11.4.5.3 Preconditions building block

The prohibition of CEO duality mitigates the effects of impartial leadership. An independent chairman next to the CEO strengthens the independence of the board, because a CEO who is also chairman can influence independent NEDs more than a chairman without CEO tasks. The separate chairman can counterbalance a CEO who aims to pursue his own ideas. A second-best option would be the appointment of an independent lead director to chair the meetings (O’Connor 2003: 1303). The prohibition of CEO duality is also effective in the provocative situational context. In these situations the leader of the group would do better not to have the upper hand in decision-making. Such strong leaders can lead to groupthink in a situation of stress from external threats and therefore the balance in the decision-making group, the board, must be preserved. No CEO duality is preferable in that case. All three countries in this study prohibit CEO duality. The Dutch dual board structure cannot have CEO duality, but the Dutch unitary board structure is not allowed to have it either. The Netherlands and Sweden have both included this prohibition in the law as well as the corporate governance code. In the United Kingdom it is only recommended to have a separate CEO and chairman, but the law does not prohibit it. However, only a small number of companies – two of the 150 largest companies – in the United Kingdom have combined their CEO and chairman positions.

The periodic evaluation of the board addresses the antecedent of structural faults in the organisation. However, O’Connor adds that self-evaluation in small groups might not lead to the desired transparency and outcomes, because it has a negative influence on the peer group and can create hierarchy (O’Connor 2003: 1301-1302). External evaluation might be a solution to address this issue. Only the United Kingdom requires such an external evaluation every three years. The Netherlands and Sweden do require annual evaluations, but have not included provisions in their corporate governance codes with respect to external evaluations.

The banning of related party transactions for management or executive directors will help to avoid impartial leadership. A CEO or executive directors with other interests than only the interest of the company are more likely to try to influence NEDs (O’Connor 2003: 1303). These related party transactions are covered by legislation about conflicts of interest in the United Kingdom, the Netherlands as well as Sweden. These related party transactions are currently the subject of discussion. The OECD (2012) has published a review of related party transactions among all jurisdictions of its members and the European Commission’s Green Paper also addresses related party transactions (European Commission 2011: 17).

External threats and the risk of low self-esteem are more difficult to address with measures in the organisation. However, by implementing other measures that decrease the probability of groupthink, the remaining risks of groupthink have less impact. The most difficult antecedent of structural faults in the organisation to address is group insulation. Group insulation arises from confidentiality requirements during takeovers or other important situations that have to be kept secret from the outside world. The only remedy would be to disclose the policy under discussion to more people, but that would be a breach of confidentiality.