81 -2.90
Coach Inc. 21.43 29.40 2.14 0.15 80.87
Cognizant Technology Solutions 15.87 19.23 1.86 0.00 115.94
Comcast Corp. 9.07 2.90 1.14 0.28 20.32
Comerica Inc. 2.30 0.27 0.70 0.22 -2.96
Computer Sciences Corp. 5.03 5.30 5.26 0.00 0.26
ConAgra Foods Inc. 5.27 5.30 1.38 0.75 -5.09
ConocoPhillips 0.76 -0.78 -0.41 1.98 -22.88
Consolidated Edison 6.97 3.00 3.36 2.36 1.47
Constellation Brands -7.17 -2.87 -1.26 0.00 -6.30
Cooper Industries 8.80 7.93 2.87 0.86 10.23
Corning Inc. 59.77 18.50 2.28 0.20 -19.47
CSX Corp. 13.13 5.10 1.14 0.29 46.93
Cummins Inc. 5.83 8.77 3.84 0.72 72.73
CVS Caremark Corp. 3.73 5.83 2.44 0.30 -12.53

101
 Firm ANPM AROA AEPS ADPS MR
Danaher Corp. 12.77 7.43 1.85 0.07 7.52
DaVita Inc. 7.00 5.73 3.84 3.84 23.32
Dell Inc. 3.87 8.37 1.10 0.00 -44.72
Dentsply International 12.53 9.33 1.84 0.20 -24.10
DeVry, Inc. 12.47 15.10 2.63 0.16 -7.66
Dollar Tree 5.27 12.60 1.82 0.00 224.54
Dominion Resources 13.10 4.57 3.45 1.72 -9.97
Donnelley (R.R.) & Sons 0.07 0.03 0.01 1.04 -53.71
Dover Corp. 8.50 7.37 3.13 1.00 26.82
Dow Chemical 2.17 1.87 0.85 0.96 -13.39
Duke Energy 9.13 2.23 0.94 0.94 -11.70
Eaton Corp. 5.63 4.93 2.49 1.03 4.70
Ecolab Inc. 7.70 9.56 1.92 0.58 -1.54
Edwards Lifesciences 14.27 12.50 1.63 0.00 251.48
Electronic Arts -18.90 -13.80 -2.31 0.00 -71.96
EMC Corp. 9.37 5.57 0.68 0.00 23.58
Emerson Electric 9.17 9.97 2.66 1.29 0.90
Entergy Corp. 10.57 3.30 6.40 3.08 -40.74
EOG Resources 17.10 7.13 4.17 0.55 2.42
Equifax Inc. 13.33 7.30 1.93 0.20 -2.09
Equity Residential 0.00 0.00 -0.01 1.13 -15.77
Expedia Inc. -20.97 -10.27 -4.09 0.19 -20.65
Expeditors Int'l 5.67 13.03 1.29 0.37 22.20
Express Scripts 3.20 11.57 1.77 0.00 48.08
Exxon Mobil Corp. 8.30 13.00 6.30 1.65 -21.96
F5 Networks 14.17 9.80 1.30 0.00 356.38
Family Dollar Stores 3.93 10.57 2.12 0.53 158.50
Fastenal Co 11.10 18.57 0.82 0.46 48.24
Federated Investors Inc. 17.90 21.10 1.95 1.29 -36.42
FedEx Corporation 2.23 3.23 2.56 0.41 4.31
Fifth Third Bancorp -2.53 -0.17 -0.88 0.04 -41.58
Fiserv Inc 10.37 4.90 2.83 0.00 5.53
FLIR Systems 19.00 16.60 1.42 0.00 -4.95
Ford Motor Co -1.70 -0.43 -1.30 0.00 149.48
Forest Laboratories 20.17 13.53 2.61 0.00 -12.26
Franklin Resources 24.13 13.73 4.35 1.89 -2.81
Freeport-McMoran Cp & Gld -7.03 -6.90 -2.45 0.62 17.24
Frontier Communications 6.00 1.90 0.39 0.96 -23.57
Gap (The) 7.57 14.27 1.35 0.33 4.04
General Electric 8.50 1.80 1.32 0.77 -50.66

