Co-CEOs Two at the Top

By Ed Frauenheim

May. 6, 2009

The co-chief executive officers of Aon Consulting do not always huddle about global strategy, economic turmoil and technological change. They also talk about being co-CEO of a family and being a parent.

Kathryn Hayley has two girls, ages 12 and 14. Her co-CEO, Baljit Dail, has two young daughters.

“We talk about our kids all the time,” says Hayley, 51, who is based in Chicago, while Dail, 42, is based in New Jersey. “We always have the kid stories and how we spent the weekend, and how we’re managing the work/life balance, which is a challenge for every professional these days that’s working long hours.”

At first blush, chats on family matters might not seem material to bottom-line results. But close communication and a healthy relationship are among the keys to success when executive power is shared, experts say. Co-CEO arrangements can flop when managed poorly or put in place for the wrong reasons. But observers say two heads together at the top holds out the promise of smarter decision-making, additional inspiration for the troops and a lower risk of CEO burnout.

Just a small fraction of public corporations have co-CEOs at the helm, and the figure has dipped slightly in recent years. But the number of family-owned businesses tapping the co-CEO model has nearly doubled in the past decade to about one in five.

And co-CEO setups will get more attention, given the way the business world is assessing leadership challenges and failures, says George Houston, faculty member at the Center for Creative Leadership. Houston, whose organization offers coaching and training services, sees co-CEOs in keeping with the move to “flat” organizational structures. “It’s an experiment,” he says. “People are going to be testing it.”

A rare arrangement
Co-CEO arrangements involve two or more people splitting the decision-making duties at the helm of an organization. The concept of sharing executive power has been around for decades, if not centuries. Organizations such as Dell have assigned a pair of leaders to manage a division or region. But co-CEOs remain rare among publicly traded companies. Research by consulting firm Mercer found that as of the end of 2008, just 34 of 6,487 public firms, or 0.5 percent, had co-CEOs. That is down from 0.8 percent in 2001. Having co-chairmen is slightly more common: 0.8 percent had them in 2008, compared with 1.1 percent in 2001.

Some well-known companies that utilize co-CEOs include BlackBerry-device maker Research in Motion, restaurant chain P.F. Chang’s China Bistro and business software provider SAP.

Co-CEOs may arise as part of a succession plan, when the eventual successor to the chief executive spot acts as co-CEO for a time with the departing leader. SAP is a case in point. Longtime CEO Henning Kagermann currently shares the role with Leo Apotheker, who was appointed co-CEO in April 2008 as part of the firm’s executive transition plan. Kagermann is slated to step down from his co-CEO post at the end of May.

Corporate mergers also sometimes result in co-CEOs, as happened when Travelers Group merged with Citicorp about a decade ago. Mergers of equals and resulting co-CEOs can generate headlines, but the arrangements “tend to be temporary,” says Mick Thompson, a principal with Mercer. He says most co-CEO situations involve family-owned firms or co-founders of a company.

That’s true at startup firm Ignighter, a Web site for helping groups of friends meet with other groups of friends to make dating less awkward. Co-CEOs Adam Sachs and Dan Osit, both in their 20s, founded the company in late 2007. They haven’t found a compelling reason to name a single head honcho. “We started out as friends, and that kind of led to” the co-CEO arrangement, Osit says.

“We’re not huge on titles here,” adds Sachs, whose firm has a staff of 12 and more than 30,000 users.

A corporate reorganization paved the way for co-CEOs about a year ago at Aon Consulting, which provides human resources consulting and outsourcing. A unit of Chicago-based Aon Corp., which also offers risk management and reinsurance services, Aon Consulting was put together through numerous acquisitions. That led to inefficiencies that the firm began tackling several years ago under the leadership of Andrew Appel, who joined Aon Consulting as CEO in 2005. In the course of integrating the different pieces and paring back the workforce from about 7,000 to 6,300 employees, both Dail, then the unit’s COO, and Hayley, then head of Aon Consulting’s U.S. business, played key roles.

In March 2008, Appel moved to take the role of chairman of Aon Consulting, focusing largely on strategy matters, and to become CEO of Aon’s reinsurance business. Putting Dail and Hayley together as partner CEOs of Aon Consulting made logical sense, Appel says. “This answer just popped itself out,” he says.

The co-CEO answer is very much in evidence at family-owned firms. About 20 percent of family-owned businesses had two or more people serving as co-CEOs in 2007, according to a study by insurance provider MassMutual, the Family Firm Institute think tank and the Cox Family Enterprise Center at Kennesaw State University in Georgia. That figure was up from 11.2 percent in 1997.

In addition, family-owned businesses are bullish about co-CEOs in the future. Just over 42 percent in the 2007 study said they believe more than one family member may serve as co-CEO in the succeeding generation.

Unclear on results
It’s hard to draw clear conclusions about the business results of co-CEO arrangements. Mercer research found that for the two-year period ending September 30, 2001, the average annualized total shareholder return of companies that had co-CEOs for more than two years was a loss of 16.4 percent. This return was below the average S&P 500 return of a loss of 8.8 percent for the same period.

