More Fun with Co-CEOs: The Economist Responds (And Still Doesn’t Dissuade Me)

The author of the column in the Economist that I cited in my last post has written a kind response, defending his position against my slings and arrows.  On one account he is firmly correct: the article he cited is findable, especially after the correct name of the business journal was published on the Economist’s online site. But access to the actual article he cites only leaves me more perplexed about his conclusions.

In the now corrected Economist column, Schumpeter (a nom-de-plume taken, I assume, from the 20th century economist who popularized the notion of creative destruction ) makes the following claim regarding the prevailing wisdom, unsubstantiated by evidence or the academic article that he cites, that co-CEO’s have a dismal track record:

None of this would matter if there were compelling evidence that having two stars at the top of a company routinely led to stellar stockmarket performance. But research published last year in the Journal of Business & Economic Studies, which tracked the share price of 44 firms that took on dual bosses between 1993 and 2005, found that their shares subsequently performed no better than those of similar firms that stuck with a single leader.

The actual article is a rather dense paean to academic excellence, so I will spare you the details and go right to the authors’ conclusion, which states the following:

Firms who add a Co-CEO experience a weakly positive stock price reaction at the announcement, but other firms in the industry experience a stock price decline. Firms who announce they are dissolving a Co-CEO structure experience a very significant stock price decline and other firms in the industry suffer as well. However, in the year following either adding or dissolving a Co-CEO structure, the firm experiences no significant difference in performance as compared to control firms.

Yes, a co-CEO looks like, on average, a neutral event, though there seems to be some hope among investors that these appointments may be good for the home team and lousy for the visitors. Either way, I would argue that this is a much more nuanced view of the issue than Schumpeter presents, and actually begs a more important question: if the authors of this academic article basically say that there is no particular correlation between the appointment of co-CEO’s and company performance, where does Schumpeter get the idea that ” joint stewardships are all too often a recipe for chaos”?  And how does the above citation from the academic article further the point that appointing co-CEO’s is an innately bad idea. Especially when there is abundant, overwhelming evidence that a single CEO is fully capable of sending a company down the toilet without having a co-CEO at his or her side.

In fact, what I read from the Journal article is that it’s not the number of CEO’s a company has that determines its success or failure, it’s the quality of the individuals that makes the difference (as well as the macro and micro economic rules by  which the company must play).

I’ll leave it at that. “Schumpeter” and I disagree on whether the constitution of SAP’s triumvirate is similar to that of Oracle, and while he admits that he should have mentioned Germany’s cooperative management structure as a reason why SAP would consider the co-CEO option, he continues to maintain that these arrangements are rare because of the problems they generate.

But what I still won’t forgive is Schumpeter’s insistence that riding a tandem bike is hard. When I find the academic article that disproves this notion as well, I’ll be sure to let you know.