January 23, 2012 5:44 pm

Two chiefs not necessarily better than one

Research In Motion had been led by two co-chief executives for nearly 20 years, one of the longest-running examples of what is considered a rare and unstable management structure. The company’s decision to return to a single CEO will add to the business community’s conviction that dual-leadership structures do not work well.

RIM’s co-CEO structure had already come under heavy criticism from analysts last summer, after a profit warning and steep share-price decline for the Canadian BlackBerry manufacturer. Critics argued that having two chief executives was slowing down the company’s decision-making process, making it harder to keep up with rivals in the fast-changing mobile market.

Victor Basta, managing director at Magister Advisors, a financial advisory company to technology businesses, says that while he does not believe the dual-CEO structure inherently mattered, “internal, senior-level group-think was exacerbated by having two CEOs that had worked together for many years and could probably finish each other’s sentences”.

A number of companies have had two chief executives at one time or another. Goldman Sachs, EADS and Unilever have used the model, and it has been tried more recently by Motorola, Wipro, the Indian IT consultancy, and SAP.

However, the structure has generally been in place for short periods. Wipro ended its three-year experiment with two CEOs in 2011, after the company lost ground to its rivals. Analysts said it had led the company to respond too slowly to the economic recovery in 2010, and to neglect key sectors such as financial services.

Motorola split its chief executive role in 2009, as a prelude to dividing the business into two parts a year later. One of the halves, Motorola Mobility, was subsequently acquired by Google.

Carrefour, the French supermarket chain, recently rejected a proposal for two CEOs on suspicion that it was also the beginning of an effort to break up the company.

For SAP, the joint leadership of Jim Hagemann Snabe and Bill McDermott, which began in early 2010, has so far worked better, with the German software company recently reporting the best results in its 40-year history.

“The joint-leadership structure is not very common but the Roman consuls did it, and so did Goldman Sachs. It makes sense in extremely complex industries where two heads are better than one,” said Nigel Nicholson, professor of organisational behaviour at the London Business School.

He added that many companies had a de facto joint leadership structure, where a chief executive worked very closely with a chief financial officer or chief operations officer.

“It was the Bill Gates-Steve Ballmer combination that really made Microsoft work,” he said. “Having two people leading a company gives more insight as long as they are prepared to challenge each other.”

A study published in the Journal of Business and Economic Studies, however, found no evidence that companies with dual bosses in general performed any better than companies led by single CEOs, and the structure remains rare among listed companies. In 2008, one study found that only 0.5 per cent of all public companies were run by co-CEOs.

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