102
 Firm ANPM AROA AEPS ADPS MR
Genuine Parts 4.17 9.10 2.81 1.60 10.89
Genworth Financial Inc. -4.53 -0.20 -0.64 0.13 -48.37
Goldman Sachs Group 16.13 0.87 13.26 1.44 -21.80
Goodrich Corporation 8.77 7.50 4.75 1.02 24.73
Google Inc. 25.33 16.67 20.03 0.00 -14.10
Halliburton Co. 9.53 10.70 1.81 0.36 7.70
HCP Inc. 17.40 1.57 0.62 1.72 5.78
Health Care REIT 22.67 1.93 1.02 1.72 6.60
Heinz (H.J.) 8.73 8.80 2.80 1.62 5.96
Helmerich & Payne 18.90 10.07 3.44 0.14 20.99
Hess Corporation 4.77 6.00 5.33 0.37 -24.11
Hewlett-Packard 6.90 7.43 3.39 0.32 -16.60
Home Depot 4.20 6.83 1.73 0.83 30.14
Honeywell Int'l Inc. 6.90 6.53 3.07 1.17 -13.66
Hormel Foods Corp. 5.00 9.27 1.25 0.39 26.63
Hospira Inc. 2.77 6.70 2.19 0.00 30.61
Host Hotels & Resorts -0.41 -0.15 0.05 0.31 4.87
Hudson City Bancorp 17.30 0.90 1.02 0.60 -15.18
Illinois Tool Works 8.87 8.67 2.67 1.24 -0.26
Intel Corp. 17.77 12.83 1.25 0.58 -21.12
Intercontinental Exchange Inc. 34.70 1.63 4.60 0.00 -38.10
International Bus. Machines 13.60 12.10 10.15 2.18 35.76
International Paper 1.90 1.80 1.07 0.57 -15.87
Interpublic Group 3.50 1.83 0.39 0.00 30.95
Invesco Ltd. 14.47 3.57 0.99 0.42 -23.33
Jabil Circuit -2.53 -5.77 -1.40 0.28 32.87
Johnson & Johnson 20.60 14.10 4.58 1.94 -7.27
Joy Global Inc. 12.20 15.47 4.08 0.47 31.80
JPMorgan Chase & Co. 9.57 0.53 2.35 0.75 -2.82
Kellogg Co. 9.53 10.70 3.15 1.55 -2.57
Kimberly-Clark 9.33 9.60 4.34 2.45 -9.09
KLA-Tencor Corp. -2.84 -0.73 0.05 0.60 -19.77
Kraft Foods Inc-A 5.67 3.53 1.60 1.15 -3.43
Kroger Co. 1.13 3.73 1.23 0.30 -16.29
Leggett & Platt 4.13 4.43 0.88 1.03 30.50
Lennar Corp. -11.50 -6.50 -2.99 0.28 4.81
Limited Brands Inc. 4.73 6.17 1.30 0.66 62.33
Linear Technology Corp. 32.10 24.20 1.57 0.85 8.67
Lockheed Martin Corp. 6.67 8.87 7.61 2.27 -33.58
Lowe's Cos. 4.73 6.10 1.52 0.29 10.88

103
 Firm ANPM AROA AEPS ADPS MR
LSI Corporation -7.93 -6.03 -0.32 0.00 12.81
M&T Bank Corp. 14.17 0.87 4.53 2.80 6.72
Marathon Oil Corp. 3.70 5.33 3.41 0.97 -39.16
Marriott Int'l. 1.17 1.57 0.40 0.21 21.58
Masco Corp. -6.33 -7.60 -1.50 0.56 -41.42
Mattel Inc. 9.27 10.87 1.45 0.78 33.56
McGraw-Hill 12.77 12.47 2.49 0.91 -16.89
McKesson Corp. 1.00 4.03 3.64 0.40 7.43
MeadWestvaco Corporation 3.17 2.13 1.09 0.93 -16.42
Medco Health Solutions Inc. 2.20 7.30 2.63 0.00 20.85
MetLife Inc. 2.20 0.27 1.53 0.74 -27.88
MetroPCS Communications Inc. 5.10 2.50 0.49 0.00 -35.06
Microchip Technology 26.43 10.47 1.30 1.22 8.88
Micron Technology -14.70 -5.17 -0.85 0.00 10.62
Microsoft Corp. 28.07 22.73 1.86 0.48 -21.60
Monsanto Co. 15.37 10.30 3.13 1.06 -37.65
Moody's Corp 24.60 23.40 1.90 0.40 -25.66
Mylan Inc. 3.22 1.35 -0.02 0.00 50.28
Nabors Industries Ltd. 3.40 1.83 0.67 0.00 -14.35
NASDAQ OMX Group 9.57 2.63 1.57 0.00 -52.05
National Oilwell Varco Inc. 13.27 8.60 4.13 0.17 -8.45
NetFlix Inc. 6.80 16.80 2.09 0.00 560.03
Newmont Mining Corp. (Hldg. Co.) 18.20 7.27 3.04 0.43 25.80
News Corporation 4.33 2.30 0.49 0.13 -28.94
NextEra Energy Resources 11.03 3.57 4.26 1.89 -23.30
NIKE Inc. 9.27 13.90 3.54 0.85 37.24
NiSource Inc. 4.10 1.53 1.08 0.92 -6.72
Noble Energy Inc 17.63 5.43 3.64 0.71 8.25
Norfolk Southern Corp. 14.93 5.27 3.76 1.33 24.54
Northeast Utilities 6.17 1.63 1.93 0.60 1.82
Novellus Systems -3.72 0.60 -0.09 0.00 17.23
NRG Energy 10.23 3.47 2.98 0.00 -54.91
Nucor Corp. 6.13 4.26 1.92 1.26 -26.00
Nvidia Corporation 5.53 6.17 0.38 0.00 -54.73
Occidental Petroleum 23.73 10.60 5.84 1.33 27.42
Omnicom Group 7.23 4.87 2.80 0.67 -3.64
ONEOK 2.43 3.50 2.97 1.67 23.90
Oracle Corp. 23.87 12.20 1.12 0.08 38.62
O'Reilly Automotive 6.43 7.07 2.22 0.00 86.31
Owens-Illinois Inc. 3.10 2.50 1.31 0.00 -37.98

