September, 1999 - Volume 3, Number 12

Warren Bennis on Viacom, CBS, and Co-Leadership

On September 7, 1999, Viacom struck the biggest media deal in history when it announced its intention to acquire CBS for $36 billion. The new Viacom is expected to become a $80-billion powerhouse with interests in broadcast and cable TV, movies, radio, theme parks, Internet sites, home video, publishing and billboards. Assuming that U.S. regulators sign off on the merger, the pairing of the two media giants will also bring together two powerful leaders–Viacom’s Sumner Redstone and CBS’s Mel Karmazin–who have agreed to become the new Viacom’s CEO and president. Will both men be able to share power in a way that works to the advantage of the new company and its shareholders? Michael Useem, director of Wharton’s Center for Leadership and Change Management, discusses the challenges posed by co-leadership with Warren Bennis, professor of management at the University of Southern California’s Marshall School of Business and founding chairman of the USC Leadership Institute. What follows is an abbreviated version of the interview:

Useem: You co-authored a book published last March titled Co-Leaders: The Power of Great Partnerships. The announcement of the merger of CBS and Viacom last week created another such partnership between Sumner Redstone and Mel Karmazin. Is there a growing trend for companies to create co-leadership at the top? If so, why is that occurring?

Bennis: This has happened during the past five years for at least two or three major reasons. In one word, the reason is complexity–which has been engendered by the growing number of very, very large mergers. Last year alone, there were $1.6 trillion worth of mergers. This year, though we have a few more months to go, we have had almost $1.2 trillion worth of mergers worldwide. The hugeness, complexity and globalization that result from these combinations makes it very difficult for any one person to have the hubris to run such organizations without sharing power at the top. When you look at the proliferation of the C-word–the CEO, the COO, the CKO (chief knowledge officer), the CFO, the CLO (chief learning officer), the CIO–those are simply examples of how top corporate executives must share responsibilities.

As mergers force organizations and individuals whose cultures are quite different to fuse their operations–as is the case with DaimlerChrysler, for example–we will see more and more examples of companies setting up co-leadership arrangements. Peter Drucker once said that a CEO has to understand and deal with 51 areas of work. So I don’t see any way around the notion of co-leadership. This does not necessarily mean that there will be more co-CEOs. The situation may more closely resemble what is going on at Ford between William Ford and Jacques Nasser, where Nasser is the CEO and Ford is the chairman. But we are going to see more such partnerships at the top, even though they may not be called co-CEOs.

The case of Mel Karmazin and Sumner Redstone is interesting. From what I have read, it seems that they are locked into an agreement in which Redstone is the ubermensch or the CEO and chairman, while Karmazin runs all the units and takes charge of policy, acquisitions and planning. Clearly, this is a partnering relationship. This is true of a number of companies–whether it’s Craig Barrett and Andy Grove at Intel, Bill Gates and Steve Ballmer at Microsoft, Charles Schwab and David Pottruck at Charles Schwab, or Michael Armstrong and John Malone at AT&T. These are all examples of co-leadership….

Useem: What are the implications of co-leadership on who speaks to the board of directors for management, and who speaks to big investors for the company? Or, to put it differently, what advice would you give money managers, stock analysts and directors who have to work with companies that have co-leadership at the top?

Bennis: The ideal situation would be for both leaders to speak for the company, to the board and to Wall Street. I don’t think of Wall Street as a blob; it is composed of individuals who might relate more easily either to Redstone or to Karmazin based on past experiences. Karmazin has been terrifically powerful in Washington. He is really a super lobbyist. He will probably be doing more regulatory work than Sumner, because he is so much more familiar with that territory. Redstone will have more resonance with certain analysts, and Karmazin with others. So I don’t think that there must be just a single voice. As the cliche goes, both must read from the same page but it need not be just one voice that speaks for the new Viacom.

The full interview with Warren Bennis can be found at:
http://leadership.wharton.upenn.edu/l_change/leaders.shtml,
and information on Warren Bennis is available at http://www.marshall.usc.edu/mor/people/BennisW.html.

The New World of the Corporation

Leading up and out can be as important as leading down and around. For managers of publicly-traded companies, the "up and out" includes invertors, and research by Brian Bushee of the Harvard Business School confirms the importance of responding to varying investing styles.

Bushee classified institutional shareholders according to their portfolio turnover (frequency in trading the portfolio’s shares), diversification (the number of companies in their portfolio), and momentum (acquiring shares of companies that announced surprisingly good earnings). He then found that institutions tended to fall into one of three combinations of investing styles:

Transient: High portfolio turnover, high diversification, and high momentum trading (26 percent of all institutional investors).

Dedicated: Low portfolio turnover, low diversification, no momentum trading (4 percent).

