Separating Chairman and CEO roles in PLCs

From left: HNB Investment Bank Group Chief Strategy Officer Dr. Yaveen Jayasekera, Frontier Research CEO Nimesha Jayakody, JB Securities CEO and Advocata Institute Chairman Murtaza Jafferjee, Securities and Exchange Commission Chairman Senior Prof. D.B.P.H. Dissabadara, Lynear Wealth Management Managing Director and Co-Founder Dr. Naveen Gunawardane, Alliance Finance Company Deputy Chairman and Managing Director Romani De Silva, Moderator – Independent Consultant Chanaka Wickramasuriya, and Colombo Stock Exchange Marketing Senior Vice President Niroshan Wijesundere – Pix by Ruwan Walpola

At a recent forum organised by the Sri Lanka Institute of Directors (SLID), the CSE, and the SEC, business leader Murtaza Jafferjee made a powerful case for separating the roles of Chairman and Chief Executive Officer (CEO). This argument aligns with a global consensus on corporate governance: structures that ensure accountability, transparency, and oversight are fundamental to a company’s health and investor trust.

From my experience as Chairman of three listed banks, including Sri Lanka’s two largest, I firmly believe this separation is not just beneficial but essential within the financial sector. However, for companies with concentrated, family-owned, or founder-led structures, the issue demands a more nuanced approach.

Separation

The core rationale for splitting these roles lies in achieving a balance of power. The Chairman leads the board of directors, which is tasked with providing strategic oversight, setting direction, governance and protecting shareholder interests. The CEO, in contrast, is responsible for day-to-day management, executing strategy, and delivering within the board’s defined risk appetite set objectives. When both roles are concentrated in one individual, there is excessive consolidation of authority, potentially crippling the board’s ability to hold management accountable. This risk is particularly acute in banks and financial institutions, where high systemic risk and fiduciary duties make robust checks and balances non-negotiable. Global regulators and governance codes universally recognise that separating these roles is a primary defence against conflicts of interest, mismanagement, corruption, and uncontrolled risk-taking. Furthermore, a clear division enhances transparency and boosts investor confidence. Institutional and foreign investors increasingly view an independent, empowered board as a key indicator of sound governance—one that can directly influence a company’s valuation and access to low-cost capital.

Combined role

Despite these advantages, many Sri Lankan and Asian markets feature concentrated ownership. In such contexts, a dominant shareholder or family often controls the business. Proponents of a combined role argue that it enables quicker decision-making, unified leadership, and direct accountability to the majority owner.

This model can also be highly effective in young, entrepreneurial companies where a founder’s vision drives growth. Forcing a separation too early could create friction between the board and management and dilute strategic clarity. A practical consideration is the limited depth of board-level talent in some markets. In such cases, a single proven leader at the helm can be the best guarantor of stability, performance, and the ability to manage tough shareholders.

Striking the right balance

The debate, therefore, should not be about enforcing a rigid, one-size-fits-all rule. For banks and systemically important institutions, the separation is unequivocally critical and must be non-negotiable. For companies with concentrated ownership, the focus must shift to ensuring robust governance safeguards if both roles are combined. This means appointing strong, independent directors with a genuine voice, establishing effective board committees (audit, nomination, and remuneration), and adhering to transparent disclosure practices. The goal is to replicate the checks and balances that a separate Chairman would provide.

A pragmatic approach could involve:

• Time-bound separation requirements post-listing or based on thresholds of market capitalisation and/or shareholder equity.
• Incentives for voluntary adoption, such as corporate income tax benefits or expanded caps on board composition.
• Mandatory executive director classifications of non-independent directors with specific ultimate beneficial ownership (UBO) characteristics, to avoid workarounds that undermine governance intent.

Ultimately, good corporate governance is about building and maintaining trust. The right structure—whether through a formal separation of roles or strong safeguards around a combined role—is the one that best sustains investor confidence. As Sri Lanka seeks to attract greater international investment, aligning with global governance standards is imperative, making Jafferjee’s call for discussion both timely and essential.

References: 

• Cadbury Report (1992): Foundational corporate governance report recommending separation of Chairman and CEO roles to avoid excessive concentration of power.
• UK Corporate Governance Code (2024): Reinforces the principle that the Chairman and CEO roles should be distinct to ensure effective board oversight.
• Deloitte/Society for Corporate Governance (2024): Surveyed 100+ public companies; recommended role separation or appointment of a strong lead independent director.