104
 Firm ANPM AROA AEPS ADPS MR
PACCAR Inc. 4.23 3.33 1.45 0.68 5.25
Pall Corp. 8.97 7.60 1.81 0.51 22.97
Parker-Hannifin 6.07 6.90 4.02 0.95 14.59
Penney (J.C.) 3.37 4.83 2.85 0.77 -26.78
PepsiCo Inc. 12.23 14.00 3.63 1.77 -13.93
PG&E Corp. 8.37 0.20 3.08 1.69 11.02
PNC Financial Services 13.20 0.80 3.94 1.32 -7.66
Polo Ralph Lauren Corp. 8.77 10.10 4.24 0.23 79.51
PPG Industries 3.97 3.83 3.30 2.13 20.28
PPL Corp. 9.53 3.03 1.94 1.37 -49.47
Praxair Inc. 12.33 8.83 3.88 1.63 7.62
Precision Castparts 15.40 15.17 6.97 0.12 0.37
Priceline.com Inc 16.10 22.50 8.07 0.00 247.86
Progressive Corp. 1.10 3.33 1.03 0.05 3.71
Public Serv. Enterprise Inc. 11.13 4.93 2.71 1.33 -35.24
Quest Diagnostics 9.43 8.20 3.72 0.40 2.02
Raytheon Co. 7.40 7.67 4.54 1.16 -23.66
Reynolds American Inc. 14.00 6.73 2.07 1.76 -1.09
Robert Half International 2.90 8.57 0.77 0.48 13.17
Rockwell Automation Inc. 6.40 9.07 2.83 1.18 3.99
Rockwell Collins 13.17 14.10 3.80 0.93 -19.05
Roper Industries 12.53 6.80 2.99 0.33 22.21
Ryder System 2.50 2.10 2.50 0.96 11.98
Safeway Inc. 0.30 0.70 0.37 0.39 -34.64
Salesforce.com 4.80 3.33 0.38 0.00 110.56
SanDisk Corporation -8.10 -3.53 -0.65 0.00 50.32
SCANA Corp 7.63 2.97 2.93 1.87 -3.68
Schlumberger Ltd. 16.47 11.53 3.47 0.56 -15.12
Sealed Air Corp.(New) 5.07 4.30 1.26 0.49 9.98
Sempra Energy 10.73 3.50 3.98 1.50 -15.19
Sherwin-Williams 6.03 10.03 4.00 1.42 44.30
Simon Property Group Inc 12.03 1.90 1.64 2.97 14.54
Sprint Nextel Corp. -8.60 -5.30 -0.99 0.00 -67.78
St Jude Medical 14.33 10.63 2.04 0.00 5.19
Staples Inc. 3.87 8.07 1.18 0.29 -1.30
Starwood Hotels & Resorts 3.47 1.97 1.00 0.47 38.04
T. Rowe Price Group 24.90 16.80 2.00 1.01 6.01
Tenet Healthcare Corp. 5.13 5.77 0.77 0.00 31.69
Teradata Corp. 14.90 17.53 1.54 0.00 50.16
Teradyne Inc. 0.47 2.00 0.19 0.00 35.78

105
 Firm ANPM AROA AEPS ADPS MR
The Hershey Company 7.77 10.87 1.82 1.22 19.67
The Mosaic Company 18.73 15.20 3.93 3.93 -19.06
The Travelers Companies Inc. 15.83 3.03 5.92 1.28 3.55
Tiffany & Co. 9.60 8.97 2.09 0.57 35.28
TJX Companies Inc. 4.97 14.77 1.09 0.19 54.49
Torchmark Corp. 13.90 3.00 3.63 0.36 -1.29
Total System Services 12.50 13.60 1.13 0.28 -45.07
Tyco International 0.47 0.23 0.23 0.54 4.51
U.S. Bancorp 14.27 1.03 1.44 0.70 -15.03
Union Pacific 14.27 5.70 4.61 1.22 47.52
United States Steel Corp. -2.20 0.30 1.39 0.58 -51.68
UnitedHealth Group Inc. 4.33 6.63 3.25 0.16 -37.96
Unum Group 7.57 1.43 2.30 0.32 1.81
Urban Outfitters 10.97 15.57 1.13 0.00 31.36
Valero Energy -0.10 -0.60 -0.40 0.46 -66.99
Varian Medical Systems 14.97 15.83 2.64 0.00 32.82
Ventas Inc 20.63 3.47 1.32 2.08 15.98
Viacom Inc. 10.93 6.00 2.17 0.10 -9.81
Vulcan Materials 1.00 0.53 0.48 1.48 -43.91
Walt Disney Co. 10.43 6.17 2.02 0.35 16.20
Washington Post Co B 3.33 3.00 16.97 8.73 -44.47
Waste Management Inc. 8.17 4.97 2.06 1.17 12.86
Waters Corporation 21.77 18.23 3.54 0.00 -1.72
Watson Pharmaceuticals 7.50 4.80 1.84 0.00 90.31
Wells Fargo 10.40 0.77 1.57 0.66 2.65
Western Digital 10.33 17.83 3.95 0.00 12.21
Whirlpool Corp. 2.53 3.17 5.94 1.72 8.82
Windstream Corporation 11.10 4.10 0.80 1.00 7.07
Wisconsin Energy Corporation 9.40 3.13 1.68 0.67 20.81
Wynn Resorts Ltd 3.83 1.93 1.13 4.17 -7.39
Xcel Energy Inc 6.73 2.67 1.52 0.97 4.34
Yum! Brands Inc 9.63 14.97 2.19 0.90 28.17
Zions Bancorp -18.67 -1.17 -5.02 0.58 -48.10

