Professional Documents
Culture Documents
Research Methodology
Assignment
MBA Part Time
Yousef Hamad
2
Literature Review .............................................................................................................................. 26
Research Design ................................................................................................................................ 26
Research Strategy .............................................................................................................................. 26
Date and Information ........................................................................................................................ 27
Research Methods ............................................................................................................................. 28
Sampling Plan .................................................................................................................................... 29
Stratified-Sampling Method ........................................................................................................... 29
Procedure.......................................................................................................................................... 30
Analysis ............................................................................................................................................. 30
Report ............................................................................................................................................... 30
Conclusion/Recommendations .......................................................................................................... 30
7. Ethical Considerations.................................................................................................................... 31
8. Outcomes ...................................................................................................................................... 32
9. Gantt-Chart ................................................................................................................................... 32
10. References ................................................................................................................................. 33
11. Bibliography............................................................................................................................... 35
12. Appendixes ................................................................................................................................ 37
Appendix-1 Corruption Index ............................................................................................................. 37
Appendix-2 UK-Model versus US-Model ............................................................................................ 38
3
EXECUTIVE SUMMARY
Libyan Sovereign Fund LSF leads its subsidiaries and affiliates with lack of control and poor
Corporate-Governance system- the situation which stimulates the subsidiaries’ leaders
(chairman/CEO) to use their leverage excessively/incorrectly for their interest rather than that of
the shareholder. This sloppy situation with loose system helps to fraud, maximizes operating
costs, reduces performance thus increases the losses. Indeed some enterprises jeopardized and
liquidated.
Considering the new Libya’s regime significant dues, LSF embarked on an aspirant blueprint of
strengthening its institutions, valuing assets, and reforming the investment-sector to achieve the
overall mission and vision. Having effective Corporate-Governance processes is one of the
blueprint milestones. LSF aims to start with restructuring the subsidiaries’ leaderships by
applying one of the most dominant frameworks that supported mainly by the British Cadbury
Code, in-other-words “Separating the Chairman and CEO positions leads to effective/efficient
leadership hence better performance”.
Considering the relevant literature and relatively recent researchers’ contributions, this proposal
will investigate the UK-model and compare it with its opponent: the US-model which combines
the two roles.
Board (BoD) is the ultimate governing authority within the corporate-structure that
protects/represents the shareholders’ interests. Regardless the leadership-structure, either
separation or combination, shareholders elect BoD to overlook the business results and build
long-term value.
Although several organisations in different countries switched to the splitting approach, there are
still debates/arguments emerged as to which board-structure is better for better organisational
value. The reason behind such switching is not necessarily due to model effectiveness. It could
be legislation reasons as with the UK-framework which is not the case with the US-framework.
With the continual debate, there is no clear-cut evidence of optimal leadership-structure that suits
all organisations. There are other factors impact such structure thus the corporate performance
and value.
4
1. TITLE AND INTRODUCTION
Title
Does splitting the Board Chairman and the CEO roles improve the performance?
Introduction
The author had worked for the Oil&Gas sector for about twenty years before he joined the
Libyan Sovereign Fund (anonymous: LSF) in 2011 where he held different leadership positions
such as board of directors (BoD) chairman, director, and manager. As a chairman of a holding
investment company, he has been requested to contribute to reforming/restructuring the sector
and present a research-proposal to LSF CEO.
Investment Industry
The state-owned investment sector mainly aims to promote and maximize the nation revenue
surpluses to (i) diversify non-oil economy, (ii) create wealth source for future generations, (iii)
motivate the Libyan economy via transformational-private enterprises creating joint-ventures
with international expertise and transferring knowledge, and (iv) secure stability against Libya’s
budget-shortfalls and volatile Oil&Gas revenues. This industry is led by LSF which is part of the
governmental-structure and reports directly to the Board-of-Trustees chaired by the Prime-
Minister.
