Executive Leadership Structure in China and Russia

According to the study of the data received from Russian and Chinese public companies, which formed the basis of the research titled “Executive leadership structure in China and Russia”, there are still a number of issues regarding executive leadership structure at modern corporations in China and Russia. On one side there is sometimes a need to delegate the authority of Chairman to the CEO, who is usually responsible for operational management, but on the other side, such duality can reduce the quality of corporate governance.

The research draws parallels with the current state of executive leadership structure at firms in developed market economies of USA and UK. In comparison it covers three main issues that are of particular interest nowadays:

• Whether the listed firms in China and Russia have the CEO and Board Chair positions separate or combined;
• The demographic characteristics of their CEOs and board chairs;
• The implications for strategic decision making and corporate governance.

To analyze executive leadership structure in Russia and China SIEMS had examined more than 120 public companies both in Russia and China, represented on major stock exchanges of the countries - Shenzhen Stock Exchange (SZSE), Shanghai Stock Exchange (SHSE) in China and Moscow Interbank Currency Exchange (MICEX) and The Russian Trading System (RTS) in Russia.

Some of key findings of the research are summarized below.

• CEO of most (about 80%) publicly traded corporations in the United States still hold the board chair position. Even when there is a separate board chair, it often happens in the context of CEO succession in which the outgoing CEO/board chair keeps the board chair title while giving the CEO title to the successor. Unlike most U.S. corporations in which the CEO holds the board chair position, most listed firms in China have the CEO and the board chair positions separated. By the end of year 2008, 90% of the listed firms have a separate board chairperson. But what is significantly important to mention, there is an increase in the percentage of firms that have their CEO simultaneously serve as the board chair.
• Among the factors that can impact on executive leadership structure of Chinese companies are the size of the company and the ownership by the state. There is also a significant difference in firm revenue and the level of state ownership between firms that adopt CEO duality and those that do not.
• Similar to China, most listed firms in Russia have the CEO and the board chair positions separated. Among the surveyed 125 firms, 93% of them have a separate chairperson of the board. What is different from listed firms in China is that most board chairs at the listed firms in Russia are not full-time inside employees, but outside overseers who serve on a part-time basis. What is different from listed firms in China is that most board chairs at the listed firms in Russia are not full-time inside employees, but outside overseers who serve on a part-time basis.
• One reason for the current executive leadership structure in Russia is probably the lack of candidates who are more qualified to serve as board chairs.

As an emerging market economy with a short history, Russia does not have a large pool of retired CEOs or senior executives who understand market competition and corporate governance. And, this situation will not change soon. In search of an alternative, Russia may consider China’s experience. Having a current government bureaucrat or CEO as the board chair potentially weakens the CEO’s authority without having a positive impact on corporate governance, Russian firms should consider consolidating the CEO’s power by bestowing him the board chair position.

As it’s reported in the research, executive leadership structure in Russia can create conflicts between the CEO and the board chair. One of the reasons for UK and US firms to have a retired CEO as the board chair is that it helps develop an effective working relationship between the CEO and the board chair. Because of their shared corporate backgrounds, the CEO and the board chair can develop mutual respect for each other more easily.

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