106
 TABLES

Table 1: Fortune 200 Companies Shareholder Proposals to Separate CEO and

Board Chair Positions (2012)

Date Company Proponent

5/31 Comcast Corp AFL-CIO
5/30 Chevron Corp N/A – Undisclosed
5/30 Exxon Mobil Corp Ram Trust Services' Clients
5/23 Amgen Inc. UAW Retiree Medical Benefits Trust
5/17 YUM! Brands, Inc. Int'l Brotherhood of Teamsters
5/16 Northrop Grumman Corp John Chevedden
5/16/ Dean Foods Co AFSCME
5/15 JPMorgan Chase & Co. AFSCME
5/15 Anadarko Petroleum Corp AFSCME
5/11 Colgate-Palmolive Co John Chevedden
5/10 The Dow Chemical Co N/A – Undisclosed
5/9 AutoNation, Inc. John Chevedden
5/9 Philip Morris Int'l Inc. NYC Pension Funds
5/8 Prudential Financial, Inc. John Chevedden
5/8 ITT Corp William Steiner
5/8 3M Co James McRitchie
5/2 PepsiCo., Inc. Kenneth Steiner
5/2 General Dynamics Corp John Chevedden
4/30 American Express Co AFSCME
4/27 Abbott Laboratories Int'l Brotherhood of Elec. Workers
4/27 AT&T Inc. Kenneth Steiner
4/26 Johnson & Johnson AFSCME
4/26 Lockheed Martin Corp AFSCME
4/26 Edison Int'l John Chevedden
4/25 E. I. du Pont de Nemours & Co William Steiner
4/25 General Electric Co William Steiner
4/24 Wells Fargo & Co Gerald Armstrong
4/23 Honeywell Int'l Inc. John Chevedden
4/10 Bank of New York Mellon Corp. Trowel Trades S&P 500 Index Fund

Source: Proxy Monitor. Org

From January 1, 2012 - May 31, 2012

107
Table 2: S&P 500 Companies Board Leadership Structures (2003-2011)

% Combine CEO/Chair % Split CEO/Chairman

Year Positions Positions
2003 77% 23%
2004 73% 27%
2005 71% 29%
2006 68% 32%
2007 65% 35%
2008 61% 39%
2009 63% 37%
2010 60% 40%
2011 59% 41%

Source: Spencer Stuart US Board Index (2011)

Table 3: Comparison of Agency Theory and Stewardship Theory

Agency Theory Stewardship Theory

Th eor et ica l Ba s is Economic and Finance Psychology and Sociology
Managers As Agents Stewards
Approach Control Collaborative
Individualistic,
Collectivistic, Trustworthy,
Opportunistic, Self-
Model of Behavior Pro-Organizational
Serving
Extrinsic Intrinsic
Managers Motivated By
Personal Objectives Principal Objectives
Managers-Principles
Divergence Convergence
Interests:
Management-Shareholder
Distrust Trust
relationship
Objective: Cost control Performance enhancement
Board’s Role: Discipline and Monitor Service and Advise
Separate CEO and Board
Board Structure CEO Duality
Chair

108
Table 4: Summary of Research Supporting the Null Hypothesis
Authors Sample Variables Results (findings)
Berg & Smith Fortune 200 Leadership No significant differences between
(1978) firms structure type of leadership structure and
Change in value change in value of common stock.
of common No significant differences between
stock type of leadership structure and
Dividends dividend growth.
growth No statistically significant
Total return to differences between leadership
investors structure and total return to
investors.
Chaganti, 21 Matched Leadership A non-significant relationship
Mahajan, and pairs of structure between type of leadership structure
Sharma bankrupt/non- Bankruptcy and bankruptcy.
(1985) bankrupt
firms
Rechner and 141 Fortune Leadership No significant differences between
Dalton (1989) 500 firms structure type of leadership structure and
from 1978- Common stock common stock risk adjusted
1983 risk adjusted abnormal returns in any of the six
abnormal years or over the six year period.
returns
Baliga, 181 Fortune Leadership Results indicate that the market
Moyer, and 500 firms structure does not respond to changes in
Rao (1991) Change in duality status, that changes in
leadership duality status do not affect the
structure operating performance for firms,
Changes in ROE and that there is, at best, only weak
Changes in ROA evidence of a link between CEO
Operating cash duality and long-term firm
flow to total performance.
assets Operating
cash flow to sales
Industry
adjusted
market to value
added ratio
Daily and 186 Small Leadership No significant differences between
Dalton (1993) U.S. firms structure type of leadership structure and
Ratio of ROA, ROE, or Price/earnings ratio.
outsider
directors
Board size
Industry
ROA and ROE
Price/earnings

