In the weeks that followed the first signs of infertility in the US home mortgage market in the new century, panic gripped boardrooms in America Inc. According to the US Government’s Department of Commerce, these dates correspond to the Aug-Sept months of Q3, 2008. Then, the shock was expected, accepted and came with reasons. [Till Q3, 2009, the US economy continued going downhill with GDP growth recorded in the four quarters leading to Q3, 2009: -2.7%, -5.4%, -6.4% and -0.7%]. Corporations which till then had been a symbol of America shining, had fear in their minds – they wanted to avoid losing the pounds gained since 2001. And those who had been doing quite the opposite, sensed a threat to their very existence. One of them was Motorola.
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(L-R, starting opposite page): Sanjay Jha (CEO, Motorola Mobility Solutions) & David Brown (CEO, Motorola Solutions) – co-CEOs whose roles and divisions were split after an initial failed start; Anshu Jain & Jurgen Fitschen (Co-CEOs of Deutsche Bank) – an unwelcoming reaction from the stock market on their appointments; and Mike Lazaridis & Jim Balsillie (co-CEOs of the troubled Research-In-Motion) – who will go first? |
Since Motorola became a victim to the co-CEO leadership practice, its decline accelerated. Until Q4, 2010, the company’s share in the worldwide mobile market – despite an 888.8% rise in sales of Android handsets (which was Motorola’s bet) – had fallen to 2.1%. And how did the co-CEOs do worse for the company than the much criticised authoritarian-andbureaucracy- promoting CEO Zander? While under Zander (between Jan 2004 and Jan 2008), the company had gained 1.2% in market share (to touch 17.5% for Q4, 2007), with its m-cap too appreciating by 24.0% to touch $39.01 billion (as on Dec 31, 2007), under the two co- CEOs, within just a year-and-a-half (between Q3, 2008 and Q4, 2010), the company besides losing 7.4% of the global market share, eroded more than half (55.56%) of their shareholders’ wealth – to touch a lowly $9.26 billion as on December 31, 2010. While everyone – from a near-dead HTC to the ever declining Nokia – moved ever so swiftly to capture opportunities in the 4G market, Motorola, under the duo remained every so dedicated to its engineering and careful to market culture [rather, slow – proof is the delayed launches of its Droid Bionic and Xoom 4G update]. This co-CEO arrangement suffered from delays in decision- making. In an interview with BusinessWeek, Jha had confessed that he takes about “90 days to assess a situation before taking any final decision.” Naturally, much time is spent in convincing the other co-CEO – Brown. 90 days to take any call in the world of mobility beats any logic. The Economist, in a Mar 2010 piece titled, ‘The Trouble with Tandems’, puts the problem with co-CEOs theory rightly: “Joint stewardships are all too often a recipe for chaos. Rather than allowing companies to get the best from both bosses, they trigger damaging internal power struggles as each jockeys for the upper hand. Having two people in charge can also make it tougher for boards to hold either to account. At the very least, firms end up footing the bill for two CEO-sized pay packets.”
The shareholders at Motorola (led by Carl Icahn), having finally realised that this joint-leadership is doing no good to them, split Motorola into two separate companies in Jan 4, 2011 – Motorola Solutions (headed by CEO Brown) and Motorola Mobility Holdings (headed by CEO Jha). Going by the financials during the two bygone quarters, it appears that both the companies are en route to safety. After losing $4.29 billion in FY2008 & FY2009, within seven months of the split in roles, it is quite visible that the move is working – the combined net m-cap of the two firms have reached $19.92 billion (a rise of 115.12%), and the two companies have also become more profitable (with a 206.93% y-o-y increase in PAT for H1, FY2011 to touch $709 million). Motorola invented the 6-sigma more than two decades back. It can’t have two CEOs in the name of ensuring quality, and missing out on timely meeting consumer demands. One CEO on top will do.