Having an elected parliament for the first time since the early sixties of last century (after
Gaddafi’s dictatorship) and due to high corruption level in Libya (ranked 172/177, see
Appendix-1), the government is obliged to apply the transparency in all sectors including the
investment and rely on information-disclosure and corporate-control, ultimately for better
performance and higher return-on-investment. This led to assign new board and executives for
LSF in 2013 to start restructuring the sector.
LSF Overview
LSF had been established in 2006 as an investment fund independent on the other major state-
owned players before the previous regime government released the Investment Law-13 in 2010
to regulate the sector. Apart from direct investments, this law enhances LSF to own other five
5
major investment subsidiaries (funds, portfolios and firms) which are in turn holding and sharing
national and international enterprises in different countries and industries, for instance finance,
Oil&Gas, hotels, ICT, agriculture and mining. Each subsidiary has different leadership-structure
stems from its Article-of-Association (AoA).
The problem
Ideally, in order to improve performance thus generating high return-on-investment, LSF needs
to have effective Corporate-Governance processes apart from other key steps. LSF should apply
control/monitor over the structure of its entire chain of subsidiaries those should operate at lower
costs and higher performance with no corruption. This requires having the right leadership-
structure.
Right now, LSF leads its subsidiaries and affiliates with lack of control and ineffective
Corporate-Governance system. Consequently, the subsidiaries’ leaders (chairman/CEO)
stimulated to grab/grasp more power and use it excessively/incorrectly (One-Man-Show). For
example, targeting extra remunerations, they fabricate missions and nominate themselves non-
executive chairmen and directors for the most valuable enterprises putting-on two hats
simultaneously: BoD hat and shareholder hat against the governance principles. Additionally,
many subsidiaries/affiliates suffer from not conducting the annual General-Assembly-Meeting
(Shareholders meeting). This sloppy situation with loose system helps to fraud, maximizes
operating costs, reduces performance thus increases the losses. Actually some projects
jeopardized and liquidated.
Unless LSF takes serious steps towards adopting a programme to overcome these problems,
monitoring/governing the existing complicated-chain of interrelated firms/enterprises are almost
mission-impossible thus more investments become bankrupt.
This work proposes to start with restructuring the subsidiaries’ leaderships by applying one of
the most dominant frameworks that supported mainly by the British Cadbury Code, in-other-
words “Separating the Chairman and CEO positions leads to effective/efficient leadership hence
better performance”. Considering the relevant literature and relatively recent researchers’
contributions, this UK-model will be investigated and compared to its opponent: the US-model
which combines the two roles.
6
2. RATIONALITY
Considering the new Libya’s regime significant dues, LSF embarked on an aspirant blueprint of
strengthening its institutions, valuing assets, and reforming the sector to achieve the overall
mission and vision. Having effective Corporate-Governance processes is one of the blueprint
milestones.
3. RESEARCH QUESTION
Does splitting the Chairman and CEO jobs lead to effective/efficient leadership hence better
performance?
Components
This research proposal fundamentally aims to attain meaningful contextually pertinent answer to
the above questions which must now be converted into measurable objectives.
7
4. RESEARCH OBJECTIVES AND FRAMEWORK
Conceptual Framework
This matrix represents the framework that would drive the design of the research
proposal. This framework is relevant to fulfilling the research objectives, looking for
time and cost efficiencies, and resourcing adequacy. It is an effective model to for
managing this project.
8
5. LITERATURE REVIEW
9
10
Concept Roadmap
11
Roadmap
12
Introduction
This literature-review attempts to find an answer whether or not “Splitting the Chairman and
CEO roles leads to effective/efficient leadership hence better performance” by delving into two
prevalent leadership-structures (dual and independent roles) those are widely used now-a-days in
the most of companies over the universe. This is important for reforming the
subsidiaries/affiliates.
