Firms chance their arm on two heads

Investors are wary, boards rarely go for it, but Deutsche Bank has hired joint CEOs. Nick Clark finds it may not be crazy
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The Independent Online

Two heads are better than one, the old adage goes. German financial powerhouse Deutsche Bank will hope that holds true after announcing the appointment of co-chief executives on Monday night. This sort of dual management structure has led to disaster for companies in the past, but there just might be method in Deutsche's madness.

There a few examples of joint chief executives at major global companies, and even fewer who have made it successful. Sean O'Hare, partner at PricewaterhouseCoopers, said: "It is not something I have come across a lot but having two chief executives with complementary skills can be positive for a company. It is understandable. The scale and the complexity of the job has increased."

What's the thinking at Deutsche? It has moved to replace chief executive Joseph Ackermann with two existing board members: investment banking head Anshu Jain, and Juergen Fitschen, the head of the German business.

Christopher Wheeler, analyst at Mediobanca Securities, said as a rule he found companies with two chief executives "unattractive" but not only is this move a political one, to keep a senior German speaker in the top job to soothe domestic tensions, it is one that gives Mr Jain, the non-native, time to win the "hearts and minds of the whole bank".

Mr O'Hare said that with the joint chief executive role, "the ideal is that one will be departing after three or four years, with a natural transition towards a single chief executive".

It was all smiles from the new bosses this week. Mr Fitschen said he could ask for "no better partner". Mr Jain said he was "humbled and honoured at having been asked to lead this great institution together with Juergen". Yet precedent, in the aggressive world of banking, is not on their side, as one expert pointed out. There arrangements can lead to fierce competition. A consultant said: "I don't believe there is any corporate governance issue per se, with having a split or joint chief executive", but the crucial factor is to make sure "there is clarity both internally and externally over who has primary responsibility for which areas and issues, how they divide things up, what the decision-making processes are".

On Wall Street, Jon Corzine, co-chief executive of Goldman Sachs alongside Hank Paulson, was forced out in January 1999. A year later Citigroup's John Reed lost a similar power struggle over at that bank. He had shared duties with Sandy Weill after the pair completed the merger of Citicorp and Travelers. The board was ultimately forced to choose between them and went with Mr Weill.

The strategy, and failure, is not limited to the US. A partnership between John Mack and Oswald Grübel at Credit Suiss fell apart in 2004. One corporate governance expert said: "Equal roles can lead to tension if the two have dramatically differing views on strategy."

Yet not all joint chief roles collapse after a few years. The most high-profile current partnership is at smartphone group Research in Motion (RIM), which makes BlackBerrys. The company has enjoyed startling growth under the stewardship of joint chairmen and chief executives Jim Balsillie – in charge of the marketing aspect – and Mike Lazaridis, the brains behind the technology. Mr O'Hare said: "That is the other way for a partnership to work, if the two executives play to two different sets of skills." However, 2011 has proved tough for RIM. Products have been delayed, the share price has dropped 60 per cent and it has twice warned on profits. The spotlight quickly fell on the management with shareholders calling for the chairman and chief executive roles to be split up. Others have questioned why the company needs two chief executives at all.

Mr Balsillie and Mr Lazaridis agreed to a review of the structure that will report in January. But they defended their dual role. As "partners in the business for almost 20 years" they had built a company with a turnover of $20bn a year. What is the logic of blaming the co-heads structure for the failure now, but not crediting it for the success before?

Mr Balsillie said: "Neither of us could have taken the company this far alone," adding: "Taking the company to the next level of success and growth is also something neither of us can do alone, and something that would be incredibly challenging for someone from outside the company to manage successfully at this critical time in RIM's development."

It is not the only electronics company to appoint dual heads. In 2008, Motorola appointed Greg Brown and Sanjay Jha – handy, since they went their separate ways when the company was formally split earlier this year. And SAP is feeling the benefits of two heads. The world's largest enterprise software group is run by Bill McDermott and Jim Hagemann Snabe. The pair, appointed in February last year, also have very different strengths, with one focusing on investors and marketing, the other on technology and operations.

In the UK, splitting the chief executive role is rare. Yet earlier this month, Richard Branson's Virgin Group re-shuffled its management. Stephen Murphy, chief executive since 2004, is set to stand aside in favour of co-chiefs. The head of Virgin's aviation business, David Baxby – a former Goldman Sachs partner – will take up the role alongside Josh Bayliss, its general counsel. Virgin said the structure was appropriate as they were managing assets rather than an operating company.

Ultimately, whether it is co-chief executives or a cadre of top managers, major corporations need a collegiate atmosphere to function. Mr O'Hare concluded it was difficult for a chief to be accountable to the board for everything from long-term planning to the nuts and bolts of running the group. There is an increase in the numbers of executive chairmen and chief operating officers. "They may not be equal," he said, "but it frees up the head to focus on strategy."

The odd couples...

Deutsche Bank: Anshu Jain & Jürgen Fitschen

Deutsche believes it takes two to replace Josef Ackermann after a decade in charge. Indian-born Anshu Jain, who is a UK citizen, has grown a powerful investment banking franchise, which generates 75 per cent of the company's profits. He is expected to take control of the operational side of the bank, while his counterpart, Jürgen Fitschen, the head of the German operation, will oversee issues in the company's home market. Mr Jain, a keen cricket fan, is in the process of learning German to help pave the way for him to eventually take over the role in full.

SAP: Bill McDermott & Jim Hagemann Snabe

The co-chief executives of German software giant SAP were brought in to pick up the pieces in the wake of Leo Apotheker's departure last year and turn it into a "happy company". Almost 18 months on and Jim Hagemann Snabe and Bill McDermott have stabilised the group, and they back their differences as a crucial part of their success. Mr McDermott, a charismatic sports-mad American, deals with customers and knows his home market well. Mr Snabe, who hails from Denmark and the quieter of the two, looks after product development and knows the intimate workings of the company.

RIM: Mike Lazaridis & Jim Balsillie

Turkish-born Mike Lazaridis was the brains behind the technology that powered Research in Motion (RIM), while his co-chief executive Jim Balsillie helped it sell. Mr Lazaridis, who moved to Canada when he was five, won a prize for reading every science book in his local library and went to study electrical engineering at the University of Waterloo. Mr Balsillie, who is a keen sportsman, studied in Toronto before earning an MBA from Harvard Business School. The partnership was forged in 1992 and has grown a $20bn-a-year business, although it faces significant challenges in 2011.