Shared leadership: from rivals to co-CEOs - Arnone Executive Coaching

Shared leadership: from rivals to co-CEOs Maria Arnone and Stephen A. Stumpf

Maria Arnone ([email protected]) coaches leaders of Fortune 100 firms and has published in the areas of leadership and the design of corporate universities. Stephen A. Stumpf is professor of management at Villanova School of Business and the Fred J. Springer Chair in Business Leadership (steve.stumpf@ villanova.edu). He has been chief learning officer of professional development at BoozjAllenjHamilton and is an author of several books on leadership.

s businesses confront a world of increasing complexity, some global organizations have responded by placing co-CEOs at their helm, judging that the demands of the job merit the commitment of two executives. This response has yielded mixed results and continues to generate controversy. Notable successful examples of firms run by co-CEOs include Research in Motion, Twitter, California Pizza Kitchen, and Motorola. Other partnerships have ended in much publicized failures including Martha Stewart Living, Omnimedia, Unilever, and Kraft. And, there are firms that remain committed to the structure of shared leadership despite mixed results, such as Goldman Sachs and Citigroup. In these organizations, the shared leadership structure is an accepted leadership strategy used throughout the organization – sometimes at the top, and more often at the business-unit level, with the added benefit of grooming business leaders and providing a testing ground for the top spot).

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To address the dynamics and efficacy of shared leadership, we interviewed 19 co-heads, the majority of whom have shared the role more than once. They discussed reasons for their sharing leadership, and the benefits and pitfalls for them and their organizations. Most found the experience benefited the firm and accelerated their growth as global leaders. They identified practices that would lead to a more strategic approach to the use of co-heads (see box, ‘‘About this research’’).

When two heads are better than one The co-heads indicated that the reasons for shared leadership were the result of both internal and external demands. Some indicated that the co-head structure was created to retain a high-performer who would otherwise leave – and likely to join a competitor. Professional service firms have often created co-head positions to accommodate ambitious, successful people who have demonstrated exceptional revenue generation capability. A number of the leaders interviewed indicated that the reason for their co-leadership was to provide the organization with a broader range of leadership styles, skills, and competencies. For example, one leader might focus on new business opportunities requiring innovation and creativity, while the other ensured proper control and risk management of current operations. Another co-head structure matched a strong ‘‘left-brain,’’ task-focused leader who was good with analysis and problem solving with a strong ‘‘right-brain,’’ people-focused leader who was able to develop talent and build relationships. A few of those interviewed indicated that their co-head role was used for transition management with a clear endgame. The Board wanted to make room for a new CEO while easing an incumbent out – a co-CEO structure facilitated the transition and minimized conflicts among Board members and other vested stakeholders.

DOI 10.1108/10878571011029019

VOL. 38 NO. 2 2010, pp. 15-21, Q Emerald Group Publishing Limited, ISSN 1087-8572

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Co-CEOs at Schwab: a successful experiment The celebrated five-year partnership of co-CEOs Dave Pottruck and founder Charles Schwab at the investment firm generated media attention because of their complementary talents and shared vision. Pottruck proved his mettle as a results-driven executive within the firm for a decade before earning the invitation to share the CEO title with the founder. Pottruck proved to be a passionate, action-focused leader with an appreciation for details and operational excellence. As co-CEO, Schwab focused externally and maintained a customer-oriented vision. Pottruck was hands-on and pragmatic, demanding loyalty from his executives. Schwab was perceived as formal and thoughtful. These differences were openly acknowledged and appreciated within the firm. The partnership ended in 2004 as Schwab stepped aside and Pottruck assumed the solo title of CEO. Fourteen months later, Pottruck departed and Schwab returned as CEO. Their period of productive joint management stands as an example of the potential for capitalizing on differing leadership strengths of a co-CEO structure.

Some firms selected co-heads to manage geographic expansion or a merger. In one case, it was simply impractical for one person to serve the business in the US and Asia; in another situation, co-heads separately served the US and China based on cultural issues. In the case of one merger, the co-head roles were part of the Board’s strategy to support post-merger integration and to provide incentives for collaboration among those influence leaders from each business unit of the merged firms. The intent of assigning a senior leader from each firm as co-head helped to assure fair representation of both firms in business development and staffing decisions (Exhibit 1).

Becoming a co-head – a tough road emotionally The transition from leading a business function, product line, or geographic region to that of co-head of a business unit or organization challenges the habits and assumptions about the nature of personal success. This is particularly true when the co-heads have been former rivals, well schooled in the culture of competition and winning. As one co-head reflected, ‘‘sharing leadership runs counter to what has contributed to my success: my belief in my own decisions, my desire to win, my willingness to take big risks for big rewards, and my ability to act, without another’s approval, and then deal with the consequences.’’ Enacting a joint position forces an examination of the emotional pay-off of being a leader. Past success has required them to display unblinking confidence, rely on their own calibration of risks, and inspire extraordinary performance from talented direct reports. Because of this, the co-head structure runs counter to a desire to be the sole leader the pack.

