Why We Need Fewer Leaders
I’ll never forget what it was like landing my first VP job. Becoming a corporate officer at a public company was pretty heady stuff.
There were just seven of us on the leadership team and 300 employees in the whole company, but we somehow managed to develop some of the most complex computer chips in history and compete with industry giant Intel’s hordes of executives and engineers.
That was nearly 20 years ago. Things are a little different now. Now we have c-level officers for every imaginable function. We have chief accounting officers, chief administrative officers and chief analytics officers. And those are just the chief officers starting with the letter “a.”
Not surprisingly, some of the worst performing companies are the ones with the most bureaucratic and complex organizational structures.
You might expect a company like GE to have dozens of corporate executives and you’d be right. It has 14 CEOs, and I don’t know how many presidents and chief whatever officers. And its board has 17 directors. But it’s a big old holding company with lots of different businesses so, fair enough.
But why should General Motors (NYSE:GM) be organized that way? GM makes one thing: cars. And yet it has six presidents, a chief information officer, a chief accounting officer, even a chief tax officer. GM has 25 corporate officers, all told. And with all that heavy artillery it has just a $51 billion market cap.
Then again, at least GM generates some serious revenue – $155 billion last year. At least there’s an argument to be made for some of those executives. Now if you really want to look at a bureaucratic nightmare-of-a-company with little redeeming shareholder value to show for it, look no further than Xerox (NYSE:XRX).
You’re not going to believe this but Xerox actually has 32 corporate officers. That’s right, 32, including three COOs, seven presidents, 3 CFOs, a chief marketing officer, chief information officer, chief technology officer, chief ethics officer, chief human resources officer, even a chief development engineer, whatever that is.
All that for company that barely breaks $20 billion in annual revenue and a $15 billion market cap.
In contrast, look at Apple (NASDAQ:AAPL). Besides chief executive officer Tim Cook, Apple has a CFO and eight senior VPs. That’s it. And those ten people run a company that makes hands down the best products in the most highly competitive industry on Earth. And it’s a revenue and profit-generating machine that’s worth 13 times more than GM and 40 times more than Xerox.
For the past couple of years, Microsoft has been working hard to simplify its organizational structure, to become more Apple-like, if you will. And it’s paying off big-time with record results and a share price that’s nearly doubled after stagnating for more than a decade.
The concept of simplicity in organizational structure is not rocket science. Companies primarily develop, make and sell products to customers. The more leaders there are that have nothing to do with those primary functions, the less effective the management team. Besides, more layers and corporate bureaucracy inevitably lead to reduced performance. That’s nothing new. We’ve known it for decades.
If it’s so obvious that less is more when it comes to organizing companies, why do so few get the message?
Lots of reasons. Some CEOs are more interested in gaining power and influence than generating long-term shareholder value. Others are not entirely competent and since they lack the ability to perform their primary functions, their answer to every problem that comes up is to hire someone to fix it.
Just look at the federal government. It just gets bigger and bigger with more and more directors, administrators and czars for everything under the sun. Just as it is in most companies, those people never go away. They just keep taking up space and money. And once it becomes the norm, everyone jumps on the bandwagon.
Today we have an even bigger problem, a cultural problem. We’re more concerned with what we appear to be than what we accomplish. We’re more concerned about what we look like and what we say than what we do. Image matters more than results.
That’s why we’re seeing title inflation across our entire society. We see it in the corporate world, in government and in academia, as well. The result is that our entire culture is becoming more bureaucratic. That’s not a good thing.
Is it any wonder that Millennials are more concerned with their personal brands than anything else? Should we be surprised that the vast majority of young people see entrepreneurship as a mindset that has nothing to do with running a company, owning a business or even having a job? Where in the world do you think they get that idea?
Of course, the problem with a society where everyone thinks they’re a leader is that nothing gets done. It’s no coincidence that “title” is the root of “entitlement.”