How CEOs manage CEOs

30 Aug,2013

 

Although this feature doesn’t specifically look at examples of companies and CEOs from media and advertising, given the number of multiple business heads and senior personnel in M&E set-ups, we bring you this as our second Big Story this weekend – Editor

 

By Dibeyendu Ganguly

 

When Mahindra & Mahindra COO (chief operating officer) Pawan Goenka was re-designated group president for automotive and farm equipment four years ago, he became the CEO to seven other CEOs, each of whom heads his own business unit, with separate functional heads for finance, human resources, marketing and purchase. Each is a powerful individual in his own right – some even have CEOs of smaller units reporting to them – but they are now bracketed together, reporting to a common president at corporate headquarters. “This is the only way to make such a complex business structure such as ours manageable. We have over 150 separate subsidiaries and joint ventures, each with its own CEO. When you grow to such an extent, you need to have a hierarchy of CEOs,” says Mr Goenka.

 

For President Goenka, it’s been a complex exercise in organizational design – almost as complex as the Mahindra Scorpio SUV he engineered ten years ago. As a CEO of CEOs, he is called upon to devolve operational powers and take on more of a strategic role. In the process, Mr Goenka has been constantly redefining the lines of authority between himself and his CEOs. “Too much centralization is the biggest pitfall to making this system work,” he says. “At the onset, we took a call on which areas the CEOs would operate independently and which areas they would work with me. But over time, more and more decision making has devolved down to the CEOs.”

 

While it was made clear at the onset that the CEOs would the have freedom to take operational decisions but would need to consult Mr Goenka on strategic decisions, it was not quite clear what constituted a strategic decision. For example, the appointment of dealers might be considered an operational decision, but Mr Goenka wanted to be consulted on appointments in the six metros, since these were large, strategic dealerships. Similarly, when it came to talent management, he wanted to have a say in top-level promotions, of those above the rank of general manager. And then there are capital investments, where the president needs to consulted if the quantum is large. But what constitutes large? “These things are never written in stone. The lines have been constantly shifting over the past four years, though I’d say they have become more stable now,” says Mr Goenka.

 

To add to the complexity, not all of the seven CEOs reporting to Mr Goenka are of the same level of seniority. Those with more experience and a better track record tend to be given more leeway in terms of appointments and investments than others. These dynamics are hard to formalize and freeze into a manual, but they exist in every large organization. “For an outsider studying the system, these intricacies are not easy to comprehend. They might tend to think that every CEO is the same, but that is not the case. Managing the team dynamics is one of the important jobs of those leading a group of CEOs,” says Mr Goenka.

 

Goenka’s stature as the ‘father of the Scorpio’ and his proximity to vice chairman Anand Mahindra has helped him better manage the dynamics of his team of CEOs. In the beginning, they were a fairly quarrelsome bunch at meetings and he was constantly called upon to step in and play mediator. “Now they have been working together for four years, things are much smoother. Not too much of my time goes into managing disagreements,” says Mr Goenka.

 

While the hierarchy of CEOs can entail different designations depending on the organization, a CEO is generally characterized as one who heads an independent P&L (profit and loss) centre, with his own functional set up. While the Mahindra Group has designated its CEO of CEOs as president, ABB’s CEO of CEOs is its managing director, Bazmi Hussain. Reporting to him are five division heads, each of whom is designated president. Husain’s role is further complicated by the fact that each of his presidents also reports to a global business head. How does he maintain his stature as the ‘first among equals’? “My bio-data is better,” he says. “I’ve worked in multiple divisions, in multiple locations, and have richer experience in terms of both width and depth. I also have a personal brand equity with global headquarters, which is important in a multi-national corporation (MNC).”

 

Mr Husain meets with his five presidents on a monthly basis, where he sees his job as breaking down barriers between the businesses and helping the organization gain synergies. “We have diverse personalities and depending on the topic, the discussions can be calm or heated. People by and large agree on what is to be achieved, but they disagree on how to do it. But I think disagreement is healthy. My role is to combine differing views into a common strategy,” he says.