Co-heads can work together The experience of being a co-head forced many solo leaders to address aspects of the business which they had not previously considered relevant. One leader said: ‘‘Talent-driven Exhibit 1 Different business considerations that support shared leadership

Leader

Retaining high performers

Complementary skill sets

Organization

Transition management

Geographic expansion and/or merger integration

Primary beneficiary

Immediate need Time perspective of Board

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2-3 Year view

businesses are highly subjective. Two people can see the same thing and draw entirely different conclusions. People are prisoners of their perspectives and how you look at a situation will determine what drives your decisions.’’ The initial challenge of successful shared leadership is to craft a set of roles, rules, and responsibilities that leverage the talents and interests of each leader and avoids replicating the silos of function-based power often entrenched in the organization. As one co-leader commented, ‘‘No one wants only half the job.’’ Successful co-heads developed a clear understanding of their distinct roles and responsibilities – distinctions which then were easily seen by those inside and outside the organization. Roles and responsibilities were typically divided by personal style, distinctive competencies, and specifics of the situation that precipitated the co-head structure. Often style differences were distinguished by a task versus people focus. One co-head would focus on developing and sustaining key business relationships, while the other on problems needing resolution. Differences in business competencies tended to reflect functional expertise, such as marketing and sales versus production and engineering, or entrepreneurial zeal versus six-sigma efficiency. While the leadership role was shared, each co-head took primary responsibility for areas of their greater expertise. Decisions still needed the approval of both co-heads. Two situational factors – geographic expansion and mergers/acquisitions – directly affect co-head roles and responsibilities. When growing abroad, co-heads often took primary responsibility for different regions because of cultural factors or language skills. In mergers, co-heads often maintained responsibility for the part of the business with which they had the strongest business relationships. As one co-head noted, ‘‘The goal was always clear – merge the various entities in ways that retain the best people, expand market share, and lower costs.’’

Results of shared leadership Following an experience of shared leadership, most were profoundly affected in their awareness of the scope and importance of their interpersonal skills. Two factors emerged in response to the question, ‘‘What are the most important attributes in evaluating a potential co-head partner?’’ The attributes were described as ‘‘self awareness defined by the courage to face your own strengths and shortcomings, and the ability to be open-minded, including the opinions of others in making decisions.’’ While these traits are often viewed as important for any leadership position, they weren’t salient features of the culture at the firms involved in this study. Why this gap? What contributed to the shift in perspective that resulted in moving these two factors from ‘‘nice to have’’ to ‘‘need to have?’’ A likely explanation is that the co-head experience led to significant personal growth and broadened the co-heads’ perspective of the practice of leadership. In the financial service industry, sharing leadership forced co-heads to acknowledge and leverage qualities which were not previously linked to the revenue-generation model that dominated typical performance. There is evidence that the co-head model promoted the experience of moving from a position of unchallenged authority, with measured accomplishments and oversized rewards, to a situation requiring leadership and interpersonal skills that had been previously untested at this level of need and consequently were less developed than those directly linked to revenue and profit generation.

‘‘ To address the dynamics and efficacy of shared leadership, we interviewed 19 co-heads, the majority of whom have shared the role more than once. ’’

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‘‘ The co-head structure runs counter to a desire to be the sole leader the pack. ’’

At the point of being assigned co-head, the risk/reward equation for personal success changes. The risk and reward factors are expanded to include the failures and accomplishments of the co-head. Many new challenges can undermine success, including: B

Not establishing sufficient trust with former rivals and their subordinates.

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Not effectively integrating the views of one’s counterpart into decision-making.

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Limited self-awareness, particularly about the untested aspects of leadership.

The winner-take-all nature of competitive business reinforces habits of evaluating the intent of others in ways that undermine interpersonal trust. In contrast, trust requires one to become vulnerable to another through sharing information, resources, and control – all of which were previously protected to maintain power. A common misconception that can undermine trust is attributing another’s self-interest as the guiding principal for decision-making. Two examples: ‘‘He took this action because he is only out for himself.’’ ‘‘He wanted to make his people look good.’’ The lack of trust limits the influence of colleagues in strategic situations and tends to diminish the perspective of the leader. Colleagues are viewed with mistrust as they represent former competitors in the race for internal rewards such as promotions or share of bonus dollars. ‘‘It was harder to establish trust than I thought. People are very aggressive about wanting to succeed, and they are good at presenting themselves to maximize their benefit. They don’t want to expose their shortfalls. Under these circumstances, how do you give your partner the benefit of the doubt?’’ To anticipate the unintended consequences of competitive zeal and mistrust, some firms used consultants and coaches to work with co-heads before promoting them. The goal was to have each leader develop greater self-awareness through identifying style differences, behavioral tendencies under pressure, and assumptions that may detract from building mutual trust. The focus was on understanding how the differences in perspective and talent could contribute to or impede the desired business results.