109
Table 4: Summary of Research Supporting the Null Hypothesis (continued)

Authors Sample Variables Results (findings)

Dalton, Daily, Leadership Leadership No significant differences between
Ellstrand, and structure structure type of leadership structure and firm
Johnson Firm Firm financial financial performance measures.
(1998) financial performance No significant moderating effect of
performance measures firm size on type of leadership
measures structure/firm performance
relationship.
Schmid and 152 Swiss Leadership No significant differences between
Zimmermann firms structure and type of leadership structure and
(2008) Tobin’s q Tobin’s q.

Wang and 243 Leadership No significant differences between

Cleft (2008) Australian structure type of leadership structure and firm
firms ROA financial performance measures.
ROE No significant differences between
Shareholder type of leadership structure and
wealth shareholders wealth.

110
Table 5: Summary of Research Supporting Agency Theory
Author(s) Sample Variables Results (findings)
Rechner and 141 Fortune Leadership A significant positive relationship
Dalton (1991) 500 Firms structure between separate leadership and
over the six ROI ROI.
year period ROE A significant positive relationship
1978-83 Profit margin between separate leadership and
ROE.
A non-significant relationship
between leadership structure type
and profit margin.
Pi and Timme 112 U.S. Leadership A significant negative relationship
(1993) banks from structure between CEO Duality and ROA.
1987-1990 CEO A significant negative relationship
Ownership between CEO Duality and
Proportion of production cost efficiency.
inside/outside A non-significant relationship
directors between proportion of inside
Institutional directors and ROA.
and large block A non-significant relationship
shareholders between proportion of inside
ROA directors and Cost Efficiency.
Cost A non-significant relationship
Efficiency between institutional and large
block shareholders and ROA
A non-significant relationship
between institutional and large
block shareholders and Cost
Efficiency.
Results suggest that TMT
structure affects performance and
that internal monitor devices may
not be as effective as thought in
the literature.
Rhoades, Meta-analysis Leadership A significant positive relationship
Rechner, and of 22 structure between separate leadership
Sundaramurthy independent Firm financial structure and firm financial
(2001) samples performance performance.
totaling Decision context moderates the
5,751 firms relationship between type of
leadership structure and firm
performance.
A significant positive relationship
between CEO Duality and
performance in compensation

111
Table 5: Summary of Research Supporting Agency Theory (continued)

Author(s) Sample Variables Results (findings)

Rhoades, studies.
Rechner, and A significant negative relationship
Sundaramurthy between CEO Duality and
(2001) Performance in Anti-takeover
Continued studies.
Jermais (2007) 207 Canadian Leadership A significant positive relationship
firms during structure, between separate leadership and
the period of Managerial ROA.
1997 - 2001 share A significant positive relationship
ownership between separate leadership and
Board Tobin’s q.
independence Findings also indicated that CEO
Board Size Duality negatively impacts the
Institutional relationship between R&D
ownership expenses and firm performance.
Firm Size
R&D
expenditures
ROA
Tobin’s q

112
Tables 6: Summary of Research Supporting Stewardship Theory

Authors Sample Variables Results (findings)

Donaldson 337 large U.S. Leadership A statistically significant positive
and Davis firms from structure relationship between CEO Duality
(1991) 1985-1987 ROE and ROE.
Shareholder A non-significant relationship
returns between firm leadership structure
and shareholder returns.
Daily and 186 Small Leadership A significant positive relationship
Dalton, 1993 U.S. firms structure between CEO Duality and ROA in
ROA smaller firms.

Brickley, 661 Forbes Change in Firms that made leadership

Coles, and firms 1998/ Leadership structure change from separate to
Jarrell (1997) Subsample of Structure combined capital outperformed
31 Forbes that Industry firms that made leadership structure
made changes adjusted return change where the CEO left on both
in their on capital measures of subsequent market
leadership Industry performance
structure adjusted tock
return
Shridharan 18 Firms in Leadership A non-significant positive
and Marsinko the paper and structure relationship between CEO Duality
(1997) forest ROE and ROE.
products ROA A non-significant positive
industry from Net profit relationship between CEO Duality
1988-1992. margin and ROA
Annual sales A significant positive relationship
growth between CEO Duality and net profit
Natural log of margin higher.
market value to A non-significant positive
equity relationship between CEO Duality
Debt ratio and annual sales growth.
Change in debt A significant positive relationship
ratio between CEO Duality and book
Book value of value of assets.
debt A significant positive relationship
Change in debt between CEO Duality and debt
Price earnings ratio.
ratio A significant positive relationship
between CEO Duality and current
ratio
A non-significant negative
relationship between CEO Duality
price earnings ratio.

