Should a CEO that retires or otherwise steps down from his or her position remain on the board as Chair or, as seems to be a recent trend, even as Executive Chair? That’s the question discussed in this article from Fortune. Probably, we can all think of examples of former CEOs who, for one reason or another, don’t entirely cut their ties, and instead become board members or executive chairs. Sometimes it’s strictly to assist in the transition on a short-term basis; sometimes it’s because stepping away created a “psychological crisis” for the former top dog: “They’re leaving behind power, fame, income, even their identity—as one ex-CEO put it, ‘You’re going from Who’s Who to who’s he?’” In any event, suggested the author, it’s typically a call for the board to make, taking into account this question: will the appointment be for the benefit of the shareholders or the former CEO?

The article notes that the transition issue has become more acute in light of the relatively high rate of CEO turnovers recently: “January set a new record for CEO departures in a single month—just as 2019 did for departures in a year—1,600 of them.” But some governance gurus cited in the article consider making the transition to executive chair a “bad idea.” According to one governance expert, the position of executive chair really “means you’re CEO….The person with the CEO title is really the chief operating officer.” Another expert observed that a good CEO will see that it’s “not fair to the new person.” Another academic called it “a stupid idea. All kinds of psychological factors get in the way. Maybe the new CEO owes his or her job to the predecessor. Or maybe the new CEO can’t stand the previous one. Maybe the old CEO brought all the other directors onto the board, and they feel loyal to him or her. It obstructs the new CEO from doing his or her job.” Another problem highlighted was the difficulty for the new CEO to change course or raise issues about the former CEO’s decisions when the former CEO is still in the room. Awkward, at a minimum.

However, for a brief time, retaining the CEO on the board or as a special consultant to provide continuity could be helpful. According to this paper in the Journal of Accounting Research, companies may benefit from retaining the CEO on the board, because “former CEOs possess unique monitoring and advising abilities, but the former CEO could also exploit available decision rights for personal benefit… We find that when prior firm performance is better, the former CEO is more likely to be retained on the board (Retention Light) than to exit the firm. However, this relation is weaker when the CEO reaches normal retirement age at which time CEO power becomes more important…. Retention Light firms are more likely than CEO‐exit firms to select a successor CEO with relatively weaker bargaining power.”

In addition, the authors found that, where the former CEO on the board is not a founder, keeping the CEO on the board “is negatively associated with the firm’s post-turnover financial performance.” Where the former CEO was a founder, the Fortune article reports, there was no significant impact on stock performance. If a founder has been heavily involved in the company, one of governance commentators noted, “it makes sense for the founder to remain on the board for a period of time. The value of the founder is very high, and the value to the founder is very high.” That’s especially the case where the founder’s fortunes are still in the company. However, according to Fortune, even where a founder is involved, the results have been mixed, with performance ranging “from awesome to awful.”