Analysing the Makeup of Executive Leadership Teams

One of the central themes of the book (I am going to mention “the book” a lot in the coming weeks and months!) is the form of leadership required to win in the current environment and how those leaders should make decisions. 

Given the constraints of a sensibly-long book, I was only able explore certain aspects of the topic. One piece I removed because it felt too much like conjecture relates to the form of corporate executive teams. My incoming thesis is that in general executive management teams have the wrong skills and perspectives to effectively guide their organisations in times of uncertainty. This is a function of a number of things:

1. A lack of clarity about the actual purpose of the executive team
2. The wrong composition of the leadership team, resulting in an inappropriate mix of skills and perspectives
3. The wrong type of executives being selected to participate in executive leadership

Each of these is covered to an extent in ‘Art and Science…’ but over the next few posts I will endeavour to lay out a deeper argument based on a broader data set. Deeper and broader… a two-dimensional mass of content! This post will focus on the past and present of executive leadership – a foundation for what comes next.

Definitions

In refering to the ‘executive team’, I am talking about the business’ management: those who set and lead the realisation of strategy. This group goes by many names: Executive Team; Senior Management Team; Executive Committee, Management Board to name a few. For succinctness, I’ll try and stick to ExCo throughout. This group is the most senior governance forum below the Board, which consists of the Chairman, Non-Executive Directors and a small selection drawn from ExCo and the only one empowered to directly manage the business.

I am going to stay away from issues relating to the shareholders and their governance responsibilities throughout.

Purpose of the ExCo.

In the book I argue that the ExCo has one very clear function: it sets long-term strategic intention, communicates that clearly down the organisation and uses observations on the market to adjust the strategic concept to match the intention. The strategic concept, in these terms, guides resource allocation towards the intention; the ExCo thus runs a recurring loop of observation and action, leaving discussion of operational decisions to lower forums and leaders.

My observations, however, suggest that the average meeting of the ExCo is not like this. Instead, it is taken up with the minutiae of day-to-day operations. Leaders personally incentivised to report positive news to shareholders quarter-by-quarter and they have typically risen through the hierarchy to manage a formal silo of the organisation. This sets the tone for meetings – short term performance is paramount and each person anchors themselves in the operational domain that they run.

Organisations therefore tend to lack clear long term thinking about their direction and executives are typically rather misaligned on what that direction should be at anything below a surface level of jargon. In turn this leads to organisations failing to direct sufficient resources to evolution of their model and to fritter away what they do have in initiatives that run in different directions to each other: a curious anarchy in the excessively ‘business case’ dominated world of the large-scale enterprise.

A brief history of the ExCo.

Although most of us have grown up with leadership teams taking a relatively-defined form, in truth that form is quite a recent thing. The vast majority of businesses form from a single dominant founder, who scales the business from nothing into an empire. Sometimes there may be two or more generations of leaders who take the essence of a business and further expand it  (McDonalds, WPP, Starbucks, Berkshire Hathaway), but in these too, the organisation is built around the leader.

Historically, therefore, the ‘leadership team’ tended to be advisors that the founder trusted and would refer to at forks in the road. Implicitly or explicitly the founder is seeking to use these interactions to make a map of the environment and the issue such that he or she may see the possibilities more clearly before leaping. Although many founders are meticulous and detail focused, the pressures of running a very large empire also meant that these folks would have ‘fixers’ who would be able to sort out problems as they emerged and could act autonomously. 

The ‘fixer’ is therefore arguably the first historical leadership team role, although it is questionable whether this person truly was a leader per se. The Chief of Staff is really an avatar of the founder, possessing the skills require to effect his or her will. In the 1980’s the Chief Of Staff role began to wane and was replaced by the more grandiose ‘Chief Operating Officer’.

The COO is called such mainly because of regulatory change in the 1960s. Up until this point the financial accounts of companies were the realm of bookeepers, reporting up to the Chief Accountant. That person in turn reported to the CEO. Investment and corporate structuring was a dark art that was best handled by bankers.

A series of corporate scandals led to the SEC insisting that formal, professional financial leadership be incorporated into the makeup of corporate executive teams so that shareholders could be confident in their investments. From 1963 onwards CFOs were installed in all but a handful of listed Western companies.

Management research being what it is, the Chief Financial Officer thus spawned further Chief [x] Officers: a trend that continues to this day. After the COO, we got the Chief Human Resources Officer, to uprate and elevate the Heads of Personnel that had sufficed for generations. As digital computers penetrated the workplace the Chief Scientist became the Chief Technology Officer, a role that eventually blurred into the Chief Information Officer as it became clear that for the most part companies had few skills in – and little desire to pursue – customised computing platforms. Over time these ‘technology’ roles have been a breeding ground for trendy new Officers, such as the Chief Digital Officer and Chief Data Officer, neither of which have any real relevance to the actual purpose of the ExCo, but sound fantastic.

