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Software Companies Abandon Co-CEOs, Exposing the Model’s Risks

(Bloomberg) -- SAP SE’s abrupt decision to scrap its co-CEO leadership structure was another vivid example from the software industry that two chief executive officers look better on paper than in practice.

SAP became the third of its peers to abandon the dual-CEO model, just six months after returning to the structure with the appointments of Jennifer Morgan and Christian Klein. The rationale at the time was that Morgan would remain in the U.S. and play a prominent role overseeing the German technology giant’s extensive American operations. Klein would be based at headquarters. Both young executives would help fill the shoes of departing CEO Bill McDermott, a charismatic American who led the company for a decade.

But time and the novel coronavirus pandemic exposed the risks of having more than one boss: Two executives must sign off on decisions, which often slows operations and generates competing spheres of influence within an organization. SAP’s late Monday announcement that Morgan would depart at the end of April followed similar decisions by Oracle Corp. and Inc., software makers that experimented with twin leaders before returning in the past six months to a sole CEO.

“Two heads are not better than one,” said Charles Elson, the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “When you have two CEOs, there are inevitable clashes between the two. One will dominate and the other has to go. They always end up with one person being CEO.”

Over the past two decades, companies as different as Citigroup Inc. and BlackBerry have attempted to share power between co-CEOs, only to drop the effort after little success.

“When times are good, it’s easier to be more relaxed — take a little longer, hold a little more conversation before decisions,” Mark Moerdler, an analyst at Bernstein, said. “When times are more difficult, that’s where you need to be able to make a cohesive decision. If the two of them at SAP couldn’t make decisions together, obviously that was a failure.”

The two-CEO structure only works well if there’s a clear division of labor and the participants are determined to share power, analysts say.

Salesforce saw its co-CEO structure unravel within 18 months. In February, the San Francisco-based company said Keith Block had stepped down from his post as co-CEO for a vague new chapter, but would advise company co-founder Marc Benioff, co-CEO at the time with Block. The company was explicit that Block wouldn’t be replaced and Benioff would go back to being the lone CEO.

“In Keith and Marc, Keith was a very strong person, Marc is a very strong person,” Moerdler said. “While Keith was more operational than Marc, there was still a significant overlap in responsibilities. You start seeing strong people being unhappy sharing power.”

The longest a large tech company has lasted with two CEOs recently is five years, at SAP early in McDermott’s tenure, and at Oracle. Safra Catz and Mark Hurd began sharing the Oracle CEO title in 2014, with Catz focused on finances and Hurd acting as chief salesman. Both made decisions in concert with Oracle co-founder Larry Ellison, who remained an engaged executive chairman. Elson said the arrangement lasted because Ellison ran the show and the pair were, in reality, sharing the No. 2 role, as they had for the previous four years as co-presidents.

“Safra and Mark worked fine because they had two different skill sets altogether,” said Anurag Rana, an analyst at Bloomberg Intelligence.

Companies often consider two CEOs because they fear no one person has all of the talent or energy to run the show. Large companies need a strong financial expert who knows where every dollar goes, an operational person who leads the workforce and an enthusiastic public face for customers and others, Moerdler said.

There’s no reason you can’t appoint two people as CEO “if you are mixing the responsibilities,” he said.

But the model is often a compromise made to appease different constituencies within a company. And when conditions aren’t ideal -- personalities clash, crises arise -- companies change course.

When Hurd died in October, Oracle opted to keep Catz as the sole CEO rather than find her a new partner in the post. SAP, meanwhile, has gone back and forth between co-CEOs and having a single person in charge.

“Nothing ever changes at SAP and Oracle,” Rana said. “They are stagnant companies. They have massive support bases. They can experiment with new executives and still do all right.”

SAP hasn’t ruled out another flip-flop after the Covid-19 pandemic.

“I have always believed that co-CEO models have their place and their time; after all, I was a co-CEO once,” SAP Chairman and co-founder Hasso Plattner said in a memo to staff. “But this has turned out to not be that time. Therefore, for the benefit of our company and our customers, we felt it was crucial to have one sole CEO navigate us through this unprecedented change.”

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