The power of two MDs

Co. CEOs in companies are learning to get over the problems of power sharing
When US based drug major Merck bought Schering Plough early this month, it decided to go off the beaten track. Instead of having one managing director (MD) for the merged entity, it decided to retain both: NR will continue to head Merck’s subsidiary MSD Pharmaceuticals in India and KG will retain his position as MD of Schering Plough’s subsidiary Fulford India.
Merck’s power sharing formula management gurus call it “the power of two” has had several takers, the most high-profile of them being Wipro, Cipla and, more recently, Tata Steel.
GP, co-CEO, SV is the other one at Wipro. Before adopting the new model 19 months ago, the IT major conducted extensive research on how the model has worked in the past.
The exercise must have been time consuming since plenty of companies all over the world have made it work. They include technology companies SAP, Google, Microsoft and Twitter.
Just two months back, Tata Steel, the world’s sixth largest steel-maker, appointed Kirby Adams and H M Nerurkar as MDs after the high-profile B Muthuraman retired and was appointed vice-chairman.
At pharmaceutical giant Cipla, Amar Lulla and M K Hamied have been joint MDs for many years, though Chairman and managing director C Y K Hamied leads the company.
The power of two have worked in these companies, though some management gurus have often dismissed the co-CEO structure as a marriage of convenience that can lead to divorce pretty quickly, owing to clashing egos and power struggles. There are sufficient examples of that as well: Goldman Sachs, Unilever, Citigroup to name a few.
N S Rajan, partner and global leader-HR Advisory, Ernst & Young (E&Y), says there should ideally be a single leader for one direction, one purpose and one vision. But most Indian companies that have tried out the power-sharing formula have succeeded mainly because the promoter or the chairman is actually performing the role of the CEO. The joint heads may be, in reality, performing the role of chief operating officers responsible for two strategic business units or geographies.
Rajan has a point as Wipro has Azim Premji, Tata Steel has Ratan Tata as well as B Muthuraman and Cipla has C Y K Hamied.
A management professor at the University of Pennsylvania says the dual CEO structure will confuse employees down the line.
They will be stuck in the middle to decide on whose view should be taken. In such a situation, companies with multiple CEOs will look inward to solve hierarchical issues rather than look outward for growing the business,” he added.
Some companies have decided to have twin CEOs for various other reasons. For example, when they merge or acquire a firm or sign a joint venture – as was the case with Merck in India.
Tata Steel’s acquisition of Anglo-Dutch Steelmaker Corus, which was four times bigger than the acquirer, created a similar situation. In a move to protect the interests of Corus executives, the Indian management retained American-born Philippe Varin as chief executive who worked closely with Muthuraman, then MD.
After Varin quit and Muthuraman retired, the company opted for a twin CEO model.
The top job was shared by the soft-spoken Kirby Adams, who was at the helm of ‘Corus’ European operations, and Nerurkar, an old Tata Steel hand who was the chief operating officer and had spent 27 years with the Indian steelmaker.
The other reason is the vacuum created once a high-profile CEO leaves. In such a situation, choosing just one may change the equation completely, which companies can ill afford.
Companies such as Wipro has obviously thought through the possible pitfalls and consciously tried to plug these. There are very few responsibilities for which they are jointly responsible. For example, company strategy, brand, people policy and financial outcome, those are undividable. But for business lines, service lines, geography, functions etc, we have clear division among ourselves with some balance. Suresh looks at manufacturing, retail, energy and utilities, and the other MD oversee telecom, financial services, media and technology.
This means many CEO jobs are now demanding enough for two people, but the challenge is getting two people to pull it off. The joint CEOs are well aware of the challenges and talk about the need to be sensitive while dealing with a difference in opinion. Since two may not think alike in all aspects, issues get reviewed multiple times.
Ultimately, Paranjpe says the joint CEO model offers more bandwidth to address newer segments and helped streamline operations. Vaswani agrees. Under this model, it is more important to focus on organisational goals and business outcomes. Things get tricky the moment individual goals and objectives start to gain more importance than business goals and objectives. —