A numerous of Cods and Reports have been applied in this literature-review to corporate-
governance including leadership-structure, for instance but not limited to (Financial Reporting
Council, 2012), (Higgs Report, 2003), (CalPERS, 1998), (London-Stock-Exchange Committee
on Corporate-Governance, 1998), (Greenbury, 1995), (Cadbury, 1992), (Sarbanes-Oxley Act of
2002 Public Law 107-204, 107th Congress).
Corporate-Governance
13
Board/Leadership Structure
Board (BoD) is the ultimate governing authority within the corporate-structure that
protects/represents the shareholders’ interests. BoD has two predominant structures either
splitting or combining the chairperson and CEO positions. Regardless the structure, shareholders
elect BoD to overlook the business results and build long-term value. (Tsamenyi and Uddin,
2008; Diamond, 2005)
Baker (2008) asserted that often the crises are caused by inadequate corporate-governance; in-
other-words, business leadership and corporate-governance among other reasons were the causes
of the credit bubble.
The Debate
Splitting the chairman and CEO roles has been a big debate of plenty governance activist and
shareholders. The separation practice is prevalent in the UK and elsewhere, whilst the opposite is
in the US where the combination approach is more common.
Additionally, BoD is mandated to protect/promote the owners’ interest those who deem applying
monitoring/control is costly. According to the empirical-literature, the BoD effective monitoring
depends on three key elements: BoD size, independence (both well-promoted by theoretical-
literature), and leadership-structure which is a debatable corporate-governance topic whether
splitting or combining the two positions fulfills high-performance.
14
There are two contradictory theories
theo represent this argument:
Agency-theory
theory Organisational
Organisational-theory
Developed by Jensen and Meckling (1976) It believes that a firm’s high-performance
high is
which advocates the separation between achievable only if the CEO is fully authorized
finance and management (agent) where the with obvious and unchallenged role
firm’s leadership-structure
structure diminishes the (combined/duality role),, e.g. US-Model.
US
agent (manager) cost, e.g.. UK-Model.
UK
UK-Model Advocates
Cadbury (1992), Higgs (2003) and others support this approach. British corporate
corporate-governance
key aspect is “A
A single board collectively responsible for the sustainable success of the
company” (FRC, 2012 p.2).
15
Davis (2009) claimed that leading BoD by non-executive chairman is a powerful answer to the
performance aspects influencing plenty American corporations. He concluded that the
independent roles have demonstrated that the framework successfully functions in the North-
American context.
Hodgson and Ruel (2012) argued that Chairman and CEO are the most bossy/authoritative
positions in a company’s boardroom. Combining both into one role led by an individual causes
no power balance where the CEO monitors himself/herself reflecting a clear conflict of interest.
Combination, at initial glance, does not make sense because it looks like wolf guarding sheep-
house (Lorsch and Zelleke, 2005). CEO in the US-model usurps the BoD power, leaving it
enfeebled with just nominal roles (Clarke, 2007).
Hodgson and Ruel (2012) went on: if the CEO key-role is to run the firm, while that of the board
is to watch the CEO performance/decisions in the shareholders sake, how such board effectively
monitors the CEO who is also the board chairman? GMI Ratings1 data analysis proposes that
more practical considerations would enhance the splitting approach. Moreover, a combined
chairman/CEO cost is 60% higher than the total cost of chairman and separate CEO.
Combination has higher environmental, social, accounting and governance risks, and low return
on investment on-the-long-run. It also scores far worse on AGR Ratings2 those tests financial-
statements and fraud.
16
Furthermore, Baker (2008) claimed that the US combined legislatively-based model is deemed
more costly and less flexible than the UK-model. The American corporate-governance is no
longer the emulated gold-standard worldwide though American corporations keep dominating
many significant fields of the global economy. He claimed though that establishing a vigorous
dialogue between the shareholders and the BoD for the UK-model is significant without which
there are risks of having deficient corporate-governance; hence imposing government to divert
the responsibility of applying corporate-governance form shareholders to regulators- the issue
that makes the UK-framework less flexible thus incurs additional compliance costs. He also
posited that the UK has introduced -over fifteen years- a discerning corporate-governance.
