CEO Chairman. Two Jobs, One Person

Joseph Mandato is a Managing Director at DeNovo Ventures and William Devine leads the Corporation in Society practice at William Devine Esquire. This post was authored by Mr. Mandato and Mr. Devine.

Do recent events at Boeing and WeWork mean that American corporations can no longer afford to give the CEO job and the board chairman job to the same person?

To recap: during Dennis Muilenburg’s just-concluded tenure as both CEO and chairman of Boeing, Co., the nation’s 28th largest corporation attempted to contain costs and speed regulatory approval by outfitting its flagship airliner with a flawed flight control system. It then failed to tell pilots and the FAA about the flaws, despite apparently knowing about them.

These choices resulted in two plane crashes, the grounding of almost 500 planes worldwide, company losses that will exceed $7 billion, and the loss of 346 lives. Apparently seeing a connection between these results and the decision to let one man try to perform two jobs, the board removed Muilenburg as board chairman.

Meanwhile, during the last three and a half years of Adam Neumann’s just-concluded tenure as both CEO and chairman of WeWork, the office subleasing start-up’s financial reports regularly showed it spending two dollars for every dollar earned. The corporation’s commitment to this burn rate during those years resulted in operating losses that exceed $4 billion.

Apparently seeing a connection between these results and the decision to let one man try to perform two jobs, the board and investors forced Neumann out as CEO.

Unmitigated disaster does not await every corporation whose CEO chairs its board, but before handing those two jobs to one person, consider four points.

First, note that Boeing and WeWork are not alone. Theranos, Wells Fargo, General Electric and Tesla, Inc. have also recently had a CEO who chairs the board and leads the company to high-profile results that are stakeholder-averse, financially grim and/or unconscionable.

Second, understand that the most compelling reason for a CEO chairman is purely practical. A friend who’s founded five successful tech companies recently explained the point to us this way:

In the very earliest stages of a company being formed, I have combined the CEO and chairperson roles, but I’m talking about the nursery school stage, when there may be nobody else to do it. The company may be so small that I can’t attract an experienced chairperson, and it would probably be a waste of their time. But when I take material outside investments, my statement to the investors is that our goal together is to find an experienced, outside chair.

Presumably neither Boeing nor WeWork stayed in the one-person-two-job formation because there was “nobody else to do it.” Each one has had plenty of capital and workload to attract a second organizational leader. So why is it such a big deal to have two competent people doing two jobs instead of just one?

Note that there’s nothing in our friend’s comments about vision as the reason for having a CEO chairman. If the vision for the organization is so ineffable that only one person can articulate it, hold it, and manage it into existence, then perhaps the business plan is less viable than everyone thinks.

Third, understand that the it’s-practical justification for the one-person-two-job formation has a pretty quick sell-by date. Another friend, an experienced Silicon Valley founder, CEO and board member, explains why:

The frustrating paradox about entrepreneurship is that you need persistence and an unwavering belief that your perspective is right. Yet as the organization grows and adds people and complexity, those traits morph into liabilities. Founders don’t intuitively recognize that they’re missing the traits required to be leaders of their now larger and more complex organizations.

As an organization grows, a founder loses control and must open up to influence, collecting information and feedback. These are things that are not intuitively the strongest attributes of someone who was probably told at some point in their evolution that their idea didn’t make any sense and they shouldn’t pursue it.

So even the most extraordinary founder’s skill set is unlikely to match up long term with the skill set required for either job, especially the chairman’s job. The WeWork, Boeing, Theranos and Wells Fargo cases illustrate how, in particular, the strategy, oversight and communication so needed by a corporation and normally orchestrated by the board chairman become forgotten responsibilities if left to a CEO fixated on quarterly targets, world-changing aspirations, or other objectives.

Finally, consider what an organization loses when the CEO chairs the board. Here’s our five-time founder again:

I would argue that organizationally the chairperson should not be the CEO, simply because organizations move in the direction of the questions that they ask. If you have a chairman and a CEO, one and the same, there are questions that might not get asked. He or she could create an atmosphere in the room that is hostile to certain questions being asked, and in that case the organization suffers.

“Having devoted two years to spending two dollars for every dollar we earn, is there an upside to continuing on this trajectory?” Had leaders or investors, e.g., Softbank, at WeWork asked this question and pressed hard enough for realistic, honest answers, the corporation might have moved in a direction that would not have entailed the loss of $4 billion.

“Are we investing enough in design and development to insure safety? Does the FAA really understand our designs well enough to evaluate them? If the FAA is rubber-stamping our designs, what are the potential consequences of that?” Had leaders at Boeing asked these questions and pressed hard enough for realistic, honest answers, the corporation might have moved in a direction that would not have entailed the loss of 346 lives.

Perhaps the best reason for dividing the CEO and chairman jobs between two people is to enhance the quality of questions the corporation asks of itself. Perhaps the best motivation for achieving that division of responsibility sooner rather than later is the recognition that, as long as the organization’s questions are weak, the direction in which its leaders move it will be more or less nowhere.

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One Comment

  1. John A Tugwell
    Posted Tuesday, November 19, 2019 at 8:44 am | Permalink

    Once again, you are right on the nail with this Joe. You have taught me so much on the true role of the Board. Thanks a lot.
    JT

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