Leadership Structure andCorporate Governance in Switzerland

The question of whether the CEO should also serve as chairman of the board is one of themost hotly debated issues in the recent corporate governance discussion. While agencytheoreticarguments advocate a separation of decision and control functions, the empiricalevidence focusing on U.S. companies is not conclusive. In this context evidence from acountry with a different practice of CEO succession may provide important new insightswith respect to the question of whether one leadership structure should generally be preferredto the other one. This article fills this gap by investigating the valuation effects ofleadership structure in Switzerland where – in contrast to the U.S. – a separation of theCEO and chairman functions is common.Consistent with the majority of prior research focusing on the U.S., the authors found noevidence of a systematic and significant difference in valuation between firms with combinedand firms with separated functions. They also investigated whether leadership structureis related to firm-level corporate governance characteristics and found a similar curvilinearrelationship between leadership structure and managerial shareholdings as is observedbetween firm value and managerial shareholdings. An implication is that possibleagency costs associated with a combined function are mitigated by a higher incentivealignment of the CEO/chairman through an adequate level of managerial shareholdings.Over the last few years corporate governance became an important investment criterion,which is for example reflected in the emergence of various corporate governance ratings.The authors of this article additionally investigated whether firm value is significantly relatedto firm level corporate governance as measured by a broad survey-based index for arepresentative sample of Swiss firms. They documented a positive and significant relationshipbetween the corporate governance index and firm valuation. This finding is robust tocontrolling for a series of additional governance mechanisms related to ownership