Revolving around the comply-or-explain principle and Combined-Code, there is an increasing
favor universally among policy makers for this framework due to its ability of promoting high
governance standards without choking the wealth generation process. Additionally, Carapeto et
al. (2005) used a sample of 250 British companies to evaluate the decision of
combination/separation. They inferred that the separation is greeted with
important/positive/abnormal returns (but negative with the combination) which are substantially
linked to different measures of agency-cost. However, they observed nor robust over-
performance from the separation-approach neither underperformance from the combination-
approach.
In other context, Nowland (2008) concluded from his study to number of East-Asian firms have
direct proof that implementing Western splitting board practices has many advantages, and
found-out that separating roles, auditing, committees nomination, and improving board
governance have positive relationship with relevant operating performance.
However, Dedman and Lin (2002) found sold links between separation and poor performance.
US-Model Advocates
17
Moreover, Lorsch and Zelleke (2005) posited that more than fifty American and British board
directors have been interviewed in major public firms in both countries where concluded that the
UK-framework
framework is not the panacea as its proponents signify.
signify. This is not to state that the arising
consensus that American boards want autonomous leadership is incorrect, but there are
characteristic drawbacks with the separation-approach
separation approach to attain such leadership which means not
necessarily the British-framew
framework
ork has clear improvement over the American.
Yet, the following graph weighs the separation in America versus other countries in 2003.
Kristie (2010) cited that upon being named chairman, Ed Whitacre Jr. said “I
“ don’t know how to
be a chairman and not a CEO”
CEO to top General-Motors’
Motors’ executives in 2009 and he disbanded that
dilemma later in 2010 by adding CEO title.
18
Influential-Factors
Many contributors/researchers linked the decision of adopting either framework to vital factors
described hereinafter.
A panel of about twenty business and governance leaders took place at the University of
Delaware, USA in 2009 to discuss the pros-and-cons of the splitting-approach. The discussion -
with diverse opinions- has deeply explored the separation advantages, concluding that there will
be opportunities of diminishing the two top roles which same person holds at the US
corporations. Nevertheless, the separation should not happen while someone handles both
positions but factorized into the sequential planning process. Although the panel-consensus that
the separation is a meritorious idea, no one believes in mandating/enforcing the separation by
judicial order and/or government-statute. (Kristie, 2010)
In any case the corporate-governance system should consider the management efficiency and
stewardship (Keasey et al. 2005).
Furthermore, Chandler3 asserted that, as Kristie (2010) cited, selecting the right candidate to fill
the split position is vital, as any clash/conflict between the chairperson and CEO can create lots
of difficulties. He added that identifying/choosing the best candidates to be the chairpersons will
depend on their attributes, e.g. skills/experiences, and availability which is competent to deliver
the chairperson position in different organizations that would avail of the segregation.
19
Deloitte (2012) asserted that the debate of combining/splitting the two positions will probably
persist. Despite S&P-500 majority firms apply combination-model, there is a clearly-notable
increase in switching to the separation-model.
However, it is mostly agreed that the leadership-structure selection depends on the company’s
perspective and circumstances; no particular approach could serve all organisations in all
situations/circumstances (Deloitte, 2012; Tonello, 2011).
Furthermore, Leighton and Herrndorf (2002) believed that the roles clarity, good
communication, BoD support and reciprocal respect between both heads are key factors in
functioning the splitting approach. Organisational-performance is eventually the BoD
responsibility which is –if strong- deemed incalculable asset, while –if weak- deemed recipe for
disaster. They asserted that BoD members’ selection is crucial to effective governance so
creating congruence. They are against combining the two positions unless there are
unusual/critical situations. There must be a clear distinguish between the roles in-a-way that both
feel engaged in the operations and share the success. Clarke (2007) raised an important issue:
despite the various corporate-governance principles that elaborate the BoD roles, they do not
explain how to arrange/manage the relationship between BoD and CEO to avoid any interference
with their roles.
