NEW YORK--()--Fitch Ratings views U.S. equity real estate investment trusts (REITs) with non-executive chairmen more favorably than those with executive chairmen from a corporate governance standpoint due to the independent perspective that non-executive chairmen provide in their oversight role. For approximately 55% of U.S. equity REITs, the roles of CEO and chairman of the board are split. Approximately 43% of S&P 500 boards separate the roles of CEO and chairman.
“Evaluating Corporate Governance - Country and Issuer-Specific Considerations”
Non-executive chairmen may be beneficial to bondholders in actively monitoring management's strategy execution and challenging investment decisions. Other examples include reviewing and evaluating the performance of the CEO as it relates to compensation and other matters and impartially evaluating financial judgments such as REIT common dividend levels.
As noted in our cross-sector criteria report "Evaluating Corporate Governance - Country and Issuer-Specific Considerations," dated Dec. 12, 2012, effective boards must include non-executive members with diverse skills, views, and professional experience. Members must be prepared to invest sufficient commitment and time into the work of the board. A board that is independent, active, knowledgeable and committed generally signals a robust governance framework. Since the role of the chairperson of the board is particularly important, an independent chairman is yet another signal of a robust governance framework.
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The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.