UK: HELLER ON MANAGEMENT - SEVERAL HEADS ARE BETTER THAN ONE.

UK: HELLER ON MANAGEMENT - SEVERAL HEADS ARE BETTER THAN ONE. - Collective top management will be necessary in the future, says Robert Heller. But it doesn't remove the need for central direction or the difficulty in regulating the role of the CEO.

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Last Updated: 31 Aug 2010

Collective top management will be necessary in the future, says Robert Heller. But it doesn't remove the need for central direction or the difficulty in regulating the role of the CEO.

Shareholders have seldom had it so good. Profits are rising, stock markets are strong - and, if share prices falter, or even if they don't, predators may intervene with juicy premiums. Boards are apparently delivering the goods and the goodies. Yet they've never been under fiercer attack.

Anger about excessive rewards hasn't subsided, despite the moderating and reforming influence of the Cadbury and Greenbury investigations. Now chief executives have come into the firing line. Professors John Kay and Aubrey Silberston single out CEOs as the key to good performance - suggesting that the key is too often unturned.

Their excellent paper for the NIESR Review airs many questions of fundamental importance. For example, how should chief executives be appointed? How long should they serve? What powers should they exercise? Though tentatively mentioning a few 'other senior officers', the authors concentrate on the CEO. His appointment, however, only requires special regulation if this single role truly has make-or-break impact.

The 'Office of the CEO' (meaning at General Electric, say, Jack Welch and three vice-chairmen) is no longer rare and expresses a common collegiate tendency - both formal and informal. At AT&T, formally again, four operating division heads, plus the financial kingpin, were shaped into a collective COO. The initials stand for chief operating officer, the person delegated to take day-to-day responsibilities off the CEO's strategic shoulders. Significantly, the quintet rotates its leadership. Equally important, the senior managers evaluate and criticise the performance of CEO Robert Allen.

Rotation and upward appraisal mirror the methods of a complete contrast: no global mega-company, but the small, self-consciously maverick Brazilian engineers, Semco. The directors, or 'counsellors', rotate leadership every six months. Rotation increases knowledge and collaboration and shares responsibility. But while the lead never passes to Ricardo Semler, who owns the business, nobody doubts that, for all the collectivism, Semco is Semler's highly personal creation.

That poses a central dilemma. Collective top management is the wave and necessity of the future, but doesn't dispense with the need for central direction - and inspiration. Had Rupert Murdoch, say, been forced (as Kay and Silberston suggest) to surrender executive power after eight years, would News International be poised for possible global supremacy in the media wars?

Welch has led GE not for eight years, but 14. As for succession, in any properly managed company, able successors will be waiting in the wings. With long-established collective leaderships, as at Royal-Dutch Shell and Marks & Spencer, in-house promotion has worked smoothly and successfully - as proved by smoothly successful results. No useful role would be served by (another Kay-Silberston proposal) subjecting such CEO appointments to outside selection and consultation.

Insider selection, true, can result in disasters, like the last IBM chairman and two consecutive CEOs at General Motors. But selection is always unsure, at any level: those errors lay less in selection than in hideous and expensive delays in correcting the mistake. In theory, the chief executive's performance is under constant review by the board. In practice, the relationship easily becomes too cosy for anybody's comfort but the CEO's.

A four-year fixed contract, however, is both too long for a no-hoper and too short for a change-master. While radical changes can be made rapidly in the largest of companies, building for sustained superior performance may take a decade. Given that top management appointees usually want to launch their own initiatives, rapid turnover is inherently counter-productive.

That's partly why so much effort at TQM and business process re-engineering has run to waste. How many CEOs would gladly embark on long-range programmes, with their inevitable impact on short-term profits, if they faced re-election, like US presidents, after four years?

Every chief executive nearing retirement age, naturally, is also lamed by its approach. There's force in Kay and Silberston's argument that bosses can overstay their welcomes. Some would be better advised to retire after eight years - but by no means all. The authors produce no evidence for declaring that the dead-beat line-up 'outnumbers considerably' the ranks of those for whom eight years is too short. The danger of overstaying, however, unquestionably rises with age. Companies like Shell, with a cut-off at 60, have suffered no visible damage in consequence.

The virtue isn't only that of removing the old (possibly tiring, probably conservative), but of promoting the young - presumably energetic, potentially radical. Shell, however, took its own decisions for its own reasons. That highlights the central failing of the urge to legislate. Of course, incompetents should be swiftly removed, but all companies differ, and so do all chief executives. Their performance rests, not on how rigorously they are regulated, but on how vigorously they exploit the available opportunities. As with any manager, that demands freedom more than control.

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