Tribbett (2012) argued that the US-framework was historically weighing, whereas currently the
UK- framework is the strong trend, but carful weighing is needed for the organisation. As the
leadership-structure and performance relationship is concerned, Tonello (2011) claimed that
there is an unsteady Academic-Literature, and even the separation-approach is not decisive. He
cited three studies:
1. Baliga et al. (1996) They found weak proof that combination influences the performance
on the long run, after controlling different elements which may
affect the performance.
2. Bennington (2010) He summarized there is no statistical link between splitting-approach
and company’s performance.
3. Dalton et al. (2007) They concluded no substantive evidence of systemic relation
between leadership-structure and financial-performance.
20
Carapeto et al. (2005) and Franks et al. (2001) emphasized the solid correlation between poor
organisational-performance and BoD turnover where leaders/directors have high leverage in
British firms.
Critique
Although several organisations in different countries switched to splitting approach, there are
still debates/arguments emerged as to which board-structure is better for better organisational-
performance. See Appendix-2 for comparison between the two models.
The reason behind such switching is not necessarily due to model effectiveness. It could be
legislation reasons as with the UK-framework which is not the case with the US-framework.
With the above continual debate, there is no clear-cut evidence of optimal leadership-structure
that suits all organisations.
Apart from the potential research, the author recommends that further attention should be paid to
some serious board/leadership issues those generally weaken boards, disrupt the business and
can lead subsidiary/affiliate to bankruptcy:
1. Many directors hold numerous memberships within several organisations for the sake of
more money from board compensations.
2. Some shareholders’ representatives and BoDs ignore conducting the assembly meetings.
3. Some shareholders’ representatives select poor external auditors.
4. Some chairman’s and CEOs utilize their leverage in appointing themselves non-executive
chairmen for subsidiaries, being shareholder representative and board director in the same
time, breaking the corporate-governance fundamentals.
5. Many Some shareholders’ representatives and chairpersons do not adhere to the subsidiary
AoA in terms of the directors’ number within the board.
21
Conclusion
According to this literature-review, each approach has its own pros-and-cons with no compelling
argument for separation or combination; hence none of them is a perfect/ideal solution for
effective/efficient leadership and effective governance. But, there are vital factors those should
be considered with either structure/framework such as the director/leader experience/skills,
relationship/dialog between chairman and CEO, company circumstances/context, management
stewardship, and director leverage.
Even though, with the lack of law regulates the corporate-governance including leadership-
structure, the sector reformation has no meaning.
22
References
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of a Financial Crisis, London, Corporate Governance, Institute of Directors.
2. Brickley, J.A., J.L. Coles, and G. Jarrell, 1997, Leadership structure: Separating the CEO and
Chairman of the Board, Journal of Corporate Finance 3(3), 189-220.
3. Cadbury, A. (1992). Report of the Committee on the Financial Aspects of Corporate
Governance. 1st ed. London: Gee.
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[Accessed 16 Aug. 2014].Clarke, T. (2007). International corporate governance. 1st ed.
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Much Ado about Nothing?” (Aug, 1997). The Academy of Management Executive
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Performance, Yale School of Management
7. Davis, S. and Lukomnik, J. (2011). More Boards Splitting the Chairman and CEO
Roles. Compliance Week, 8(91), pp.48-49.
8. Dedman, E. and Lin, S. (2002). Shareholder wealth effects of CEO departures: evidence from
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West Sussex, England: Wiley.
23
16. Kristie J. (2010), The Great Divide makes for a great debate, [online]
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25
6. RESEARCH METHODOLOGY AND DESIGN
Title/Introduction
Does splitting leadership-roles improve performance?
Problem Definition
LSF leads its subsidiaries/affiliates with lack of control/governance which affects negatively the
performance.
