By many measures, current CEOs should be the best candidates to serve on boards of directors. They have extensive strategic, operational, and risk management expertise, as well as experiences and leadership attributes that are important for a firm’s long-term success. However, there is currently no widely accepted, rigorous study that demonstrates that current CEOs are better board members or that companies with CEO directors benefit in terms of improved advice or monitoring. In fact, recent survey data suggests that active CEOs might not always be the best board members because of the time constraints of their full time job and personality attributes that may make it difficult for them to contribute constructively to a boardroom environment. We examine this issue in closer detail and ask: 1. Should companies reassess the importance of this criteria when looking for new board members? 2. Does the requirement for CEO-level experience limit the pool of available directors, particularly diversity candidates who may be less likely to have this experience? 3. If the availability of CEO directors is low, should professional directors be recruited to fill the gap? 4. Do the positive qualities of a retired CEO deteriorate, or do they never become outdated? Read the attached Closer Look and let us know what you think!

1. Topics, Issues, and Controversies in Corporate Governance and Leadership
S T A N F O R D C L O S E R L O O K S E R I E S
stanford closer look series 1
Are Current CEOs the Best Board
Members?
Introduction
By many measures, current CEOs should be the
best candidates to serve on boards of directors.
Active CEOs bring an important mix of manage-
rial, industry, and functional knowledge that equip
them to advise and monitor a corporation. They
can contribute to multiple areas of governance that
are important for a firm’s long-term success, in-
cluding development and vetting of the corporate
strategy, risk management, internal talent develop-
ment and CEO succession planning, performance
measurement, and shareholder and stakeholder
relations. They also bring important intangible at-
tributes such as leadership skills, decision making,
the ability to prioritize, the ability to lead in a cri-
sis, and a strong work ethic. To this end, a survey
by the NACD finds that CEO-level experience is
the single most important functional background
in recruiting a new director. Ninety-seven percent
consider it “critical” or “important,” responses far
higher than for any other background.1
For these reasons, it is not surprising that some
of the most visible CEOs in America serve on the
boards of other large corporations. For example,
James Mulva (CEO of ConocoPhillips) is on the
board of General Electric, Patricia Woertz (CEO of
Archer Daniels Midland) is on the board of Procter
& Gamble, and David Cote (CEO of Honeywell)
is on the board of JPMorgan Chase. Interviews
with senior-level executives indicate that they gain
considerable insights from board experience that
benefit their own organizations as well.
However, over the last ten years, the number of
active CEOs serving as directors has declined in a
precipitous fashion. According to Spencer Stuart,
active CEOs represented over half (53 percent) of
By David F. Larcker and Brian Tayan
August 17, 2011
the pool of newly elected independent directors
among S&P 500 companies in 2000. By 2010, that
percentage fell to 26 percent. Active CEOs now sit
on an average of 0.6 outside boards, down from
1.4 a decade ago. Corporate guidelines that limit
outside directorships have no doubt contributed
to this reduction. Almost two-thirds of companies
limit the number of outside board seats that their
CEOs may serve on, a policy not widely in effect a
decade ago.2
Increased time demands—both from
directorship and from being a CEO—also likely
encourage CEOs to voluntarily limit outside board
service. Companies have responded to this trend by
recruiting new directors who are executives below
the CEO level or who are retired CEOs (see Exhibit
1).
It is unclear whether the change in profes-
sional composition of corporate boards represents
a reduction in board quality or an improvement.
Currently, there is no widely accepted, rigorous
study that demonstrates that current CEOs are bet-
ter board members or that companies with CEO
directors benefit in terms of improved advice or
monitoring. In fact, recent survey evidence sug-
gests that active CEOs might not always be the best
board members. According to a study by Heidrick
& Struggles and the Rock Center for Corporate
Governance at Stanford University, 80 percent of
corporate directors believe that active CEOs are no
better than non-CEO board members (see Exhibit
2). Although respondents value the strategic and
operating expertise of CEO directors, when asked
about their unattractive attributes, a full 87 percent
state that active CEOs are too busy with their own
companies to be effective.3
To be sure, survey respondents identified several

