WICKED and the Concept of Co-CEOs

One of the topics we’re big fans of at Cornerstone Advisors is Strategic Execution. While some banks ignore long term strategic planning altogether, and others go through an annual process with a facilitator involving a two day getaway to talk about things, few institutions get the “M” for Mature when it comes to actually executing their strategic plan or even their corporate-wide initiatives. Why the malaise? Why the lack of attention to follow through? A variety of reasons serve as explanation including organizational A.D.D.; lack of benchmarks or KPIs (key performance indicators) to measure progress and success; lack of an execution plan (in addition to the strategic plan) with prioritizations and executive assignments; and probably one of the most common barriers – a systemic, cultural inability in the banking world to hold people accountable for performance.

I had the good fortune of being in New York City with my family a couple weeks ago and caught the Broadway play Wicked. In case you aren’t “in the know” (as I wasn’t) as to what the play is about, here is a brief blurb from the Web site:

“Wicked is the untold story of the witches of Oz. Long before Dorothy drops in, two other girls meet in the land of Oz. One, born with emerald-green skin, is smart, fiery and misunderstood [Elphaba]. The other is beautiful, ambitious and very popular [Glinda]. Wicked tells the story of their remarkable odyssey, how these two unlikely friends grow to become the Wicked Witch of the West and Glinda the Good Witch.”

At Shiz University in the land of Oz where Elphaba and Glinda meet, we learn how the unlikely camaraderie between the two characters allows them to charm the rest of the school and essentially become the BWOCs (big women on campus). Glinda has a way of bringing out the dormant charm in Elphaba, resulting in her winning the heart of the BMOC, despite Elphaba’s Kermit-like complexion. Likewise, Elphaba’s tutelage opens Glinda’s eyes to more than the appearance of the people around her. Their combination is a powerful one.

This state of affairs in Wicked led me to start thinking more about the failure of banks to make hard decisions and execute effectively. (Yes, I know – LOSER.) While I may get a rash of not so pleasant feedback from our loyal GonzoBankers, I am going to go out on a limb with a few unabashed observations on why, in general, banks fail to lead effectively and execute.

• Banks are bureaucratic, and bankers are obsessed with titles.
• Executives make organizational decisions based on personalities and “protecting turf.”
• Boards are ineffective at holding the CEO accountable for measurable results that extend past share price, ROA, or ROE.
• Not surprisingly, then, most CEOs are ineffective at holding their management teams accountable for measurable results.
• Succession planning at mid-size banks usually results in an executive that had commercial lending experience at some point in his/her career falling into the CEO position where making loans and measuring success by the size of a portfolio become the culture rather than choosing an executive who can think strategically and lead.
• Elphaba CEOs (oftentimes ex-CFOs) are good at setting up metrics, examining the cost/benefit of projects and paying attention to detail, but management and the troops don’t find them inspiring or someone you get behind to charge the hill.
• Glinda CEOs (oftentimes ex-commercial bankers) have powerful personalities (that become increasingly avuncular over the years), focus on the lines of business, and care about the culture of an organization. They inspire troops to charge the hill but a lack of attention to detail and accountability results in employees not knowing if they’ve reached the summit (or even gotten close) before a new hill consumes the interest of the CEO.

The yin and yang of CEO personalities naturally led to the question of: Why not a two-headed Hydra to lead the organization – a natural complement of Elphaba and Glinda where the whole is greater than the sum of the parts?

Power sharing arrangements at the top are not new, but in the corporate world, especially in mid-size banks, they are a rarity. Most co-CEO relationships started either in family businesses or between co-founders of a business. Despite a general absence in mid-size banking (and credit unions), the arrangement is becoming more and more popular. Which companies have/had co-CEOs? More than you would expect actually. To name a few: Motorola, SAP; Martha Stewart Living Omnimedia; Century Bancorp; Hancock Bank (a rare mid-size bank exception); BofA, Citi, and JP Morgan Chase for many of their businesses; Schwab; National Bank of Canada; Research in Motion; Apollo Group; Concord EFS (until First Data took it over); Saxo Bank; and UBS’s Investment Bank to name a few. Golden West, in fact, before its acquisition by Wachovia, had both a co-CEO and co-chairman structure for over 40 years.

