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| Opportunities & Exposures: Industry |
Too Many Chiefs
David Silverstein
10/01/2004
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I was recently conferring with the CEO of one of my clients in the health care
industry. He leaned toward me and announced that he was going to create a new
position in his firm: chief strategy officer. I looked at him and replied, “You
can’t do that.”
“Why not?” he asked.
My answer: “Because you are the chief
strategy officer!” After 10 seconds of deafening silence, he said, “My God,
you’re right.”
Across the corporate landscape, well-meaning executives like
my client are spearheading an alarming trend. They are naming new CXOs to
attempt to solve business problems. Chief risk officer, chief ethics officer,
chief knowledge officer and chief strategy officer are some of the popular new
titles. While a number of these positions have been around for years, this
latest drift is little more than a knee-jerk reaction to calls for improved
corporate governance and to increasing competitive pressures.
We have
witnessed the emergence of new CXO titles in the past, but today’s development
bucks precedent. In the 1970s and 1980s, we saw the rise of the chief financial
officer, chief legal officer and, occasionally, chief administrative officer.
These seemed logical as the complexities of business began to demand broader
skills than the typical CEO had developed in an MBA program 20 years earlier. In
the 1990s we saw the rise of the chief information officer and chief technology
officer during a decade of technological advances.
But the difference today
is clear: These new titles do not reflect demands for fresh expertise in the way
C-level positions in finance and technology do. While a CEO must have a strong
understanding of finance, he does not need to be the leading expert in the
company (unless he works in financial services, of course). To effectively run a
business today, a CEO must understand the value of technology, but he does not
need to be the technology guru.
Consider, conversely, the role of risk. The
role of chief risk officer (CRO) traces its roots to insurance companies, which
must measure and value risk, while mastering the actuarial nature of risk with
sophisticated computer models. In fact, many insurance industry CROs are
professional actuaries. Today, however, CROs exist in fields from financial
service to utilities, with their charters varying widely. Many firms fail to
grasp that naming a CRO sends the wrong message.
Any for-profit business must
acquire capital, then take calculated risks to produce a return. Our goal is not
to reduce risk, but to maximize the return-to-risk ratio. In a sudden reaction
to new legislation, such as Sarbanes-Oxley, and various corporate scandals,
companies are naming new chief risk officers more often than ever. In some
cases, the move is a sincere effort to better manage risk. Yet employees and
shareholders will perceive risk as bad, which is simply not true. In other
companies, CROs are installed to insulate executives and the board in the event
of a meltdown. They can all say, in short, “Look, we tried.”
Savvy firms
will sometimes find it necessary to create temporary positions to help a CEO
propagate new values and strategies. Creating new CXOs, however, should be
anathema. There is nothing untoward about naming a mere special assistant for
strategic planning, or charging the lowly communications director with
implementing an ethics program.
When deliberating whether to add a CXO, the
CEO and the board must weigh two factors: Does the new position constitute an
area of functional expertise? If so, we might justify hiring an executive whose
level of competency exceeds that of the CEO’s. On the contrary, does the new
position require a core competency for business leaders? If so, the CEO should
be the expert. And if this new skill set is vital to the company’s future
success, then it could be time to either pick a new CEO or educate the current
one.
In this new age of executive accountability, we need not dilute the
CEO’s role by naming more chiefs. The market—and the nation—are looking for CEOs
who can lead and assume full responsibility for the company’s most vital
strategies. | David Silverstein is president and CEO of Breakthrough Management Group, a
business consulting firm based in Denver. |
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