Co-CEOs Are Out of Style. Why Is Netflix Resurrecting the Management Model?
July 17 2020 - 8:33AM
Dow Jones News
By Chip Cutter
Netflix Inc.'s decision to elevate the company's chief content
officer to co-chief executive, sharing the power and the spotlight
with co-founder Reed Hastings, highlights a relatively rare
management arrangement: dual chief executives.
In the S&P 500, few companies have co-CEO arrangements, and
a number have recently abandoned the structure, slimming down to a
lone executive at the helm.
Salesforce.com Inc. ended its 18-month experiment with twin-CEOs
in February, leaving Marc Benioff at the top. German software giant
SAP SE ditched its dual-CEO model in April after less than six
months. Oracle Corp. in December said it wouldn't return to a
two-CEO arrangement following the death of co-CEO Mark Hurd,
leaving Safra Catz as the company's sole chief executive.
Human nature prevents many co-CEO setups from succeeding,
corporate governance experts say. Dual bosses can leave employees
confused about who holds ultimate decision-making authority, and
competitive tensions can flare, breeding conflicts at the top, says
Charles Elson, director of the Weinberg Center for Corporate
Governance at the University of Delaware.
"Co-CEOs rarely work," he says. "Two heads are not better than
one."
In naming programming chief Ted Sarandos as a co-CEO, longtime
Netflix chief Reed Hastings said Thursday that the company was
formalizing how the company already ran its business. Mr. Sarandos
has been at the helm of content creation and runs Netflix's Los
Angeles headquarters. The move is also widely seen as setting up
Mr. Sarandos, who is joining the company's board, to eventually
succeed Mr. Hastings.
Unlike some other co-CEO arrangements in the past, Mr. Sarandos
and Mr. Hastings appear to have distinct domains. Mr. Sarandos will
remain chief content officer, overseeing the company's vast
original programming efforts and entertainment offerings, while Mr.
Hastings is expected to continue focusing on the company's overall
strategy and technology.
"In terms of the day-to-day running of Netflix, I do not expect
much to change," Mr. Hastings said in a blog post.
Mr. Hastings has been known to embrace the unorthodox. He has a
management book coming out In September called "No Rules Rules"
about the 20-year-old company's disruptive culture and habit of
reinventing itself. In an investor video Thursday, Mr. Hastings
said he planned another decade at the company.
"As co-CEO, it's two of us full-time, it's not like a part-time
deal," he said. "This is definitely broadening the management team,
and helping us grow even faster."
Even with clear responsibilities, navigating a co-CEO dynamic
can be challenging, experts say. Among the largest U.S. public
companies by revenue, only two currently have a co-CEO structure,
according to research firm Equilar. They are insurer American
Financial Group Inc., run by brothers Carl Lindner III and Craig
Lindner, and Markel Corp., a holding company that primarily sells
insurance and named dual chiefs in 2015.
The coronavirus era only complicates leadership matters. When
SAP moved away from its dual-CEO structure in April, it cited the
need for clear decision-making during the crisis. Co-CEO Jennifer
Morgan left the company, while Christian Klein took the reins as
the company's sole chief.
"More than ever, the current environment requires companies to
take swift, determined action which is best supported by a very
clear leadership structure," the company said at the time.
Jeffrey Sonnenfeld, a Yale School of Management professor, said
Netflix's Mr. Hastings has repeatedly defied critics over the
years, transforming the company from a DVD-by-mail operation into a
streaming behemoth. Still, he expressed skepticism that Netflix's
new executive arrangement would prove long-lasting.
"These co-CEO relationships are really almost always unstable,
with very few exceptions to that rule," he said. "I bet your life
on it that it won't last."
Write to Chip Cutter at chip.cutter@wsj.com
(END) Dow Jones Newswires
July 17, 2020 08:18 ET (12:18 GMT)
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