As the stakes rise in an increasingly complex business world, some companies are bucking the one-man CEO tradition. Steve Coomber reports.
The late Peter Drucker wrote in The Practice of Management that: "90% of the trouble we have with the chief executive's job is rooted in our superstition of the one-man chief."
Challenging the accepted model is HSBC, the world’s second-biggest bank, where, in January 2007, chairman Stephen Green announced that he would run the bank as a double act with CEO Michael Geoghegan.
It is a rare example of power sharing in a world where the popular image of corporate leadership is the heroic lone CEO. The problem with this model, as many CEOs are discovering, is that the complexity of the job and the pressures of the modern business world are too great for one person to cope with.
José Luis Álvarez, associate dean at the Instituto de Empresa business school in Spain and author of Sharing Executive Power: Roles and Relationships at the Top, says: "The life of top managers is getting more complex. The business environment – the clients, the markets, the suppliers, these kinds of things – are increasingly relevant for top managers. The number of different things they have to attend to in order to be successful is continually increasing."
THE END OF THE LONE RANGER
Álvarez believes that lone CEOs can become bottlenecks, as they cannot deal with the demands placed on them. "If you are working for a large firm, there are a number of tensions that managers deal with. You pay attention to clients and operations, to the organisation externally or internally, to the future or to the present. You are focused on strategy or on tactics, on control or innovation, on numbers or on people, on maintenance or change. There are so many dilemmas – no manager could cope with all of them."
The problem is, as Drucker pointed out, the one-man (or occasionally woman) leadership concept is king. "We have this idea of organisations as pyramids – there’s only space for one person at the top," says Álvarez.
There is a different way though. Álvarez and his research colleagues collected data on over 100 examples of power sharing in a wide-ranging selection of organisations, covering different times, industry sectors and geographies.
Although power sharing is uncommon, it is not as rare as it may at first seem. Apart from Green and Geoghegan, there are many well-known dual leaders in the corporate world. At Google, co-founders Sergey Brin and Larry Page, and CEO Eric Schmidt declared that they ran the company as a triumvirate when they filed papers with the Securities and Exchange Commission.
Álvarez also cites research on family businesses, showing that nearly 9% had two co-CEOs, with a small percentage having more than two.
CHIEF OBSTACLE
However, power sharing is not an easy option, as Franco-German aerospace giant European Aeronautic Space and Defence (EADS) recently found. In July, it announced that joint CEOs Thomas Enders and Louis Gallois would no longer be sharing the role, with Enders stepping down to run its Airbus subsidiary. The decision was taken in an attempt to end internal rivalry between the French and German camps.
In fact, the greatest stumbling block on the path to installing joint CEOs is lack of trust. Álvarez says it is a very delicate arrangement; you cannot establish rules and guidelines to make it work. Above all, you need enough trust and mutual understanding between the two people involved. It takes time.
With his research team, Álvarez identified a number of factors that improved the chances of a successful relationship. He explains: "One way it might work is where the two people involved do the same thing. But this is difficult unless there is tremendous trust. The other possibility is, of course, to have different roles assigned to each one, so, for instance, one does the public relations and the other deals with the management of the company. One focuses on creativity, the other on controlling. You basically divide the role commonly assigned to one person in two."
MUTUAL SUPPORT
Another key relationship at the top of the corporation is that between CEO and chairman. Professors Andrew and Nada Kakabadse, of Cranfield School of Management and the University of Northampton Business School, respectively, have, in the last five years, looked at top teams at over 12,000 organisations in 17 countries, including 400 board members. In a new book, Leading the Board: the Six Disciplines of World Class Chairmen, the Kakabadses argue that the role of the chairman is essential for long-term success and the best protection against corporate excesses.
The role of the chairman is now becoming critical, says Andrew Kakabadse: "There is responsibility for the governance controls and mechanisms to ensure the business is functioning in the right way, and that it has the right moral values. Then there is the role of providing an alternative view on the company’s strategy, which will keep executive management on track and avoid failure."
The challenge is to make the relationship with the CEO work as well as possible. Álvarez explains: "It is a very complex relationship. On the one hand, the chairman has to monitor the CEO as the head of the board, so there is a need to keep distance. On the other hand, there should be trust, because the chairman needs to be able to advise and counsel the CEO."
TRUST AND UNDERSTANDING
David Wallis, chairman of FTSE 250 company Speedy Hire, Directorbank and Denby Pottery and a non-executive of Grampian Food Group and Robinson Healthcare Trust, believes trust is essential: "You are only going to make a success of the relationship if it is based on absolute trust and you can’t develop that over a cup of coffee, it takes a little bit of time to get there. Once a CEO works out that you are there to help, rather than trying to catch them out, you have a chance of moving the relationship forward, but unless it is based on absolute trust both ways, you won’t get very far."
A starting point is determining who does what. Wallis explains: "You need to establish exactly what the roles are and which parts of the territory belong to whom. Clarity is vital, so you should work everything out at the beginning. This calls for straightforward language, rather than tiptoeing around the issue."
The Kakabadses’ research reveals that the relationship works best where the allocation of responsibility and accountability is the result of very practical down-to-earth but high-quality discussions about how the chairman and CEO can best make a difference for the business.
They have discovered a number of factors key to a successful CEO-chairman relationship. The most important is a shared business vision. Next is chemistry. Although chairmen tended to describe chemistry in emotional terms, further analysis revealed that it was not necessarily about warm, understanding, personal relationships – in 60% of cases it was about analysing things in the same way. Did the chairman and CEO look at the market, for example, see the way it was going and make the same sorts of assumptions?
A third element was agreeing how to go about challenging projects. If the CEO puts a proposal to the board for a major strategic activity, a merger and acquisition, for example, how should it be scrutinised? With most boards, unless the chairman was very resilient and had an excellent relationship with the CEO, it was difficult to give bad news, questioning whether management had clearly thought through the proposal, challenging assumptions.
Andrew Kakabadse explains: "Where we found outstanding relationships the chairman and chief executive had come to an agreement that any proposal put to the board had to be interrogated – not just challenged, but deeply interrogated.
"Where interrogation became common practice and where the chairman and CEO told their respective teams, the board and management, that they were going to go through this resilient scrutiny, the results were fantastic. People didn’t see it as a personal criticism but as an improvement."
DIVIDED WE RULE
Neither the separation of roles, nor power sharing are dominant global models for running corporations. The role of the chairman is prevalent in Europe and Australia, for example, but conspicuously absent in the US.
According to the Kakabadses’ research, only 24% of US corporations have role separation and there is no apparent appetite for it. At the same time there was, says Andrew Kakabadse, the highest levels of inhibition with US boards, meaning that people on the board felt distinctly uncomfortable raising issues. While this was partly down to Sarbanes-Oxley, it was also down to the sheer dominating presence of the CEO/chairman.
One way or another, however, given the increasing complexity of the world, companies may well have to consider alternative models of leadership that share accountability and responsibilities at the very top of the organisation, whether this is via a co-chief or chairman, or some other mechanism.
"If you have a business in 1896 it makes sense for a single president-chairman-CEO to run the company," says Andrew Kakabadse. "But what about in 2008, where there is much more complexity, when strategy is almost tearing you apart? That is where you need more than one mind."
