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Published: May 24, 2011
 / Summer 2011 / Issue 63

 
 

CEO Succession 2010: The Four Types of CEOs

Hammergren notes that it would be extremely difficult to move McKesson to a model of full operational involvement. “Given the complexity of our company, it would be impossible for the CEO to call the orders every day on the execution side. I wouldn’t be close enough to the fight to know which way to send the troops; and the people who run these businesses would get disenchanted and disheartened, because I would probably not do their jobs as well as they do them.”

Operationally involved companies (Model 4) are enterprises in which the corporate core is involved in management more directly. This does not mean that the CEO and top team are involved in every aspect of day-to-day management; execution remains the business units’ domain. Rather, the corporate core adds value through the development of cross-company capabilities and functional expertise, and gets involved in strategic decision making for most or all business units. Because of the highly engaged nature of the corporate core in managing the business, these companies are typically focused within a single industry.

Ford Motor Company under CEO Alan Mulally is a good example of an operationally involved corporate core. According to an Economist article published December 9, 2010, Mulally began to convene weekly meetings of his senior team soon after he arrived in September 2006. He pushed the attendees to bring up operational problems and collaborate in solving them. When the head of Ford’s operations in the Americas admitted that his group had a serious problem with defective parts, instead of falling from grace, he was applauded by Mulally, who exclaimed, “Great visibility.”

To maintain a tighter rein on the carmaker’s fundamental business, Mulally and his key lieutenants decided to concentrate on the Ford brand and divest the Premier Automotive Group — a collection of high-end brands that had been acquired under previous regimes. The company quickly sold Aston Martin, Jaguar, Land Rover, and Volvo. Ford also decided to produce a much narrower range of cars built on a few core platforms, focusing on quality and flexibility. At one point, Ford produced nearly 100 different models around the world; now it is down to a third of that number and may go lower. For clarifying and simplifying the management challenges at Ford, “you cannot believe the difference this makes,” noted Mulally.

The Most Challenging Corporate Model

As part of this year’s study, we identified which of the four corporate core models applied most closely to each of the 291 companies that experienced a succession event in 2010. We based our analysis on such factors as the number and diversity of business units, the degree of activity sharing among those units, and the number and proportion of senior line and staff managers. We also called on our own firm’s industry expertise and our direct experience with many of these companies. The breakdown that emerged from this sample was broadly consistent with what we have observed in the general population of global corporations — 10 percent were holding companies, 20 percent were strategic management companies, 30 percent were active management companies, and the most numerous, at about 40 percent, were operationally involved companies.

The corporate core model clearly seems to influence the CEO’s experience in office. For the 291 succession events that occurred worldwide in 2010, the tenure of the CEO in the operationally involved companies was unquestionably shorter and riskier. In fact, the tenure of a holding company CEO is a third longer, on average, than that of an operationally involved CEO. (The median tenure of a holding company CEO departing office in 2010 was 6.5 years, whereas the median tenure of an operationally involved CEO was only 4.9 years.) Moreover, CEOs in Model 4 companies are much more likely to depart during their first four years than CEOs in the other three models. (See Exhibit 6.)

 
 
 
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Resources

  1. Gary Neilson, Etienne Deffarges, Paul Kocourek, and John Elting Treat,  “Putting Headquarters in Its Place: The New, Lean Global Core,” Booz Allen Hamilton white paper, 1999: This and other Booz & Company research covers reorienting your corporate core model.
  2. Ken Favaro, Per-Ola Karlsson, Jon Katzenbach, and Gary L. Neilson, “Lessons from the Trenches for New CEOs: Separating Myths from Game Changers,” Booz & Company white paper, January 2010: The practices that will substantially contribute to success for new CEOs.
  3. Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson, “CEO Succession 2000–2009: A Decade of Convergence and Compression,” s+b, Summer 2010: Last year’s study documented a decade’s worth of CEO succession trends and noted how governance norms are converging and the job of the CEO is compressing, in terms of both tenure and capacity.
  4. Bruce A. Pasternack and Albert J. Viscio, “The Centerless Corporation: A Model for Tomorrow,” s+b, Third Quarter 1998: Introduces and explains the four corporate models.
  5. Inside the Kraft Foods Transformation,” introduced by Chairman and CEO Irene Rosenfeld, s+b, Autumn 2009: Insider’s view of a company moving from an operationally involved to a strategically managed model.
  6. For more on this topic, see the s+b website at: www.strategy-business.com/strategy_and_leadership.