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Separating the Roles of Chairman and CEO: A Model of Leadership and Authority

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  • Illoong Kwon

Abstract

This paper provides a simple model of authority and leadership to discuss the issue of splitting the roles of CEO and Chairman. The board has the formal authority, but can delegate the leadership to the CEO by providing the title of chairman to the CEO. The paper shows that the optimal leadership structure differs depending on the board's independence. However, once we endogenize the board's indepence and the CEO's type, there exists a unique equilibrium where the board chooses the maximum independence without splitting the titles. The paper also considers the CEO's possible resistance and the agency problem with the board.

Suggested Citation

  • Illoong Kwon, 2008. "Separating the Roles of Chairman and CEO: A Model of Leadership and Authority," Discussion Papers 08-06, University at Albany, SUNY, Department of Economics.
  • Handle: RePEc:nya:albaec:08-06
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    File URL: http://www.albany.edu/economics/research/workingp/2008/Leadership.pdf
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    References listed on IDEAS

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    1. van Damme, Eric & Hurkens, Sjaak, 2004. "Endogenous price leadership," Games and Economic Behavior, Elsevier, vol. 47(2), pages 404-420, May.
    2. Hermalin, Benjamin E & Weisbach, Michael S, 1998. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," American Economic Review, American Economic Association, pages 96-118.
    3. repec:ner:ucllon:http://discovery.ucl.ac.uk/17678/ is not listed on IDEAS
    4. Giovanni Maggi, 1996. "Endogenous Leadership in a New Market," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 641-659, Winter.
    5. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    6. Brickley, James A. & Coles, Jeffrey L. & Jarrell, Gregg, 1997. "Leadership structure: Separating the CEO and Chairman of the Board," Journal of Corporate Finance, Elsevier, vol. 3(3), pages 189-220, June.
    7. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1999. "Informal Authority in Organizations," Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 56-73, April.
    8. Pi, Lynn & Timme, Stephen G., 1993. "Corporate control and bank efficiency," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 515-530, April.
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