113
Tables 6: Summary of Research Supporting Stewardship Theory (continued)

Authors Sample Variables Results (findings)

Van Ness, 200 Randomly Leadership A significant positive relationship
Miesing, and selected 2007 Structure between CEO Duality and increase
Kang (2010) S&P firms Board in ROA.
independence A negative but not significant
Percentage of relationship between CEO Duality
females on and revenue growth.
Board A negative but not significant
Average age of relationship between CEO Duality
board members and increase in leverage.
Board members A positive but not significant
tenure relationship between CEO Duality
Heterogeneity and increase in free cash flow to net
of board income.
members A positive but not significant
tenure relationship between CEO Duality
Board size and increase in market price to
Board members book ratio.
occupational
expertise
Heterogeneity
of members
occupational
expertise
Firm Size
Industry
segment
Revenue
ROA
Leverage
Free cash flow
to net income
Market price to
book ratio

114
Table 7: Summary of Supporting Contingency Theory

Authors Sample Variables Results (findings)

Finkelstein Pooled Leadership A statistically significant positive
and D’Aveni samples of 41 structure association between Board
(1994) firms in the Board vigilance and CEO Duality.
printing- vigilance A statistically significant negative
publishing Informal CEO association between board vigilance
industry (107 power and informal CEO power, (although
observations Firm this applied to only two of the three
from 1984 – performance industries under study).
1986, 35 firms Industry Mixed results where CEO duality
in the segment was less likely to occur in high-
chemical performing firms with vigilant
industry (102) boards than in low-performing
observations, firms with vigilant boards in two of
and 32 in the the four industries under study.
computer A statistically significant negative
industry (91) association between board vigilance
observations and CEO duality when ROA and
informal CEO power are high
because the vigilant boards have
concerns about the potential for
CEO entrenchment.
Boyd (1995) 192 Firms in Leadership A non-significant negative
12 industries structure relationship between CEO Duality
Environmental and ROI.
munificence A statistically significant positive
Environmental relationship between CEO Duality
dynamism and ROI in low munificence
Environmental environments.
complexity A statistically significant negative
ROI relationship between CEO Duality
and ROI in high munificence
environments.
A non-significant positive
relationship between CEO duality
and ROI in high dynamism
environments
A non-significant negative
relationship between CEO Duality
and ROI in low dynamism
environments.
A significant positive relationship
between CEO duality and ROI in
high complexity environments

115
Table 7: Summary of Research Supporting Contingency Theory (continued)
Author(s) Sample Variables Results (findings)
Boyd (1995) A significant negative relationship
Continued between CEO duality and ROI in low
complexity environments.
Tan and 239 Singapore Leadership A s t a t is t ica lly s ign ifica n t
Chang listed firms structure p os it ive r ela t ion s h ip b et ween
(2001) Subsamples of CEO founder CE O Du a lit y a n d fir m va lu e in
77 listed firms CEO ownership 1 9 9 7 d u r in g t h e As ia n
in 1997 External econ om ic cr is is , b u t n ot in
81 listed firms environment 1995 an d 1996.
in 1996 Firm value
81 listed firms
in 1995

Braun and US Leadership A non-significant relationship

Sharma 84 Family structure between leadership structure type and
(2007) controlled Percentage of buy-and-hold market adjusted returns.
U.S. public family Percentage of family holding
Firms ownership moderates the relationship and buy-
Buy-and-hold and-hold market adjusted returns in
market adjusted such a way that when percentage of
Returns ownership is low independent
leadership outperforms CEO duality.
Elsayed 92 Egyptian Leadership The relationship between type of
(2007) public limited structure leadership structure and firm
firms nested Board size performance varied between
within 19 Institutional performance measures and industry
industry ownership segments.
segments from Management A significant positive relationship
2000 – 2004 ownership between CEO Duality and
Firm size performance in low performance
Debt level industry segments.
Capital
intensity
Year trend
ROA
Tobin’s q
Industry
segment
Peng, Zheng, 403 Shanghai Leadership The relationship between leadership
and Li and Shenzhen structure structure and the performance
(2007) Environmental measures in their study were
munificence contingent on the environmental
Environmental Munificence and dynamism

116
Table 7: Summary of Research Supporting Contingency Theory (continued)

Author(s) Sample Variables Results (findings)

Peng, Zheng, Stock Leadership A statistically significant positive
and Li Exchanges structure relationship between CEO Duality
(2007) listed Chinese Environmental and both measures of firm
Continued firms at the munificence performance in low munificence
end of 1996 Environmental environment.
1,202 firm dynamism A statistically significant negative
year relationship between CEO Duality
observations and both measure of performance in
high munificence environments.
A statistically significant positive
relationship between CEO Duality
and both measures of firm
performance in high dynamism
environments.
A statistically significant negative
relationship between CEO Duality
and both measures of firm
performance in low dynamism
environments.

117
Table 8: Summary of Research Variables

Variable Acronym Operationalization

Dichotomous variable coded “0” if the person occupied
Firm the CEO position but not the Board Chair position for the
Leadership LS three year period 2008-2010, or “1” if the same person
Structure occupied the CEO and Board Chair positions for the
three year period 2008- 2010.
Average Net Average of annual earnings divided by total revenues for
ANPM
Profit Margin fiscal years 2008, 2009, and 2010.
Average Average of annual earnings divided by average annual
Return on AROA number of outstanding ordinary shares issued for fiscal
Assets years 2008, 2009, and 2010.
Average Average of annual earnings by average annual total
Earnings Per AEPS assets for fiscal years 2008, 2009, and 2010.
Share
Average Average of annual total dividends paid out divided by
Dividends Per ADPS average annual number of outstanding ordinary shares
Share issued for fiscal years 2008, 2009, and 2010.
Percent change in stock price from opening price on
Market Return MR
January 1, 2008 to closing price on December 31, 2010.