 

The A League

The matrix structure followed by MNCs makes for distributed leadership, where even the CEO of CEOs has no commanding powers. Indeed, though many of them point to playing an important role in strategic decision making, the fact is that the individuals who have made it the position of CEO of a business unit already have a strong strategic orientation themselves. At GE, ten business heads report to the president & CEO for South Asia Banmali Agrawala and he believes his job is a practical one – to create a balance between sharing resources and being independent. “Sharing resources is critical to a large conglomerate,” he says. “But given the choice, the business heads would naturally like to have everything within their control rather than share. My job is to balance the need for sharing resources and maintaining the independence of each business.”

 

At the corporate centre of the Aditya Birla Group in Mumbai, Kumar Mangalam Birla has appointed CEOs for every sector in which the group operates. For the carbon black business the CEO is Santrupt Misra, who has six CEOs reporting to him, four of whom are CEOs of independent legal entities located across the world. “It’s a natural phenomenon in large organizations,” he says. “It may start as a contingency, where someone at the corporate centre is given responsibility for a line of business. And it’s certainly necessary for CEOs of small profit centres to report to a bigger CEO.”

 

The Birla carbon black business has operations in Egypt and Thailand and Misra has been playing a hands-on role here, since both these regions have seen instability in the past few years. Do the CEOs welcome his intervention? “You can’t remain aloof from operations if there’s a constant problem. You have to get down there and address the problem. When there were floods in Thailand, I got involved. When the Alexandria unit could no longer dispatch products to customers, I got involved. If there are frequent machine breakdowns in a local unit, I get involved. If there is a clear issue, the CEO should not resent it.”

 

Given Mr Misra’s stature in the organization – he was Kumar Birla’s first top management recruit and is also group HR director – not many CEOs would question his intervention. But Mr Misra sees his proximity to the promoters as only one of the factors. “In India, where age counts, it helps if the CEO of CEOs is older and has more experience. If he is of the same age and with the same experience as his CEOs, it will be a challenge for him to establish himself. In the end, your CEOs are high caliber people and you have to persuade them to listen to you. That means you have to listen to them first.”

 

In the federal set-up that is the modern day global conglomerate, one of the important functions of the CEO of CEOs is to interact with the government, the corporate equivalent of foreign policy. In companies like ABB and GE, where the level of interaction with the authorities can be high, the country head plays this role. In some MNCs, the fiduciary role is considered so important that it is the country head’s sole function. At GE, the country head’s role was largely fiduciary, until John Flannery was appointed CEO and given full operational powers four years ago. V Raja was the CEO of GE Healthcare and recalls: “From reporting to bosses abroad, we suddenly had to report to the India CEO and there was some resentment. But I learnt from GE the art of getting a buy-in from all CEOs.”

 

Mr Raja is now president and managing director of TE Connectivity (formerly Tyco Electronics), where he oversees a structure similar to that of GE. How does he get a buy-in from the directors of TE’s four business units who report to him? “The fact that I’ve been in their shoes when I was at GE helps. I know how it feels when you are allocated a cost that hits your bottom line. And it also helps that I’m 55, whereas they are all in their 40s,” he says.

 

The predominant characteristic of distributed leadership is consensus building, often a time consuming affair that requires regular consultation and collaboration. But the CEO of CEO was once an ordinary CEO himself and knows how it works. While there will be disagreement and dissension, a professional would seldom ride roughshod over another. At JP Morgan Chase India, CEO Kalpana Morparia is a part of a matrix with two business heads – asset management and corporate & investment banking – who report to their CEOs abroad.

 

In her former assignment at ICICI, Ms Morparia was one of the several CEOs who reported to the emperor, KV Kamath. Now she’s an empress in her own right and says: “The CEO of CEOs matrix structure needs open communication and trust. If everyone’s interests are aligned, there should be no conflict.”

 

Source:The Economic Times

Copyright © 2013, Bennett, Coleman & Co. Ltd. All Rights Reserved

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