When Two Heads Are Better Than One
from Summer 2000
by Hilary Rosenberg
When entrepreneur Marc Benioff, 36, started looking for a CEO to head his start-up Salesforce.com, a San Francisco-based online service that helps companies access and manage their sales information, he knew it had to be someone with experience in both taking a company public and running it.
He set his sights on John Dillon, 50, a former U.S. Navy Commander who had served on nuclear submarines before he became something of a regular face in Silicon Valley. He`d worked at Oracle (where he first met Benioff), served as chairman and CEO of Arbor Software, and then as CEO of Hyperion Systems, the corporate offspring of a merger between Arbor and Hyperion Software. Now, he`s the skipper at Salesforce, having accepted Benioff`s offer to help build another company. Benioff carved for himself an unusually flexible, multifaceted role as chairman. He has played the traditional lead in recruiting board members-including Oracle founder Larry Ellison-but he`s also been serving as temporary head of marketing while Dillon looks for someone to do the job full time.
Benioff and Dillon have quite different personalities. "John is a very easygoing guy," Benioff says. "I don`t get along with everybody, I`m very opinionated." But they mesh well and the arrangement works-mostly because they`re clear-eyed about their roles and they trust each other. At the same time, Benioff is adamant that he does not want to run the company. "This is John`s submarine," he says.
Dillon takes his partner at his word: "When we first discussed my coming here, John said he had no desire to be involved in day-to-day management, and he hasn`t violated that."
To Benioff, the glue that secures the relationship is good communication, which he says is especially important in a start-up environment where there are many gyrations. The two of them plan to take the company public when they feel confident about its strengths.
Although European and other foreign companies have long traditions of separating the two top jobs, split leaderships in the U.S. are more unusual. A few old-line companies-Dow Chemical, Humana, and Home Depot among them-have a tradition of keeping the jobs separate. Shareholder activists applaud such structures because they keep boards more independent.
In other cases, dividing the roles is the result of a transition, occasionally one that reflects crisis management by a board. Witness the events at General Motors in 1992. Exhausted by shriveling market share and a string of unkept promises, the directors ousted chairman and CEO Robert Stempel. Outside director John Smale, former CEO of Procter & Gamble, took the chairman`s job while John F. Smith Jr., GM`s top man in Europe, became CEO. That arrangement lasted four years, and only after Smith proved his mettle did he get the chairman`s job, too.
Dividing the top jobs seems to be most popular among technology companies, be they small outfits like Salesforce.com or giants such as Cisco Systems. Some management experts, including Roger Kenny, a partner in Boardroom Consultants in New York City, predict that a greater number of non-tech companies will follow suit. "Its time has come," says Kenny of two-headed leadership.
Maybe. But a lot of things can go wrong, especially if the lines of responsibility are not clearly drawn or if the egos so common in the corner office are too large or too fragile. The arrangement only gets more wobbly when the chairman happens to be a former CEO who has yet to put a date on his retirement. "You create two authority sources, which is confusing to the organization, and the CEO will always be second-guessed," says Charles M. Elson, a professor at Stetson University College of Law in St. Petersburg, Florida.
Splitting the two jobs also can be a major problem when the time comes to look for a new CEO. Most candidates want both jobs, either right now or at a set time in the not-too-distant future. Thomas Neff, chairman of Spencer Stuart U.S., a search firm, says that some CEO candidates negotiate hard over this issue.
Computer giant Compaq ran into just such a problem last summer when two top recruiters failed to bag a CEO from outside the company. A big deterrent seemed to be Chairman Benjamin Rosen, 66, whose reputation for eating up the previous two CEOs was matched by his determination to stay in the top job. Compaq ended up promoting an insider, chief operating officer Michael D. Capellas, 45.
One reason so many technology companies embrace the idea of having a separate chairman and CEO is the "geek" factor. At heart, many tech company founders are really computer nerds whose true talents are in bits and bytes, not profits and losses. They need a professional manager to turn their product into a business and to keep it going, but they also want to stay involved with the company. So taking the chairman`s seat while someone else runs the company as CEO can be a sensible call. And while not every entrepreneur likes letting go, it often is the only recourse if the founder of a company wants to attract the best and brightest. "They`ve learned from others` failures," says recruiter Jeffrey Christian, CEO of Cleveland-based Christian and Timbers. "It`s a talent game. `How do I get the best people? I give up part of my title.`"
A recent survey by the Investor Responsibility Research Center, a nonprofit group in Washington, D.C. that studies governance issues, shows the trend for independent chairmen growing, especially among smaller companies. Among the findings:
- 17% of the S&P 500 companies have separate chairmen and CEOs.
- 32% of the approximately 600 companies in the S&P small-cap index split the two jobs.
Robert Newbury, the deputy director of the center`s corporate governance service, finds the small-cap figure particularly telling. "Usually at a smaller company, you`re dealing with younger management," he says, "and often a more experienced board member becomes chairman to add expertise."
In another survey, this one of board practices at Fortune 1000 companies, executive recruiter Korn/Ferry International looked for companies with independent chairmen who had never worked for the organization. A report released last September found that 9% of the companies have an independent chairman-up from 6% in a similar 1997 study-but that 14% of companies in the high-tech sector have one. (By ruling out chairmen who are former employees, Korn/Ferry effectively excluded those companies that use the dual structure in a transitional path where a CEO hands off that job to a successor, remaining as chairman for a brief period until the new CEO can fill those shoes, too.)