Trouble in cases where joint bosses are calling the shots, is not rare. The most recent instance being that of RIM which is led by co-Chairmen and co-CEOs Mike Lazaridis and Jim Balsillie. While Balsillie is the techie, Lazaridis is the salesguy. This combination was supposed to bring out the best in RIM. It has not. Considered to be amongst the biggest threats to Apple and Nokia, RIM’s co-CEOs structure has succeeded, but only so far as to please its small target audience with handsets that lack variety. Three years back, RIM’s mcap stood at an all-time high of $73.47 billion (Q2, FY2008). Since then, RIM has lost 84.14% in m-cap and is today, worth only $11.65 billion. In fact, over just the last five months, with delays in the launch of its tablet Playbook (and the poor reviews) the company’s share price has fallen by 65.5%. RIM in Q1, 2011, lost 5.1% of its global market share y-o-y (which fell to 14%). On the other hand, Apple (rise of 3% to 18.7%), Samsung (+6.5%; 10.8%), and even HTC (+4%; 8.9%) grew their respective pies. And the future? Both IDC and Gartner have bad news for RIM, whose market share is forecasted to fall to a lower 13% by 2015. For others, the picture is pretty. Android (43.8%), Apple iOS (19.9%), the Nokiasaviour Windows Phone 7 (20.3%) are set to rise further. So where lies the rub? Industry experts claim that RIM is not making a bad product. It is only that the company is not delivering what customers want to pay for. And this is where the two co-CEOs are finding hard to match their thoughts. Lazaridis would prefer selling something unique and mass-pleasing, while Balsillie does not seem too confident about RIM representing simple technology. A case in point of this company making a product unnecessarily complicated is the Playbook tablet. Why on earth would any user want to link his tablet to his smartphone to even send an email? Again, time is lost, and the worst case scenario is right in front of the world. Smartphones with no innovation, tablets that are not selling for the right reason (at present, what RIM is selling is a half-baked tablet, on which there is no email app, no calendars, no notes app et al), and two co-CEOs whose performance cannot be questioned as they are also the co-Chairmen of the Board of Directors of RIM. Balsillie should step down and perhaps assume the role of the CTO and Laziridis should continueas the sole CEO and not allow geeks to force him to sell engineering feats that do not help win customers’ dollars. What RIM needs to do fast is to make rapid, incremental alterations to its hardware, software, and platform products. If it does not, it only risks giving up the high-end status cult-crown, and will over time, slip in the priority lists of carriers, and witness a constant fall in margins. Remember: Palm was also once a smartphone leader, but is today, almost nowhere on the charts. RIM can become the second Palm. Balsillie cannot even blame any lack in R&D dollars for not getting his products right. Warren Buffett once wrote in one of his book titled, ‘On the Interpretation of Financial Statements’, that, “If a company has to spend more than a certain percentage of its gross profit on R&D, its competitive advantage cannot be sustained...” According to him, that percentage is 15%. RIM spent 15.86% of its gross profits in R&D last year (FY2010-11). See where the problem is? The geek co-CEO is burning cash, while the salesguy co-CEO is only getting complex stones to sell! Summing up the solution, Rick Wartzman, Executive Director of the Drucker Institute at California- based Claremont Graduate University writes in a BusinessWeek article titled, ‘RIM’s Prickly Board Problem’, “Some governance experts have long suggested that a good way to foster the kind of independence Drucker advocated is to have one individual acting only as CEO and another individual acting strictly as Chairman of the board. Indeed, over the past 25 years, the trend toward dividing these jobs has accelerated, so that 40% of S&P 500 companies now follow this practice. With RIM having had trouble launching new products, its profit forecast dwindling, and layoffs mounting, the board needs to demonstrate that it understands management’s performance is nothing to phone home about.” Strange – in case of Apple, the exit of its CEO is considered a danger to the company. In RIM’s case, the opposite is true!
Other creaky seesaws with two co- CEOs promoting organisational paralysis can be seen too. Bill McDermott and JimHagemann Snabe who have been co- CEOs of SAP, since February 7, 2010, have actually been leading the least-attractive outfit in enterprise solutions business for shareholders. Even in a growing enterprise solutions market (especially after recovery started post-2010), since they took charge of SAP, the company has lost 1.93% in m-cap. In fact, during the very next session of trade post announcement that the duo would take charge of SAP, the stock grew slimmer by 5.82%. To make a quick comparison, since Feb 2010, SAP’s competitors, led by single bosses who can hardly be described as consultative or the sharing types, have done better. While tyrant- Larry Elisson’s Oracle produced a return of 13.77% during the past 17 months, the salesguy-Sam Palmisano’s IBM increased his investor’s money by 40.44%!
It was the two co-Chairmen and co- CEOs Michael Klein and Tom Maheras of Citi Markets & Banking (Citi’s investment banking arm) who led the division to becoming the highest contributor to the bank’s total losses of $29.38 billion in FY2008 & 2009. When Anshu Jain was crowned co-Chairman and co-CEO of Germany’s largest bank (Deutsche Bank; alongisde Jurgen Fitschen) the stock market reacted negatively – one trading session after the announcement on Jul 26, 2011, the stock was down 3.31% to $53.77. Nine trading sessions later (Aug 8, 2011), it had shed 21.86% (at $43.41). Why such a stigma attached to co-CEOs? History is proof. Whether it be MySpace’s Jones and Hirschhorn or Wipro’s Paranjpe and Vaswani or Martha Stewart Living Omnimedia’s Millard and Marino, co-CEOs have always failed the litmus test. And quite spectacularly so. Either the company has suffered or they have been replaced (and the company still suffers!). These outcomes are summarised well by a 2010 paper titled, ‘Shared leadership: Is it time for a change’, in which Dr. Michael Kocolowski of South Florida University writes, “We are dealing with a universal myth: in the popular mind, leadership is always singular. A shared leadership issue to consider involves decision making. Since it is sometimes difficult for a more than one leader to reach consensus, decisions can take longer to make. The benefits of complementary leadership are negated when agreement about organisational priorities differ and irreconcilable differences impede decision making and forward progress.”
When the 20-feet long, 2 tonne-weighing Stegosaurus (a dinosaur that lived in the Woodlands of western North America) was first discovered in 1877, scientists were foreign to the idea of living beings with gigantic lizards & walnut-sized brains. Therefore, a palaeontologist named Othniel Marsh put forward his claim that a second brain resided in the Stegosaurus’ backside, which helped him control the back and lower part of its body. Debates continued over this extinct being that walked the Earth, 150 million years ago. But there is one lesson which this Jurassic Park-page has for today’s board of gigantic organisations that fear extinction: the second brain wherever in the body didn’t quite help Stegogaur’s fate? And it doesn’t seem to be working too well in the modern world either. There can be only one emperor to the empire. There should be only one leader in the corporation!