Direct reports found a co-head structure difficult Many co-heads were former rivals; their subordinates often had loyalties to them which trumped allegiance to the firm. Cooperating across political boundaries proved difficult. The best co-head structures demonstrated clear reporting relationships and flawless communication to direct reports on key issues. One co-head discussed the subordinate challenge, ‘‘The burden on subordinates in high-octane businesses is extraordinarily difficult. Subordinates play off each partner and try to pick their favorite, because they are often not sure who carries more weight during the performance reviews.’’ Demands for co-head attention often push the talent-development issues of their direct reports to a lower level of urgency. To prevent this happening, one co-head would assume more responsibility for issues relating to the guidance and development of direct reports than the other. Another way would be to create a structured process, such as a standing agenda for weekly communications, to focus their attention to issues of the performance review, motivation, and the development of others. As in competitive team sports, the notion that team interests must prevail over those of any individual is a message that needs reinforcement. One co-head described a tactic to resolve dilemmas used by their corporate CEO as ‘‘the last supper strategy.’’ When asked to support one co-head in a policy dispute over the other, he told them to spend the evening at a favorite

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restaurant with the goal of saving their jobs. Unless they resolved their differences without further in-fighting, both would lose. This tactic resulted in the co-heads surfacing and reaching resolution on the issue that was formerly filled with partisan politics.

Criteria for success and failure: high stakes, high rewards Five criteria were identified for success of a co-head structure: 1. The breadth and degree of buy-in of key stakeholders at the time of a decision, often determined through extensive feedback from direct reports. 2. Stronger business results in terms of both sales and net profits. 3. More initiatives taken for business growth and expansion. 4. The creation of a more supportive, positive climate along with the retention of key talent. 5. A decrease in personal stress as reported by the co-head. Co-heads who reported the greatest success on each criterion indicated that they were able to establish a positive working relationship with their co-head. They attributed much of their success to a shift in their perspective: ‘‘At some point, I realized that I would have to keep my ego in check and serve the firm. I did not want to be a casualty of my competitive nature. The livelihood of thousands depends upon my judgment. I had to demonstrate trust in my partner [co-head] by giving him the chance to change my point of view.’’ Multiple experiences continued to heighten a leader’s awareness and refine his perspective. The co-heads with multiple experiences identified five benefits of the co-head structure, in order of importance: better decisions, stronger business results, more opportunities for business development, more positive work culture, and decreased stress. First-time co-heads perceived more business opportunities for business development was the most important benefit, with better decisions ranked third. Several other factors distinguished the first co-head experience from subsequent experiences. There was more emphasis on style compatibility or ‘‘chemistry’’ during the first experience. Pre-assignment planning discussions between first time co-heads focus too often on optimistic outcomes at the expense of defining and dealing directly with measures of trust. More seasoned leaders expressed greater tolerance of differences in personal style. Several stated that they were more confident that they could manage personality differences in their second and third shared-leadership experiences because they negotiated more specific ground rules for conducting the relationship and addressing the differences. An important discussion item when beginning a second co-head role was to delineate an exit-strategy or ‘‘endgame.’’ For the experienced co-head, an exit-strategy was an acknowledgement of the risk/reward differences associated with shared leadership and the realization that co-head structures are likely to be temporary.

Common pitfalls to avoid In terms of the downside of co-head relationships, there was agreement among co-heads on the top five most common pitfalls: 1. Distrust of the other’s intentions without verifying or discussing them. 2. Failure to establish or maintain open, two-way communication. 3. Disagreements over issues based on personal experiences or perspectives without challenging their relevance to the issue at hand. 4. Fear of unfair recognition for the other co-head. 5. Lack of respect for the other co-head.