Some argue that with today`s complex business considerations, from global competition to new technologies to e-commerce, leading a company is inevitably a two-person job. At Internet networking company Cisco Systems, for example, Chairman John Morgridge, 66, shoulders part of the burden for CEO John Chambers, 50, by taking on some of the duties traditionally handled by a chief executive.
Morgridge, who also had a chairman above him in the form of Donald Valentine, stepped down as CEO in 1995. He says that at first he didn`t know how he could be of service to Chambers, a former Cisco senior vice president he had hired in 1991. Morgridge says he surveyed Silicon Valley companies that had separate chairmen and CEOs to see how the pairs broke down their roles. He found that there were three types of chairmen: those who do little else but manage or participate in board meetings; those who spend their time courting customers; and those who have found a specific activity for themselves. Morgridge then "wrote a job description for myself," he says, deciding that as chairman, he would focus on two activities: to be Cisco`s liaison with the federal and state government and to be its public face in educational outreach efforts, such as the donation of equipment and funds to schools. "I`m the external spokesman on outreach, and the internal advocate who supports the Cisco people who have this as their job," he says.
Morgridge views the two parts of his job as indispensable to Cisco and its future profitability, but admits that as CEO, Chambers probably has better things to do. For example, Morgridge was on hand one day recently to hear the governor of California announce a $5 billion transportation program. "I said a few words and sat on the platform for over an hour!" But in sum, Morgridge says, "having two people extends the capability of the company, two people that can effectively represent the company in a lot of situations."
Both men are happy with the arrangement. Morgridge accepts that he will play no operating role in the company and, thus, he plays no leading role in setting the agenda for the board meetings or running them. That he leaves to Chambers.
Morgridge seems devoid of the ego that has threatened some power-sharing arrangements. Indeed, he points out that Chambers has steered Cisco in different directions than he did-and admits that, in some ways, his successor may be doing a better job. In particular, he says, Chambers has taken an aggressive stance in making acquisitions, and "in retrospect, we probably should have been more active earlier."
Sometimes necessity dictates a need for power sharing, particularly after a merger. When telecommunications giants MCI Communications and Worldcom merged in 1998, Worldcom CEO Bernard J. Ebbers, now 58, retained that title and MCI chairman Bert C. Roberts Jr., 57, retained his. In the pending merger of MCI Worldcom and Sprint Communications, William Esrey, 60, chairman and CEO of Sprint, will replace Roberts.
Spinoffs present a different challenge. The new CEO, often the division chief who headed the unit, has a daunting enough job in establishing the suddenly independent business. As a result, someone else is often designated chairman and assigned the task of building a board. Hewlett-Packard just divested Agilent Technologies, which makes measuring systems and semiconductor components, among other things. Last year, in the early phase of the divestiture, H-P installed former Executive Vice President Edward W. Barnholt, 57, as CEO. Barnholt was well aware that he needed an independent chairman to help him establish the $1.3 billion-in-sales company. Up until then, says the 33-year H-P veteran, "All of my experience had been internally focused. I had not dealt much with the board." So Barnholt and the three other insiders who comprised the Agilent board began a search for a chairman. They zeroed in on Gerald Grinstein, 68. Not only had he been chairman and CEO of both the Burlington Northern railroad and Western Airlines, but at the time, he was also serving as the non-executive chairman of Delta Airlines. Barnholt says the older man`s experience in the areas of re-engineering information technology systems and external affairs was something the Palo Alto, California company needed. Grinstein signed on and seems to have forged a good working relationship with his CEO.
Not all arrangements come about so agreeably. The General Motors case was nothing short of a boardroom coup brought on by red ink. Nor are technology companies immune from similar problems. Anadigics, a Warren, New Jersey-based maker of integrated circuits for communications applications, grew quickly after its 1985 start-up but tripped on its own feet in 1998. Annual revenues fell that year, to $86 million from 1997`s $102 million, and the company lost $9.6 million versus a $15 million profit the year before. At the time, one of the company`s three cofounders, Ron Rosenzweig, was chairman and CEO. The board decided to look outside for a new CEO. Unlike GM`s Stempel, however, Rosenzweig had business development skills and connections that the board valued, so it kept him on as chairman.
Rosenzweig, now 62, endorsed the new plan and welcomed Bami Bastani, 46, until then a division head at Fujitsu Microelectronics, as CEO. But how did Bastani view the arrangement? He says that it took him a month to become comfortable. Before signing on, he voiced his concerns to the board about his relationship with Rosenzweig and made sure that their roles were clearly defined, with Rosenzweig taking on customer relations, acquisitions, and strategic alliances. He even insisted that Rosenzweig move his office to a separate floor, away from the executive suite so as not to send the wrong message about who was in charge. That issue has dissolved over time and both men now are located in the executive suite.
Within 90 days of his arrival in October 1998, Bastani had restructured the company. The turnaround seemed complete last year, as the company posted $132 million in revenues and profits of $2.6 million. These days, the pair meet privately twice a month to discuss potential acquisitions and alliances.
So is Bastani now a convert to split leadership? Not quite.
He says he would like to see "an industry icon" become chairman after Rosenzweig retires, an event that remains unscheduled. If no one meets the icon standard, Bastani says he could see the company reverting to where one man served as both CEO and chairman. He didn`t say who that might be, but the name he has in mind probably begins with a B.