In a recent follow-up report, Mercer found that total shareholder return levels were slightly worse in companies with co-CEOs and co-chairmen. But this study doesn’t account for all the possible factors for poor corporate performance, and Thompson of Mercer is wary of reading too much into the shareholder return data.

“In the end, it comes down to the two individuals,” he says.

Joe Astrachan, executive director at the Cox Family Enterprise Center, says co-CEO relationships in family businesses typically result either in well-oiled machines or gummed-up works.

“They tend to be extreme,” he says. “It can be much easier or it can be much harder.”

Amid the economic collapse in late 2008, Aon Consulting’s Dail and Hayley presided over an 8 percent drop in both revenue and operating income in the fourth quarter, to $342 million and $55 million, respectively. Rival Mercer also saw its revenue dip 8 percent in the fourth quarter, to $807 million.

Aon Consulting declined to comment on its financial performance compared with its peers. It also declined to disclose what Hayley and Dail are paid. Appel, public records show, earned $6.1 million in total compensation in 2008.

As a sign of the leadership strength of Dail and Hayley, the company points to a slew of recent hires. These include former Mercer consultant Barry Greenstein, who joined Aon Consulting in November as senior vice president in a unit focused on mergers, acquisitions, divestitures and restructuring.

Crucial to co-CEO success is executives who have confidence in one another, Dail says. “To make it work, you’ve got to have folks that trust each other, respect each other,” he says.

Aon’s leaders say much of that trust was forged during the intense restructuring period. “There was an hour-to-hour interaction as we changed the wheels of the train while keeping the train moving,” Appel says.

Now, as co-conductors of that train, Hayley says she and Dail complement each other. “He can be very tough, and is very quick on his feet,” Hayley says. “Sometimes I’ll take what may seem to be a slower route on some things. As we balance that out, I think it works quite well.”

Aon also has sought to divide duties between Dail and Hayley in a clear way. He’s responsible for international business, while she focuses on the Americas. He’s in charge of technology and finance; she oversees marketing and HR.

Problem-solving an issue
Distinct responsibilities for each co-CEO can help mitigate one of the potential pitfalls of the arrangements: confusion among subordinates about how to resolve problems.

Co-CEO relationships that stem from mergers face additional challenges. Often, the result is a power struggle rather than power-sharing, Mercer’s Thompson wrote in an essay on the topic earlier this decade. Or, executives may spend a lot of time trying to treat each other as equals while important work is left undone, he wrote.

Other possible stumbling blocks in co-CEO setups are conflicting messages coming from the different leaders, bloated executive compensation and reduced business agility, with verdicts on key issues taking longer.

Then there’s the basic dilemma of decision-making by a pair. “When you have two people who disagree, what do you do?” Thompson asks.

David Cohen, a Boulder, Colorado-based entrepreneur who runs a program that funds and advises new companies, says startup founders should be wary of co-CEO titles.

“It’s quite likely that the founders have some form of internal power struggle, a conflict-avoidance problem, or have not accepted a clear chain of command and/or division of responsibilities,” he says.

Co-CEO situations also can sink if the leaders aren’t committed to near-constant check-ins with each other, Astrachan says. It takes “not just good communication,” he says. “They need to be communicating at the level of they’re reading each other’s thoughts.”

But if co-CEOs can pull this off and avoid the other problems of power-sharing, big benefits are possible, experts say. Co-CEOs with a high level of self-awareness are not only likely to be effective partners, but are also likely to be more understanding of their workers, Astrachan says. “They’re actually going to be better CEOs for employees,” he says. “They have to be better at persuasion.”

Houston, of the Center for Creative Leadership, says co-CEOs create a natural check on unethical behavior, which has remained a concern from the Enron scandal early this decade up to Bernard Madoff’s recent Ponzi scheme.

“You get a broad perspective with co-leaders,” Houston says.

He says sharing authority at the top also may mitigate the problem of “extreme” executive jobs. Amid high stress and long hours, CEOs tend to last in their positions just three to five years, Houston says. “Part of it is the burnout factor,” Houston says.

Collaboration a plus
Despite sharing the CEO role, Dail and Hayley of Aon Consulting each work about 70 hours a week. But both profess to like the arrangement, which involves touching base on various topics every day. “I think it helps to have somebody to really bounce ideas off of, and have real collaboration with,” Hayley says.

In fact, with Appel retaining strategy duties, Aon Consulting has more of a trio at the top than a pair. And while that can sound like too many residents in the executive office, it turns out to be an efficient approach, Appel says.

“One plus one plus a half is definitely more than two and a half,” he says “You can actually go faster, because you’ve got more capacity for decision-making—if there’s trust.”

Still, Mercer’s Thompson says companies should not leap lightly into co-CEO arrangements. “It’s a big deal,” he says. “It should be carefully considered by the board.”

And it should be carefully considered by prospective co-CEOs. Hayley likens the arrangement to a marriage: “If you’re in this with the wrong person, it would be hell.”

Ed Frauenheim is a former Associate Editorial Director at Human Capital Media and currently works as Senior Director of Content at Great Place to Work. He is a co-author of A Great Place to Work For All.

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