Research Question
Research Objectives
Literature Review
Exhibiting the researches/debates about the American and British frameworks of leadership-
structure and their impact on cost and performance.
Research Design
As there is no solid-clue to follow or theory to validate/apply, the research will use the
exploratory/inductive approach to investigate the problem and provide relevant insights and
empirical and literary evidences. Data will be collected and analyzed sorting-out patterns and
drawing on them in developing a theory that enables choosing between US/UK frameworks.
Research Strategy
26
Date and Information
Although the research is exploratory that deals with qualitative-data, in some narrow situations
quantitative-research is needed to verify the latter qualitative-research (Course-Manual).
The following table lists the different data types and sources.
27
Research Methods
Research method means a technique to gather data involving particular instrument (Bryman and
Bell, 2011).
The job will start first with Literature-research where there are many researches about
leadership-structure and its relationships with cost and performance, and collecting data from the
target firms’ archives and other secondary sources. This saves time and cost, as researcher works
from almost one place (archive). However he/she may move to the targeted organisations in
Libya which still does not consume much time and money.
In case archived/secondary data are not sufficient to answer the research-question, suitable
primary-research methods are used. Leader-interviews/deep-interviews will take place which
help in realizing the reasons behind the problem. Using questionnaire, face-to-face interview is
conducted for leaders in Libya, while those are overseas can be interviewed by phone. Focused-
group of employees in Libya may also be directly interviewed depending on the outcomes of the
latter techniques, ditto for overseas focused-groups but online.
Just in case, researcher can travel abroad to check subsidiaries/affiliates’ in-house archive, make
personal interviews using questionnaire, and perhaps interview focused-group of employees.
28
Sampling Plan
One of the ways to execute the exploratory-research is the literature-research (Saunders et al.,
2009) under which many researchers undertook studies/surveys on numerous of international
organisations about their leadership-structures. For this reason, author does not see any necessity
to research international companies, as this needs big arrangement and resources, also obtaining
their primary data could be a pain because of, for instance data-protection. Accordingly, the
sampling will concentrate on selecting organisations from three main sectors:
Sampling-frame: the target people in each target organisation are leaders, managers and
employees. This frame will be stratified into groups using Stratified-Sampling Method.
Stratified-Sampling Method
It is a modified method of random-sampling where the above frame divided into three strata
based on number of features e.g. power/responsibility degree. Sample is randomly drawn from
each strata using random-sampling approach (Saunders et al., 2009).
29
Same approach is applied for dividing the target organisations into four groups:
Size
Strata Frame Fractions Notes
(No.)
1 Subsidiaries/Affiliat From the author’s knowledge and
65% -
es using UK-Model experience, 65% of the investment
2 Subsidiaries/Affiliat subsidiaries/affiliates are reasonable
es using US-Model size, as the rest is small
65% -
firms/enterprises and researching
them is infeasible.
3 Banks Nine banks are the major banks in
Libya those have several
- 9
commonalities with the investment
companies.
4 Oil&Gas companies Fourteen Oil&Gas companies are the
major operators using rigor
- 14 governance system and perform well-
the sector which is usual benchmark
in Libya.
Procedure
Analysis
EDA method will be used in analyzing the exploratory-data (Behrens, 1997), and NVivo
(Bryman and Bell, 2011).
Report
Set of information is emerged from the data analysis organized in logical flow that interests the
reader.
Conclusion/Recommendations
30
7. ETHICAL CONSIDERATIONS
Several ethical-issues burst along the research journey which could lead into
dilemmas/challenges that complicate the process such as those listed in the right part of the table.
Those issues –if ignored- could also lead to breaking the research ethics. This proposal will
accommodate the ethical-principles assuring the points in the left part of the table.
31
8. OUTCOMES
9. GANTT-CHART
32
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12. APPENDIXES
37
Appendix-2 UK-Model versus US-Model
38