While this is too little space to go into areas like compensation, span of control, collaboration, etc., I want to highlight what is probably the most important topic when discussing this issue: What are some of the key factors a board should consider when thinking about a power-sharing structure at the top of the house? Here are the top five that a Gonzo board may find instructive:

• Succession Planning In my experience, there is an amazing lack of focus in banks and credit unions on succession planning, which is reason enough for a board to consider co-CEOs. Sharing the CEO role can be a very effective way to transition in a new CEO while providing minimal disruption to the entire organization. Unless the bank is about to fail or needs a drastic change in strategic direction, continuity (especially for publicly traded banks) can by key. A board should give serious consideration to appointing the incoming CEO as a “co-CEO” along with the outgoing CEO for a material amount of time (6 to 12 months) to make for a smooth transition. The incoming CEO can learn all the tricks of the trade from the veteran and then make educated decisions regarding what works and what needs to be changed going forward.
• Talent Availability If you have been in as many banks and credit unions in the past five years as the average Cornerstone consultant has, it is safe to say that in both industries (credit unions even more so) there is a dearth of talent ready and able to take over the role of El Jefe. Heck, if BofA struggled as it did to replace Ken Lewis with 100,000+ employees and a management team numbering in the hundreds, imagine what the average $4 billion bank in the Midwest faces when that ex-commercial lender who has been CEO for 40 years is about to head to the lake house in Michigan and call it a day. The talent pool is limited, and execs with the “right stuff” are more than willing to leave to get the top spot. Co-CEOs may be a practical way to hang on to valuable talent.
• Complexity Long gone are the good ol’ banking days of taking deposits, making simple loans, opening Christmas Club accounts, and entering transactions in a pass book. Financial institutions face an environment that is a thousand times more complex than it was just 20 years ago. Everything from technology, payments, remote channels like internet and mobile, complex commercial lending, and regulatory compliance could lead a board to the conclusion that no one person can effectively manage  the spaghetti soup that forms the DNA of today’s bank. Co-CEOs with strengths in different areas (say lines of business for one and back office/support areas for the other) arguably are much better equipped to manage effectively these myriad functions. Motorola took the unusual step of naming Qualcomm executive Sanjay Jha co-CEO with Greg Brown after Brown had already been CEO for over a year to help manage a fast-moving business with incredible complexity and fierce competition. Is the average bank so different?
• Mergers As banks, and now credit unions with alarming frequency, look to merge to achieve scale, a larger branch footprint, and better efficiency to compete with the big evil banks, boards should strongly consider how the enticement of a co-CEO structure could bring the acquiree to the acquirers table much faster. This is especially true in credit union land where CEO and Board egos are the most prevalent reason mergers that should be taking place fail to do so. While power sharing in a merger situation can be fraught with risk, a carefully crafted arrangement with clear delineation of authority and reporting lines can aid in bringing together the best of both institutions rather than the worst. At the very least, consideration to a limited duration power sharing arrangement (say 1 – 2 years) should be discussed and debated.
• The Wicked CEOs While the factors mentioned above tend to be focused on a particular situation, at the end of the day effective leadership comes down to the strengths and weaknesses of individuals including the work and life experiences they bring to the table. After all, every board wants the bank CEO who:
  • Has a solid grasp of all lines of business including commercial, retail, mortgage, consumer, and wealth management
  • Understands how to manage the back office for scalability and efficiency
  • Is current on technology trends and has a solid grasp on how remote delivery channels like web banking, bill pay, mobile, and the call center will be used by customers in the future
  • Possesses a workable knowledge of enterprise risk management
  • Realizes the importance of project prioritization, business case analysis, and effective technology planning
  • Has an effective understand of the regulatory environment and changes that are underfoot
  • Is a gifted public speaker that communicates effectively with Main Street (the bank employees) and Wall Street (the analysts) by setting a vision and a path for achieving it
  • Holds his/her management team accountable by establishing dashboards, benchmarks, and KPIs to objectively assess performance
  • Has a solid grasp of the bank’s financials and is a stickler for effective management reporting

Okay, you probably get the point — no one person possesses all of these talents. While I don’t believe the naming of Wicked co-CEOs that possess the strengths of both Elphaba and Glinda will cover all of the necessary bases, it is fair to say that they stand a good chance of covering twice as many with knowledge, experience, and the right personality/temperament for the situation.

Conclusion

While I am certainly not advocating that the co-CEO approach is right for every institution, for there are many pitfalls to this arrangement I did not discuss, I have been exposed to enough board discussions on succession planning to realize that the thought of power-sharing at the top is rarely, if ever, discussed. Boards, for some reason, simply don’t even entertain the notion. And in some instances, it may make sense.  The co-CEO arrangement may be sticky and complicated and unusual and difficult to implement. But maybe, just maybe, it can lead an organization to improved Strategic Execution. As Elphaba might say, “it’s not easy being green.”

All for now.
–SAS 

Cornerstone Advisors’ strategic planning specialists have helped numerous financial services institutions achieve stability and build a viable, measurable Strategic Plan for the future.

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