A recent study found that five-quarters of S&P 500 companies split the roles of chairman and CEO. With the rate of CEO turnover soaring, boards are looking to create new leadership models to improve their companies’ leadership. The new approach is proving to be an effective one.
Splitting the roles of CEO and chairman of Caterpillar may be a good idea. Caterpillar is an industrial company with a strong balance sheet, with $6.764 billion in cash as of June 30, 2016. The company has also dramatically increased its commitment to cutting costs and lowering owning and operating costs. CEO Jim Umpleby has a long history with the company, and he has plenty of experience running the company. In addition, the company is still investing heavily in R&D and focusing on connected fleets and automated machinery. However, the revenue is down 40% from its peak to the trough.
After Doug Oberhelman announced his plans to step down as CEO and executive chairman earlier than expected, the board of directors at Caterpillar decided to split the roles. The company has been struggling to recover from years of falling sales due to ill-timed bets on mining and China. Oberhelman will step down as a chief executive and will be replaced by Jim Umpleby. Meanwhile, Dave Calhoun, a former GE executive, will become non-executive chairman.
Splitting the roles of CEO and chairman at Caterpillar will ensure proper oversight of the CEO. Historically, the CEO and board chairman were the same people, but recent research suggests that it might be beneficial to split the roles. This arrangement may increase the efficiency of oversight and allow the CEO to make decisions faster.
It’s important for Caterpillar to have an independent check on the CEO’s actions. Oberhelman’s failed expansion campaign has cost the company’s shareholders dearly. The company paid a hefty price for its largest acquisition, Bucyrus International.
The board of directors reviews the leadership structure at Caterpillar every two years and will be making a decision regarding this issue at the December board meeting. The new role for Umpleby is a good one for the company. The new position allows the CEO to make more decisions while still maintaining oversight from the board of independent directors.
A new chairman is coming into the picture at Caterpillar, which is a good thing. It’s not clear who will succeed Oberhelman, but his successor will have to navigate a sluggish market and stronger competition from overseas. The company is a bellwether for U.S. manufacturing and has a long history of good business decisions.
Today, GE’s board of directors took a very bold step: it decided to split the roles of its CEO and chairman. The company had for decades been run by successive chairman/CEOs. Now, GE’s new structure may be hampering its turnaround effort.
Most companies that have split their roles do so after a corporate crisis or under pressure from shareholders. In fact, in 2005, only 30 percent of companies had this practice. However, this number has climbed to 55% in 2019! Companies often choose this course to appease shareholders and reduce the power of the CEO.
The separations will cost GE about $2.5 billion, once taxes are taken into account. The aerospace unit will keep the GE name, while the healthcare and energy businesses will be spun off in early 2023. Regardless of how the company manages its future, delivering products to customers remains the primary challenge. As such, GE is continuing to focus on cost reductions and has set a $2 billion gross cost out a target for 2022.
Culp will become the non-executive chairman of GE’s healthcare company, while Peter Arduini will become the company’s CEO. The new CEO of the aviation business, meanwhile, will be Scott Struzik. GE has retained a 19.9% stake in the company’s healthcare business.
Jeff Immelt has been the CEO of GE since 2001. Before that, he had been the CEO of Danaher Corp., and he streamlined the company’s businesses to improve its profitability. Then, he went on to combine GE’s aircraft leasing business with AerCap Holdings, which closed a major deal for $30 billion. This closed the books on GE’s notorious GE Capital, which nearly sank the company during the 2008 financial crisis.
While the aerospace division will remain part of GE, the energy and health care units will be spun off separately in early 2023 and 2024. The healthcare division will be the first to go public. The company had considered an IPO for its healthcare division a few years ago. The move also aims to reduce the company’s $75 billion debt from its peak in 2018.
While the roles of CEO and Chairman are fundamentally different, they are often performed by different people. A CEO has responsibility for the day-to-day operations of the company, whereas a chair has the responsibility for overseeing the company’s board and providing independent oversight. The role of the independent chair is challenging and can take a significant amount of time away from operating the company. The independent chair is also responsible for setting the agenda and overseeing the quality of information that is provided to the board. Recent evaluations of GE’s financial information have labeled it as “fantastically muddled.”
Caterpillar’s Jim Umpleby
In the wake of Doug Oberhelman’s resignation, the Caterpillar Board of Directors decided to restructure its leadership structure, splitting the role of CEO and chairman. Jim Umpleby, the company’s current CEO, will remain CEO while Dave Calhoun, a senior managing director at Blackstone Group, will become the company’s new non-executive chairman. Under the new structure, both Umpleby and Calhoun will be responsible for overseeing the company’s business and providing leadership to the company.
Separating the CEO and chairman roles is not uncommon for public companies. In fact, over 40 percent of S&P 500 companies have a separate chairman and CEO. Separating these roles has a number of advantages for corporate governance. For example, separating the roles can help improve board oversight.
Jim Umpleby joined Caterpillar as an associate engineer in 1980 and has served in various leadership positions. His most recent roles include being the vice president of the Solar Turbines business and president of the company’s Energy & Transportation business segment. He then served as Caterpillar’s CEO in January 2017. He was elected to the board of directors in December 2018.
Caterpillar has a strong balance sheet, with $6.764 billion in cash as of June 30, 2016. The company is committed to reducing costs and improving employee safety, with nearly 7,300 patents in the world. The company’s leadership team has a clear vision for the company’s future.
Jim Umpleby splits the role of chairman and CEO in a way that allows the company to continue to run smoothly while also strengthening the company’s overall strategy. The company’s leadership team will continue to be able to focus on its core strengths and address emerging global challenges.
GE’s Jim Umpleby
A growing number of public companies are separating the CEO and chairman roles. In fact, half of the companies in the Standard & Poor’s 500 Index now split the roles. But the dual role can create a conflict of interest. CEOs want the additional clout and control that comes with being chairman.
Before joining GE, Umpleby worked at Solar, a company that made gas turbines. He later went on to become the company’s vice president. From there, he was promoted to lead the Energy & Transportation business segment and became the company’s CEO. Since then, he has been serving as CEO and chairman of the Board of Directors.
Jim Umpleby started his career as an associate engineer at Solar Turbines, a company that was acquired by Caterpillar in 1981. In the 1980s, he became the company’s chief executive officer. This role led him to the creation of the gas turbine engine, which converts stored energy in fuel to useful mechanical energy. This mechanical energy can then drive a generator or move it along a power line.
Umpleby’s experience is varied, having previously been president of Caterpillar. He also served as its chairman before becoming CEO. He also served as president of Solar Turbines. His most recent role is Group President at Caterpillar. He was also named a member of the Executive Office in January 2013.
Jim Umpleby is a strong candidate for the role of chairman of GE. He has ample experience and is the head of the company’s most profitable business. While the company continues to invest in research and development, it is now focusing on automation and connected fleets. Those initiatives are helping customers to reduce costs when purchasing machines. However, revenue has been down about 40% year to date, and earnings have fallen to a 40-year low.