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More experienced co-heads reported less likelihood of encountering many of the above pitfalls – particularly those that could be avoided through negotiations prior to accepting the role. While distrust of the other’s intentions and not enough communication continued to plague second-time co-heads, disagreements over issues, unfair recognition, and lack of respect were less of a problem. In contrast, first-time co-heads struggled most with perceiving unfair recognition, disagreements over issues, and lack of communication. Examples of second-time co-head negotiations relating to recognition included: transparency on bonus arrangements, who would take the lead on administrative issues, and who would lead the discussion in strategy meetings among peers. One experienced co-head suggested that it was imperative that co-CEO candidates thoroughly discuss their business philosophy and differences in perspectives in advance of accepting the position. His assessment: ‘‘Shared leadership involves aligning the sources and forging agreement across disparate groups who have different P&Ls and different motivations. It is helpful to understand the differences in perspective before entering the co-head relationship and this will minimize disagreements about specific issues.’’ This did not seem possible without a coach or facilitator present. Attempts to do so without facilitation were viewed as failing to accomplish the desired level of understanding or acceptance of another’s point of view. Experienced co-heads often recognized distrust of intentions as a pitfall, whereas first time co-heads were less likely to expect or discuss this openly. One new co-head described his reaction: ‘‘Why would you increase the likelihood of failure by discussing the details of a lack of confidence in the relationship? Leadership is based upon envisioning positive outcomes.’’ Not enough communication was an important issue for all. However, when ranking the potential pitfalls in order of importance, unfair recognition was more significant for the first time co-heads. After the initial period of working together, the issue of communication frequently became a by-product of other challenges. For example, if mistrust became an issue, communication tended to focus on a ‘‘need to know’’ basis and conversations explaining intentions and risks were less frequent. When unfair recognition was perceived, some co-heads sought to even the playing field through selectively filtering information.

Words of wisdom to those contemplating a co-head arrangement Co-heads have been used to lead successfully in dozens of world-class businesses. While the structure can be a lasting one, adopting co-head roles is best thought of as an interim strategy that requires careful consideration of corporate context and competitive environment and the risk factors involving the personal dynamics of shared leadership. From our study of those who have served in this role, five recommendations emerge: 1. Discussing the end-game tops the list as it is often directly related to the reason for the creation of the co-head structure. Without a clear reason for creating co-heads with the end-game in mind, co-heads tended to invest precious energy in second-guessing their partner’s motives. 2. Delineating the desired outcomes for each individual as well as the risks of the partnership as integral parts of the initial contract. Without establishing a level of understanding at the outset, time is spent negotiating and politicking rather than leading the enterprise. 3. Exploring the business philosophy within the firm for shared leadership roles, including how the firm measures and rewards cooperation across business units so as to provide the necessary context for resolving issues as they arise. 4. Creating an explicit understanding and agreement on how each is to serve clients and customers – avoiding conflicting advice and gamesmanship in the service relationship. 5. Enhancing communication through various group reporting structures, being sure to include discussions by functional area, product, project, and geography so as to ensure that issues with longer-term implications and less urgency are not neglected.

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About this research The 19 co-heads interviewed were the senior leaders within top tier financial and professional service firms. Some were co-CEOs of an entire corporation and others had complete authority and accountability for a line of business. To ensure an accurate view of the practices in a select group of highly competitive firms, all co-heads were guaranteed confidentiality. The initial sample of five was drawn from direct business contacts. The remaining 14 interviews were gained through referrals. All of those contacted participated in a structured interview. For added insights we also interviewed two coaches of co-heads, as well as ten direct reports of five co-heads.

Recommended reading CCL Research Report, 10 Trends – A Study of Senior Executives’ Views of the Future, Center for Creative Leadership, 2007 The Conference Board, CEO Challenge 2007: Top 10 Challenges, 2007. J.L. Alvarez, S. Svejenova, and L. Vives, ‘‘Leading in Pairs,’’ MIT Sloan Management Review (Summer 2007), 9-14. D. Heenan and W. Bennis, Co-leaders: The Power of Great Partnerships, (New York: John Wiley & Sons, 1999). B. Johansen, Leaders Make the Future: Ten New Leadership Skills for an Uncertain World, San Francisco: Berrett-Koehler, 2009). S. Miles and M. Watkins, ‘‘The leadership team,’’ Harvard Business Review (April 2007): 2-10. J. O’Toole, J. Galbraith, and E.E. Lawler, III, ‘‘When two (or more) heads are better than one: the promise and pitfalls of shared leadership,’’ California Management Review, 2002, (Summer 2002): 65-83. C. Pearce and J. Conger, Shared Leadership Framing the Hows and Whys of Leadership, (Sage Publications, 2002). D. Pottruck and T. Pearce, Clicks and Mortar, (Jossey-Bass Publishers, 2000). D. K. Rigby, K Gruver, and J Allen, ‘‘Innovation in turbulent times,’’ Harvard Business Review (June 2009): 1-10.

Corresponding author Maria Arnone can be contacted at: [email protected]

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