Quasi-indexer: Low portfolio turnover, high diversification, reverse momentum trading.

Examining a broad cross-sections of U.S. companies between 1983 and 1994, Bushee finds that:

• Companies that improve their disclosure quality increase holdings by transient investors.

• Firms that attract more transient investors by improving their disclosure subsequently experience greater volatility in their stock prices, reflecting the more aggressive trading by short-term holders.

• When a firm’s investor base is dominated by transient investors, it tends to reduce it R&D spending in response to an earnings decline, while firms with dedicated and quasi-indexer investors do not.

Short-term investors evidently foster short-term managers, and their impact may intensify in the future as companies move toward greater transparency and shareholders move toward more day-trading. To avoid sub-optimal decisions on long-term decisions such as research and development, company managers may therefore want to devise methods for (1) attracting more dedicated and quasi-indexer investors, and (2) ensuring that strategic decisions are not constrained by transient investors.

Source: Brian Bushee, "A Taxonomy of Institution Investors: How Investor Behavior Matters," IRQ: Investor Relations Quarterly, Vol. 2, No. 4, 1999, pp. 13-18; "The Influence of Institutional Investors on Myopic R&D Investment Behavior," Accounting Review, Vo. 73, No. 3, July, 1998, pp. 305-333. Information on Brian Bushee can be found at http://www.people.hbs.edu/bbushee/bio.html.

Leading without Authority

As organizations decentralize responsibility, accelerate outsourcing, and emphasize teamwork, managers find themselves increasingly accountable for results from people over which they no longer hold authority. In Getting It Done: How to Lead when You’re Not in Charge, Roger Fisher (author of Getting to Yes) and Alan Sharp present a handbook for leading horizontally when there is no vertical clout.

In the flattened workplace world, if you instruct somebody to take action, they may hear it as an accusation of past failure, assignment of lesser work, or assertion of higher stature. In any case, they may not appreciate the action’s purpose aside from the order to do it. But how can you lead them if you can’t tell them?

With anecdote and argument, Fisher and Sharp focus our attention on five steps for more effective lateral leadership, for overcoming the everyday frustrations of working with others when there is no boss:

• Clarify precisely what you want to achieve with others: a compelling vision and measurable milestones along the way help.

• Corral the thinking of everybody, rely on the insistence of no one: organizing systematic ways to reach good decisions is key.

• Convert collective insights into collective action: get going even without conclusive analysis.

• Energize all in their own way to get the job done: everyone needs an engaging way to serve the enterprise.

• Help each to do it better next time: learning from doing is superb schooling.

Source: Roger Fisher and Alan Sharp, Getting It Done: How to Lead When You’re Not in Charge (New York: HarperBusiness, 1998).

LEADERSHIP DEVELOPMENT PROGRAM: Leading Fast — May 18, 2000

"Leading Fast: Developing Leaders for Fast-Moving Organization" is the focus of Wharton’s fourth annual Leadership Conference scheduled for May 18, 2000 at the Four Seasons Hotel in Philadelphia. Confirmed speakers include:

Noel Tichy, author of The Leadership Engine: Howe Winning Companies Build Leaders at Every Level (1997), and co-author of Every Growth Business Is A Growth Business: How Your Company Can Prosper Year After Year (1998).

Ram Charan, co-author of Every Growth Business Is A Growth Business and co-author of "Why CEOs Fail," Fortune Magazine, June 21, 1999.

Leadership and Human Resources in an Era of Restructuring

Wharton Executive Education is presenting a three-day open enrollment program in the "Leadership and Strategic Use of Human Resources for Surviving in an Era of Restructuring and Downsizing — Learning from the U.S., the Advanced Nation of Restructuring." Offered in collaboration with the International Centre for the Study of East Asian Development (ICSEAD), the program is scheduled for January 20-22, 2000, in Kitakuyshu, Japan.

Wharton and ICSEAD offered their three-day program in 1999 on "Creation of Corporate Value" and in 1998 on "Corporate Strategy and Management in an Era of Globalization" that drew managers primarily from Japan but also from Korea and Taiwan. Information on the 1999 program is available from Executive Education's representative in Japan, Yumi Wakayama at wakayama@gol.com.

"Management always matters, but in this more complex and fast-paced system, management and leadership matter just a little bit more. When I look at a country or company today I am asking, can the boss do information arbitrage, can he or she be constantly synthesizing six different dimensions at once…. Because if you don’t see the world, and you can’t see the interactions that are shaping the world, you surely cannot strategize about the world."

Source: Thomas L. Friedman, The Lexus and the Olive Tree (New York: Farrar, Straus, Giroux, 1999). Information on the author and book is available at http://www.lexusandtheolivetree.com/