Co-CEOs and the sharing of power.

• Author: Thompson, Mick L.
• Position: Succession Planning

Let's examine the co-CEO relationship: the prevalence of this practice, the rationale for using such a structure, when to consider such structures, and KEY dos and don'ts in power sharing at the top.

SHARING POWER at the top is not a new concept in American society. It is one of the founding pillars of our democratic political system. Until recently, however, it has not received much attention in the executive suite. In 2000, two of the 10 largest mergers and acquisitions resulted in co-CEO or co-chairman power-sharing structures. Some of the well-known companies that currently use these power-sharing structures include Bed Bath & Beyond. Charles Schwab, Golden West Financial, and Neiman Marcus Group. Other companies -- including Citigroup, DaimlerChrysler, and Bank of America -- also have used these structures recently.

While competitive data shows that these power-sharing relationships have existed and continue to exist in a variety of organizations, many consultants, executives, educators, and board members disagree as to whether power sharing really works at the top of an organization. Those with a more positive view of the arrangement generally say that it works in limited cases. Those with an opposing view of its workability generally cite the many examples where it has failed.

While neither viewpoint has been exclusively supported, power sharing has substantial implications for corporate governance and performance. Board members need to be aware of the salient considerations when confronted with the possibility of a power-sharing arrangement in the executive suite. Some critical issues for board members to explore include the following:

* How prevalent is this practice and under what circumstances?

* Why do companies use power-sharing arrangements at the top?

* When might it make sense for more than one CEO to share the power?

* What are some of the key pitfalls to avoid in structuring the arrangement?

* What reward issues must be considered when using these structures?

This article provides further analysis on each of these questions.

Prevalence of power sharing

Even though some of the biggest recent mergers and acquisitions have resulted in co-CEO power sharing, the structure is still relatively rare. A recent study by William M. Mercer Inc. examined the leadership structures of 6,149 public companies in the U.S. The study revealed that only 0.8% (47 companies) currently have a formal co-CEO leadership structure. In addition, 1.1% (70 companies) have co-chairmen roles, and 0.3% (17 companies) have both co-chairmen and co-CEOs. One highly unusual case is Dril-Quip, an oil and gas industry equipment company, which has three co-chairmen and three co-CEOs.

These executive power-sharing structures should not be mistaken for the concept of co-leadership. The concept of co-leadership is a model in which the decision-making powers and credit for a company's success are distributed beyond the "one person is responsible for everything" model. Unlike co-CEO arrangements, a co-leadership model still has one official leader at the top, but he or she works in close partnership with either one other person or a committee of high-level executives who have powerful decisionmaking abilities and will share the limelight for the company's achievements.

Drivers of power sharing

What drives the decision to use power-sharing arrangements at the top? Based only on recent media attention, one might assume that "mergers of equals" is the primary driver of such structures. While it's true that power sharing at the top is sometimes a result of "mergers of equals," it is not the primary driver of the structure. Of the companies with co-CEOs in Mercer's recent study, only 7% had a co-CEO arrangement as a result of a merger. Additionally, the co-CEO structures created as a result of a merger tended to be the shortest lived. In fact, a 2001 KPMG study of more than 100 companies involved in mergers found that so-called "mergers of equals" had only a three in 10 chance of creating value, especially when two CEOs try to work together.

Generally, when two people come together because of a merger, it often results in a power struggle rather than power sharing. Conversely, these executives may spend a great deal of...