CEOs Who Remain Chairmen Are Bad for Business

Carnival (NYSE: CCL  ) CEO Micky Arison is stepping down as CEO but remaining as chairman. He also owns around a third of the outstanding shares, because this is a family firm. After the company's serious missteps this year and last, with the sinking of the Costa Concordia and the stranding of the inaptly named Carnival Triumph, I wouldn't want to be CEO either. But in the press release announcing the change Arison is quoted as saying: "As chairman, I will still be working closely with Arnold to ensure a great future for all our stakeholders."

"Arnold" is Arnold W. Donald, a director of the Carnival board since 2001. Donald is former CEO of Merisant, which makes Equal and Canderel sweeteners. He also worked for Monsanto in senior positions and is currently on the boards of Bank of America, Crown Holdings, and the Laclede Group. At four boards, I'd have said he was overboarded anyway, but with three and a CEO position, Carnival shareholders should expect him to step off at least two, if not all, of the others.

That is, at least until he steps down from Carnival's CEO position because Arison won't hand over control.

Occidental presented a similarly disastrous profile

That isn't an absolutely definite outcome of this kind of succession planning, but it is more than likely, given the evidence from previous situations of this kind.

Probably the latest example of a disastrous succession plan like this can be found at Occidental Petroleum (NYSE: OXY  ) where, after much controversy surrounding his excessive compensation, Ray Irani stepped down as CEO in 2010, but remained as chairman and continued to be paid more than the next CEO Stephen Chazen.

There followed much confusion as to who was actually in charge, such that the board had to make special announcements about it. Then, although there were apparently no differences of opinion with the board, it was announced that Chazen was staying only until the end of 2014, when Irani was also slated to retire.

The press release had this about Chazen's planned departure: "In regard to recent press articles and inaccurate speculation, the independent directors reiterate that there is no "fight at the top." Which, of course, made everyone think even more so that there was.

It continued: "The decision was unanimous. These deliberations did not involve or consider any change in the company's business strategy or long-term goals. There were no schisms, nor philosophical divisions in the directors' decision."

Dr. Irani confirmed, "There should be no lingering question about my future plans here at Oxy. I will retire as Executive Chairman and as a member of the Board at the end of 2014."

The shareholders disagreed, and voted Irani out at the next annual meeting, precipitating his resignation by more than a year and a half. Occidental's share price did not do well during this period of unrest and has underperformed the rest of the oil majors during this time.

Carnival's CEO pay not of the best

To return to Carnival, Donald's pay, detailed here, looks slightly higher than Arison's was (salary $1 million compared to Arison's $906,400, although the target and maximum cash bonuses look similar). This would seem to put him in the senior position, so that at least sends some positive message.

But given he is a current board member, I find it hard to see any justification for the fixed bonus in 2013 of $1,125,000, especially in a year that has already seen one disaster. Apart from that, everything else is much the same. The cash bonus continues to be determined according to a single performance metric – operating income – which could potentially lead to too much attention on that one target. And, apart from the one-time hiring share bonus for Donald, the majority of equity incentives continue to be based on service rather than performance.

Given that Donald was the chairman of the compensation committee, I can't see any of this changing or improving any time soon, either.

The stock price, significantly depressed since the highs of late 2010, has been basically flat since the appointment, which could mean any number of things, but probably means that the market hasn't made up its mind yet.

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