Table 9: Descriptive Statisticsa

Variable Mean St. Error S.D. Min Max

LS .68 .03 .47 0 1
ANPM 8.41 .55 9.14 -25.63 59.77
AROA 6.40 .39 6.40 -13.80 29.40
AEPS 2.31 .16 2.66 -5.22 20.03
ADPS .79 .06 .96 .00 8.73
MR 10.67 3.60 59.30 -83.93 560.03
a
n = 271 firms

118
Table 10: Results of the Kolmogorov-Smirnov Test of Normality of the Data Seta

Kolmogorov-Smirnovb
Variable Statistic df Sig.
ANPM .103 271 .000
AROA .076 271 .001
AEPS .127 271 .000
ADPS .206 271 .000
MR .183 271 .000
a
n = 271 firms
b
Lilliefors Significance Correction

Table 11: Results of the 1-Sample Kolmogorov-Smirnov Test of Normality of the

Data Set in the Absence of Outliersa

Kolmogorov-Smirnovb
Variable Statistic df Sig.
ANPM .081 251 .000
AROA .074 251 .002
AEPS .067 251 .008
ADPS .152 251 .000
MR .095 251 .000
a
n = 271 firms
b
Lilliefors Significance Correction

Table 12: Kendall’s τ Correlations of Variablesa

Variable LS ANPM AROA AEPS ADPS MR

LS 1
ANPM .05 1
AROA -.01 .43*** 1
AEPS .22*** .37*** .33*** 1
ADPS .21*** .12** -.04 .268*** 1
MR -.11* .07 .21*** .01 -.16*** 1
a
n = 271 firms
***Correlation is significant at p < .001 (two-tailed)
**Correlation is significant at p < .01 (two-tailed)
*Correlation is significant at p < .05 (two-tailed)

119
Table 13: Descriptive Statistics for Average Net Profit Margin

Separate Combined
Statistical Measure (n = 88) (n = 173)
Mean 7.15 9.01
Standard Deviation 9.76 8.79
Median 7.67 8.67
Minimum -25.63 -18.67
Maximum 32.10 59.77
Range 57.73 78.44
95% Confidence Interval
Lower Bound 5.08 7.73
Upper Bound 9.22 10.30

Table 14: Results of Levene’s Test of Equality of Error Variances for Average Net
Profit Margin

F df1 df2 Sig.

1.198 1 269 .275

Table 15: Results of the Mann-Whitney Hypothesis Test for Average Net Profit
Margina

Grand Mann-Whitney Asymptotic

Variable Mean U Statistic df Sig. (two-tailed)
ANPM 8.41 8634.500 1 .335
a
Group Variable: Leadership Structure
n = 271 firms

Table 16: Results of the Test of the Equality of Medians Hypothesis Test for
Average Net Profit Margina

Grand Chi- Asymptotic

Variable Median Square df Sig. (two-tailed)
ANPM 8.30 .368 1 .544
a
Group Variable: Leadership Structure
n = 271 firms

120
Table 17: Descriptive Statistics for Average Return on Assets

Separate Combined
Statistical Measure (n = 88) (n = 183)
Mean 6.41 6.40
Standard Deviation 7.86 5.59
Median 5.40 5.43
Minimum -13.80 -7.60
Maximum 24.20 29.40
Range 38.00 37.00
95% Confidence Interval
Lower Bound 4.74 5.85
Upper Bound 8.07 7.21

Table 18: Results of Levene’s Test of Equality of Error Variances for Average
Return on Assets

F df1 df2 Sig.

9.811 1 269 .002

Table 19: Results of the Kolmogorov-Smirnov Test for Average Return on Assetsa

Kolmogorov-Smirnov Asymptotic
Variable Test Statistic df Sig. (two-tailed)
AROA .980 1 .292
a
Group Variable: Leadership Structure
n = 271 firms

121
Table 20: Descriptive Statistics for Average Earnings Per Share

Separate Combined
Statistical Measure (n = 88) (n = 183)
Mean 1.42 2.74
Standard Deviation 2.15 2.77
Median 1.46 2.34
Minimum -5.22 -5.02
Maximum 10.68 20.03
Range 15.90 27.05
95% Confidence Interval
Lower Bound .96 2.34
Upper Bound 1.87 3.15

Table 21: Results of Levene’s Test of Equality of Error Variances for Average
Earnings Per Share

F df1 df2 Sig.