Cheap dig at the ‘Office of The CDO’ aside, in truth there is no formula for the right composition of an ExCo. We should recognise that the function is the same as it always has been – to set long term direction. The CEO is responsible for that direction and accountable for success in protecting and sustaining the organisation. The ExCo should therefore support the CEO and consist of the experience and perspectives that are required to help him or her make better decisions.

Other people within the organisation play a vital role in enabling these decisions to be successful by setting up the nature of the decision making process, providing the required data and observations and, of course, by communicating the strategic concept to others and dynamically repairing it as it meets the real world. Whether those people need to be part of the executive leadership team is another matter entirely. The wrong perspectives and the wrong attitude can spike the guns of an effective process.

The composition of leadership teams today

In embarking on this line of study I realised that I have a fairly banal understanding of the ‘average’ composition of the average leadership team. I therefore set out to analyse the nature and number of roles on leadership teams of major organisations, starting with the UK’s FTSE 100 listed companies. I have also begun the same exercise with the S&P 500, but time and pressures of wanting to market the book ;) has led me to start with the smaller set.

In a substantial minority of cases I was already familiar with the structure of the ExCo, having worked with the business in recent times. In others I reached out to colleagues who knew the businesses to get their insights, and in the remainder I researched online via their investor relations portals and articles about the executives in question… principally on my iPhone in between ‘parenting’.

This technique led to a data set of 72 companies from the FTSE in which I had an accurate view of their leadership team composition. What the data suggests is that there is very little pattern to the makeup of these teams, even between peers in the same industry. I identified 46 distinct roles and there were many sub-variations within them.

In terms of size, the average ExCo has ten members, but the range was from 4 to 17 members with a standard deviation of 3. This alone is cause for some concern. The accepted wisdom in organisational design is that the maximum span of control should be seven direct reports. If we accept that the average ExCo is an operational management forum then we immediate see that the average team breaks spans and layers and thus it is unlikely that the CEO is able to get the most efficient interactions with his direct reports in terms of time spend working with them to relay their personal mission and to hear from them about what they are finding.

Based on the data, the average composition for the ten person executive team is:

• CEO
• CFO
• COO (although only 49% of organisations in the data set have one)
• CHRO (78%)
• One head of a geography (50% have at least one)
• Two heads of a market vertical (75% have at least one)
• A Chief Information Officer or Chief Digital Officer (35%)
• The General Counsel (68%)
• The Chief Strategy Officer (31%)

Some interesting things emerge from this basic analysis:

• Half of companies operate without a COO, which is curious when you consider that the founder would have likely valued the ‘fixer’ or ‘Chief of Staff’ about all other roles
• Despite the fact that the vast majority of growth in the economy is coming from businesses that are either purveyors of software or are strongly enabled by software (e.g. Google, Facebook, Uber, Deliveroo etc…), only 35% of these companies have a CIO at Board Level. This highlights another bugbear of mine: the fact that technologists have become delivery functionaries in organisations
• CMOs are relatively uncommon in this cohort (22% have one) – I will be interested to see if this is repeated in the S&P 500 analysis as ‘customer centricity’ and the primacy of marketing are oft-repeated in business literature
• Few organisations have a senior salesperson on the ExCo, which I consider interesting given that the salespeople are typically the people with the most direct perspective on customer needs and attitudes
• The General Counsel is regarded as a relevent participant at this level of management despite the fact that only one of the organisations in the set participated in the legal market in any way other than as a customer
• Vertical markets dominate the composition in many boards, suggesting that there are businesses-within-businesses and thus that it may be hard for innovation to flourish between the siloes
• Chief Digital Officers are thankfully scarce – only 8% prevelent. This role is one that is incredibly hard to get right in the current management paradigm and therefore almost always attracts the wrong kind of people and results in a huge wasting of resources and time. We are in a Digital Economy. Understanding its nature and doing something to win in it is the responsibility of all executives and can’t be outsourced
• Only 15% of organisations have at least one leadership role that is unique to them and their business model. I consider this to be absolutely fascinating as I am convinced that novelty in the capabilities an organisation has is fundamental to success in uncertain environments. Unless there is systematic hiding of the real roles of senior leaders behind false job titles, most of the businesses in this set are surrounding their CEO with people who have succeeded in the past economy rather than those who are inveting the future one

This post has got very long! When I embarked on the analysis I did not expect to find anything very interesting on the topic of the current state, but in fact I’ve come away with a number of ideas for further research… which will have to wait for the second part of this exercise: positing some new roles and compositions for organisational leadership. Hope you’ve enjoyed this!