2. stanford closer look series 2
Are Current CEOs the Best Board Members?
positive aspects of having active CEOs serve on
the board. Beyond their strategic and managerial
expertise, respondents value active CEOs for their
experiences in dealing with a crisis or failure and for
their extensive personal and professional networks.
In terms of intangible attributes, active-CEO di-
rectors were seen as being able to identify with the
CEO on a range of pressing issues, build trust with
the CEO, prioritize challenges, and demonstrate
current knowledge of business issues.
On the other hand, active CEOs are criticized
for not being as engaged as the company needs
them to be and for being unable to serve on time-
consuming committees or participate in meetings
called on short notice. Respondents also find fault
with active CEOs for being too bossy, poor collabo-
rators, and for not being good listeners.
The tenuous benefit of appointing active CEOs
as directors is reflected in part in the research lit-
erature. Fahlenbrach, Low, and Stulz (2010) find
no evidence that the appointment of an outside
CEO contributes positively to future operating
performance, decision making, or the monitoring
of management by the board.4
At the same time,
the research suggests that the appointment of active
CEOs as directors might lead to increased CEO
compensation. O’Reilly, Main, and Crystal (1988)
find a strong association between CEO compensa-
tion levels and the compensation level of the out-
side directors who serve on the board, particularly
the compensation committee. They argue that,
consistent with social comparison theory, commit-
tee members refer in part to their own compensa-
tion levels when approving CEO pay packages. If
committee members are current CEOs with high
compensation levels, this can lead to a distorted
view of “fair market value” and a propensity to ap-
prove large compensation packages.5
The Heidrick
& Struggles and Stanford Rock Center survey cited
above also found criticism of current CEOs for be-
ing “too generous with compensation.”
For these reasons, it might be that the trend of re-
cruiting fewer active CEOs and more retired CEOs
as directors is beneficial to governance quality. After
all, retired CEOs have the same strategic, operat-
ing, and leadership experience as current CEOs but
without the time demands that distract them from
their director duties. There is also common consen-
sus that their leadership experience provides value
well beyond their retirement date. Evidence to this
effect, however, is not overwhelming. According
to the survey by Heidrick & Struggles and Stan-
ford Rock Center, only 55 percent of respondents
believe that retired CEOs are better directors than
active CEOs. Only 46 percent believe that retired
CEOs are above average.
Why This Matters
1. Many people believe that current CEOs are
the best board members. Is there convincing
evidence that this is the case? If not, maybe it
is time for companies (and the nominating and
governance committees) to reassess the impor-
tance of this criterion when looking for new
board members.
2. How much does the requirement for CEO-level
experience limit the pool of available directors?
Does this restrict the availability of diversity
candidates who might be less likely to have that
experience?
3. If the availability of current or even retired
CEOs is low, should professional directors (di-
rectors whose primary job is to serve on boards)
be used to fill this gap?
4. In the Heidrick & Struggles and Stanford Rock
Center only 26 percent of respondents believe
that CEO-level experience becomes outdated
within five years. A full 38 percent believe that it
never becomes outdated. Is there a “shelf life” to
CEO experience? Do the positive qualities of re-
tired CEOs deteriorate, or do they never become
outdated? 
1
National Association of Corporate Directors (NACD) and The Cen-
ter for Board Leadership, “2009 NACD Public Company Gover-
nance Survey” (2009).
2
Spencer Stuart, “Spencer Stuart U.S. Board Index,” (2010).
3
Heidrick & Struggles and the Rock Center for Corporate Gover-
nance at Stanford University, “2011 Corporate Board of Directors
Survey,” (2011).
4
Rüdiger Fahlenbrach, Angie Low, and René M. Stulz, “Why Do
Firms Appoint CEOs as Outside Directors?” Journal of Financial
Economics (2010).
5
Charles A. O’Reilly III, Brian G. Main, Graef S. Crystal, “CEO
Compensation as Tournament and Social Comparison: A Tale of
Two Theories,” Administrative Science Quarterly (1988).

3. stanford closer look series 3
Are Current CEOs the Best Board Members?
David Larcker is the Morgan Stanley Director of the Center
for Leadership Development and Research at the Stanford
Graduate School of Business and senior faculty member
at the Rock Center for Corporate Governance at Stanford
University. Brian Tayan is a researcher with Stanford’s Cen-
ter for Leadership Development and Research. They are
coauthors of the books A Real Look at Real World Cor-
porate Governance and Corporate Governance Matters.
The authors would like to thank Michelle E. Gutman for
research assistance in the preparation of these materials.
The Stanford Closer Look Series is a collection of short
case studies that explore topics, issues, and controversies
in corporate governance and leadership. The Closer Look
Series is published by the Center for Leadership Devel-
opment and Research at the Stanford Graduate School
of Business and the Rock Center for Corporate Gover-
nance at Stanford University. For more information, visit:
http://www.gsb.stanford.edu/cldr.
Copyright © 2012 by the Board of Trustees of the Leland
Stanford Junior University. All rights reserved.

4. stanford closer look series 4
Are Current CEOs the Best Board Members?
Exhibit 1 — S&P 500: The Backgrounds of Newly Elected Independent Directors
Source: Spencer Stuart Board Index, 2010.
2000 2005 2010
CEO / COO / Chair / President / Vice Chair 62% 45% 43%
Active 53% 32% 26%
Retired 9% 13% 17%
Other Corporate Executives 10% 16% 18%
Division / Subsidiary President 4% 5% 8%
EVP / SVP 6% 11% 10%
Financial Backgrounds 17% 20% 21%
CFO / Treasurer 8% 8% 8%
Bankers 3% 4% 2%
Investment Management / Investors 2% 6% 9%
Accountants 4% 2% 2%
Other 11% 19% 18%
Academics / Nonprofit 2% 10% 8%
Consultants 4% 3% 5%
Lawyers 3% 4% 1%
Other 2% 2% 4%

5. stanford closer look series 5
Are Current CEOs the Best Board Members?
Exhibit 2 — 2011 Corporate Board of Directors Survey: Selected Data
Source: Heidrick and Struggles and the Rock Center for Corporate Governance at Stanford University, “2011 Corporate
Board of Directors Survey.”
All
Respondents
Active
CEO/Chair Only
Retired CEO/Chair Only
Are directors who are active CEOs better than non-CEO board members?
Yes 20.5% 33.3% 25.0%
No 79.5% 66.7% 75.0%
Are directors who are retired CEOs better board members than active CEOs?
Yes 54.9% 50.0% 66.7%
No 45.1% 50.0% 33.3%
Are directors who are retired CEOs better than average board members?
Yes 46.5% 57.1% 60.9%
No 53.5% 42.9% 39.1%
How many years before the experiences of a retired CEO become outdated?
5 years or less 26.0% 35.7% 20.8%
5 to 10 years 19.9% 19.0% 25.0%
More than 10 years 16.4% 9.5% 8.3%
Never 37.7% 35.7% 45.8%
Are professional directors better than traditional board members?
Yes 19.1% 22.5% 36.4%
No 80.9% 77.5% 63.6%