1.498 1 269 .222

Table 22: Results of Mann-Whitney Hypothesis Test for Average Earnings Per
Sharea

Grand Mann-Whitney Asymptotic

Variable Mean U Statistic df Sig. (two-tailed)
AEPS 2.31 5431.000 1 .000
a
Group Variable: Leadership Structure
n = 271 firms

Table 23: Results of the Test of Equality of Medians Hypothesis Test for Average
Earnings Per Sharea

Grand Chi- Asymptotic

Variable Median Square df Sig. (two-tailed)
AEPS 1.95 11.975 1 .001
a
Group Variable: Leadership Structure
n = 271 firms

122
Table 24: Descriptive Statistics for Average Dividends Per Share

Separate Combined
Statistical Measure (n = 88 ) (n = 183)
Mean .55 .90
Standard Deviation .82 1.00
Median .30 .68
Minimum 0.00 0.00
Maximum 4.17 8.73
Range 4.17 8.73
95% Confidence Interval
Lower Bound .37 .76
Upper Bound .72 1.05

Table 25: Results of Levene’s Test of Equality of Error Variances for Average
Dividends Per Share

F df1 df2 Sig.

2.762 1 269 .098

Table 26: Results of Mann-Whitney Hypothesis Test for Average Dividends Per
Sharea

Grand Mann-Whitney Asymptotic

Variable Mean U Statistic df Sig. (two-tailed)
ADPS .79 5626.500 1 .000
a
Grouping Variable: Leadership Structure
n = 271 firms

Table 27: Results of the Test of Equality of Medians Hypothesis Test for Average
Dividends Per Sharea

Grand Chi- Asymptotic

Variable Median Square df Sig. (two-tailed)
ADPS .56 10.246 1 .001
a
Group Variable: Leadership Structure
n = 271 firms

123
Table 28: Descriptive Statistics for Market Return

Separate Combined
Statistical Measure (n = 88) (n = 183)
Mean 18.95 6.68
Standard Deviation 64.64 56.31
Median 8.10 -0.26
Minimum -83.93 -67.00
Maximum 356.38 560.03
Range 440.31 627.03
95% Confidence Interval
Lower Bound 5.26 -1.52
Upper Bound 32.65 14.89

Table 29: Results of Levene’s Test of Equality of Error Variances for Market
Return

F df.1 df2 Sig.

3.234 1 269 .073

Table 30: Results of the Mann-Whitney Hypothesis Test for Market Returna

Grand Mann-Whitney Asymptotic

Variable Mean U Statistic df Sig. (two-tailed)
MR 10.67 6756.500 1 .033
a
Grouping Variable: Leadership Structure
n = 271 firms

Table 31: Results of the Test of Equality of Medians Hypothesis Test for Market
Returna

Grand Chi- Asymptotic

Variable Median Square df Sig. (two-tailed)
MR 2.42 5.051 1 .025
a
Group Variable: Leadership Structure
n = 271 firms

124
 FIGURES

Figure 1: Histogram of Average Net Profit Margin

Figure 2: Normal Q-Q Plot of Average Net Profit Margin

125
 Figure 3: Histogram of Average Return on Assets

Figure 4: Normal Q-Q Plot of Average Return on Assets

126
 Figure 5: Histogram of Average Earnings Per Share

Figure 6: Normal Q-Q Plot of Average Earnings Per Share

127
 Figure 7: Histogram of Average Dividends Per Share

Figure 8: Normal Q-Q Plot for Average Dividends Per Share

128
 Figure 9: Histogram of Market Return

Figure 10: Normal Q-Q Plot for Market Return

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Figure 11: Histogram of Average Net Profit Margin for Separate Leadership
Structure

Figure 12: Histogram of Average Net Profit Margin for Combined Leadership
Structure

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Figure 13: Normal Q-Q Plot of Average Net Profit Margin for Separate Leadership
Structure

Figure 14: Normal Q-Q Plot of Average Net Profit Margin for Combined
Leadership Structure

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Figure 15: Histogram of Average Return on Assets for Separate Leadership
Structure

Figure 16: Histogram of Average Return on Assets for Combined Leadership

Structure

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Figure 17: Normal Q-Q Plot of Average Return on Assets by Separate Leadership
Structure

Figure 18: Normal Q-Q Plot of Average Return on Assets for Combined Leadership
Structure

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Figure 19: Histogram of Average Earnings Per Share for Separate Leadership
Structure

Figure 20: Histogram of Average Earnings Per Share for Combined Leadership
Structure

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Figure 21: Normal Q-Q Plot of Average Earnings Per Share for Separate
Leadership Structure

Figure 22: Normal Q-Q Plot of Average Earnings Per Share for Combined
Leadership Structure

135
Figure 23: Histogram of Average Dividends Per Share for Separate Leadership
Structure

Figure 24: Histogram of Average Dividends Per Share for Combined Leadership
Structure

136
Figure 25: Normal Q-Q Plot of Average Dividends Per Share for Separate
Leadership Structure

Figure 26: Normal Q-Q Plot of Average Dividends Per Share for Combined
Leadership Structure

137
Figure 27: Histogram of Market Return for Separate Leadership Structure

Figure 28: Histogram of Market Return for Combined Leadership Structure

138
Figure 29: Normal Q-Q Plot of Market Return for Separate Leadership Structure

Figure 30: Normal Q-Q Plot of Market Return for Combined Leadership Structure

139