OCTOBER 2006
One ‘head’ sometimes better than two

by Randal Godden, Chairman and CEO, at TEC South Africa
This article was first published in Real Business, a supplement to Business Day which appears on the third Monday of every month.

At a recent meeting of our roundtable group of Chief Executives and entrepreneurs, one of the topics discussed at length was the not uncommon situation of joint Chief Executives.

There are quite a few companies with two equal partners, and in most cases they become joint CEOs or Managing Directors. When this occurs, they usually split the various functions in the company between them. The most common split is where sales and marketing goes to one partner, and operations – manufacturing, production and distribution – to the other partner. The central functions, such as accounting and finance or human resource development, are either split or, often, managed jointly.

The actual split should take into consideration the skills base of the partners and, in particular, their personality styles. The more gregarious and people oriented partner should take responsibility for sales and marketing, while the more analytical and detail oriented partner should manage operations.

In many cases the joint circumstance achieves solid results, particularly in the early phases of the business life cycle. For example, in the Infant and Go Go phases of the life cycle there is a degree of freneticism, which, if split between two managers can be more effective. However, as the business moves toward Prime, in the majority of cases the joint management model sub-optimises results.

This becomes evident in a number of areas. The most common short-coming is when the two partners cannot reach unanimous decisions, and issues are “left in the limbo”. This can relate to major Capital Expenditure items, strategic direction or new ventures for the business. The other significant challenge is ensuring that the management team and staff have clear direction and understanding. Too often, two different styles manage people very differently, and with conflicting messages. Additionally, managers tend to play one partner off against the other with less than ideal results.

In one such case we studied, a medium sized manufacturing business serving other business customers only did reasonably well for the first few years. They were achieving Profit Before Interest and Tax of between six and seven percent on sales turnover, which had reached R150-million.

With increasing global competition, particularly from China, results have deteriorated to about a two percent return. Added to this was the inability to determine a clear direction for the business and its people.

The view of our group was that a joint management arrangement will produce a lower profit result due to a lack of clarity in strategic direction, decision making and leadership.

While it is one of the most difficult decisions to make and implement, there are three possible solutions:

1. Retain the joint CEO situation;
2. Appoint one partner as Chairman and the other as the Managing Director, with very clearly defined roles; or,
3. Appoint a full-time Managing Director with the partners remaining as Shareholders and Directors, but with no line responsibility.

It takes great courage and conviction to change the status quo, but in our estimation joint CEOs sub-optimise the results for the business.