Alan Mulally on Running a Crisp Leadership Team Meeting

Here's a great response from outgoing Ford CEO Alan Mulally during an interview with the Wall Street Journal.    When Mulally arrived at Ford, he established some basic ground rules for conduct during senior team meetings (he called them "working together behaviors").  Mulally wanted to insure that the team members worked together effectively, and that they used their time efficiently during meetings.  Here, Mulally talks about holding people accountable with regard to these rules of engagement:

WSJ: When was the last time you had to remind someone: "No, you didn't get it."

Mr. Mulally: Every once in a while someone in business-plan review will, say, pull out their communication device and start working on it. We have the entire leadership team networked around the world, and somebody would have the audacity to start working a specific issue instead of being laser focused on helping everybody?  Or they'll talk. At Ford, one of the behaviors is you listen, and you don't have side conversations during the meeting. It's just so important everybody stays focused. So if someone has a side conversation, we just stop and we just look at them, and it's amazing how it doesn't happen again.

For more on those ground rules, please check out this prior blog post. 

The Power of Independent Executives

Does a CEO bring in many new members on his or her top management team after taking charge at a company?  Or, does the CEO have a number of key holdovers from a previous administration?  Does this key factor in the composition of the top team make a difference?  New research by Augustin Landier, Julien Sauvagnat, David Sraer, and David Thesmar (published in the Review of Finance) suggests that having more "independent" executives on the senior team can have positive effects on decision making and financial performance.   The scholars define "independent" to mean executives not appointed by the current CEO.  

The scholars collected data on over 1,800 American companies over a 17 year period.  According to this article in Strategy and Business, here are their results: "Controlling for a variety of factors, they found that even the smallest uptick in the nonindependence of executives caused a decrease in the firm’s annual return on assets of between 0.5 and 0.8 percentage points."

What's going on here?  They argue that CEOs tend to hire people who think like they do. Moreover, executives hired by the current CEO may feel more beholden to that leader.   As a result, they may not be as willing to express dissenting opinions.   On the contrary, an executive hired by a previous CEO may be more willing to push back on high-stakes, potentially risky decisions.  The authors go on to argue that "independence" of senior executives may matter much more than the independence of board members, since the top team meets much more frequently and is much more directly responsible for strategic choices and performance at most large corporations. 

Additional research by these scholars shows that firms with fewer independent executives on the top team also are more likely to make acquisitions that destroy shareholder value.  Here is the key finding:  "Although acquisitions, on average, led to decreases in shareholder value for the companies in the study, firms with fewer independent top subordinates fared much worse, losing about 45 percent four years after they made an acquisition, almost triple the 16 percent loss posted by firms with more of those executives." 

The Changing Composition of Top Management Teams

Maria Guadalupe, Hongyi Li, and Julie Wulf have published an interesting paper that examines the changing size and composition of senior management teams.   The scholars compiled a dataset of US firms from 1986 to 2006.   They found that the size of the top management team doubled during this twenty year period (from 5 members to 10 members).   What drove the increase in size?  The researchers found that CEOs tended to add more functional executives to their senior teams (rather than more general managers with P&L responsibility for specific business units).   For instance, many senior teams now have a Chief Technology Officer, EVP of Human Resources, EVP of Supply Chain, etc.   Finally, the study shows that, "General manager pay decreases as functional managers join the executive team suggesting a shift in activities from general to functional managers-a phenomenon we term 'functional centralization.'" 

Are these trends all positive?  It's not clear to me.  In particular, I worry about the growing size of these teams.  Groups have a hard time being productive and efficient when they grow to double digits in terms of members.  The opportunity arises for more fragmentation within the teams.  Scholars have described a phenomenon called "fault lines" - where subgroups form along certain demographic lines, and friction emerges among the subgroups.  Communication patterns and information sharing may also suffer as team size increases, even if the group remains fairly cohesive.