Hollywood was shocked when Disney CEO Bob Iger abruptly announced in February 2020 that he was handing the top job to parks chief Bob Chapek, effective immediately. Iger had scheduled and then postponed his retirement four times since 2013. Now, in a Friday afternoon press release, he was suddenly, finally stepping down. The business press responded with dozens of sweeping recaps of Iger’s 48-year career, listing his achievements and speculating about what he would do now that he was finished running Disney.

Except he wasn’t finished running Disney.

As media attention shifted almost entirely to Chapek, Iger became “executive chairman,” a bland title that could easily be mistaken for an honorary position. But it was just the opposite. The announcement said Iger “will direct the Company’s creative endeavors”—a significant share of the business at a company that makes tens of billions of dollars a year from movies, television, and theme parks. Further, buried deep in the press release was the revelation that Chapek would report directly to Iger individually—as well as to the board of directors, which Iger chaired.

In short, Iger was still the real CEO. He remained executive chairman for almost two years, after which he finally stepped down completely. (He then returned 11 months later to displace Chapek as CEO, but that’s another story.)

Flying under the radar, the “executive chairman” phenomenon is an increasingly popular element of leadership succession. Whether that’s a good thing is far from clear. The Spencer Stuart executive search firm reports that 50% more executive chairs assumed that role in 2019 than did so in 2010; the increase paused during the pandemic, when many companies postponed CEO successions, but it is now resuming.Today 64 of the Fortune 500 have an executive chair, including major firms such as Nike, FedEx, Visa, Honeywell, and Southwest Airlines.

Why this trend? Good question. In most cases—54 of the 64, including all those cited above— companies follow the Disney model, with the previous CEO wielding power behind the scenes as executive chair. But on average, that model doesn’t work well. Four years ago, Spencer Stuart examined the performance of companies with an executive chair vs. those without one, measured by growth of shareholder returns within each company’s peer group; recently the firm updated the study to see if today’s weaker economy had altered the results. It didn’t. “In both time periods, companies with an executive chair underperformed those without one,” says Jason Baumgarten, head of Spencer Stuart’s global CEO and boards practice, who was one of the researchers. Disney under Iger’s chairmanship was a case in point: It largely missed out on a post-pandemic stock rally, trailing the S&P 500 by an imposing 31 percentage points.

That result shouldn’t be surprising. Most new CEOs want to make changes, and “it is very difficult to have the former CEO sitting in the room,” says Julie Daum, who leads Spencer Stuart’s North American board practice. Paralysis may follow. Appointing an executive chair and a separate CEO also confuses employees. “Who’s the boss?” says Noel Tichy, a management professor at the University of Michigan’s Ross School of Business. “No one is sure. So people revert to what we all learned as kids—if you don’t get the answer you want from Mom, go ask Dad, or vice versa.” (Just such gaming of the hierarchy played out at Disney, with executives meeting with one boss but not the other and even bad-mouthing one to the other.)

Little wonder that institutional investors such as pension funds and mutual funds, which own most of the shares in U.S. companies, don’t like executive chairs. “They see it as somebody clinging on or inhibiting change,” says Daum. ISS Governance, which advises institutional investors about how to vote on shareholder proposals at companies’ annual meetings, feels the same. Companies almost always oppose shareholder proposals demanding an independent board chair—someone with no affiliation to the company. But if the company has an executive chair, ISS is more likely to recommend a vote against the company’s wishes and in favor of the proposal.

With all those forces pushing against the concept of the executive chair, you have to wonder why companies increasingly use it. “What is the problem this arrangement solves?” asks Peter Cappelli, a management professor at the University of Pennsylvania’s Wharton School. “If the idea is that the ex-CEO could then give the new CEO advice, why do you need an official role to make that happen? If the idea is that the ex-CEO should be telling the new CEO what to do, then why not just keep the old one on longer?”

More demand, and more leverage, for veteran CEOs

The answers to Cappelli’s rhetorical questions say a lot about changes in the job market for experienced CEOs over the past couple of decades.

The most common rationale for elevating the outgoing CEO to executive chair begins with the growth of private equity firms. To run their portfolio companies, those firms often hire CEOs away from publicly traded corporations. Researchers at Harvard and the University of Chicago find that 71% of newly acquired PE portfolio companies install new CEOs, and 75% of those new leaders are external hires. Rather than compete with PE firms to steal sitting CEOs, companies are increasingly promoting first-timers; 80% of new S&P 500 CEOs last year were internal hires, the highest proportion in seven years. Boards of directors sometimes feel these novices should be eased into the new job, and an executive chair, the thinking goes, can carry some of the burden, at least for a while. The trouble is, says Baumgarten, “there’s no clear financial evidence” that investors feel more comfortable about a succession if the former CEO stays on as executive chair.

A different rationale, never voiced publicly, is a response to the outgoing CEO’s power within the organization. “If the outgoing CEO wants to continue [with] a compensation package that is closer to that of a CEO than an on-demand consultant, it’s hard to do that without a more formal role,” says Baumgarten. The departing chief may also hold leverage if the board wants them to make unpleasant changes, such as firing a high-level executive or cutting costs, before handing over the CEO title. Creating an executive chair position, says Baumgarten, may be “practically important for a peaceful transfer of power.”

Executive chairs can work out well, especially if they don’t stay long. When Alex Gorsky stepped down after a successful decade as Johnson & Johnson’s CEO, he became executive chair for a year, then left the board. The company has continued to thrive. More often, the story isn’t so happy. When Peloton’s business collapsed as the pandemic waned, the board elevated co-founder and CEO John Foley to executive chair. New CEO Barry McCarthy engineered a radical makeover repudiating much of Foley’s strategy, but the decline continued, and Foley and another cofounder eventually departed.

The future of the executive chair position will be shaped by a three-way tussle among institutional investors, nervous boards of directors, and powerful outgoing CEOs. Baumgarten predicts a continuation of the retiring-upward trend, “especially as the sense of macro uncertainty plays out.” What shouldn’t be in doubt in any succession is the true meaning of that seemingly bland title. “When you’re executive chair, the buck stops with you,” says Charles Elson, a corporate governance expert who has served on multiple boards. “It’s a title change with little meaning. You’re still running the show. Period.”