George, the chief marketing officer of a company that distributes high-end tree-care equipment through a large dealer network, just sat through an executive committee meeting and was discouraged. Karen, the CEO had just presented the case for acquiring a competitor whose products are sold through big-box retailers. The presentation included research from the CFO and vice president of sales, after which Karen concluded with, “Any questions or concerns before we proceed?” George knows the acquisition is a sound idea. But he can also see that it means distancing the company from its strong customer value proposition and from years of advertising that has stressed the expertise of those dealers. “That”™s the way it always is,” George thought. “Karen and a couple of others make the big calls in private and the rest of us find out after the decision has been made. Why bother to have an executive committee if all we do is rubber stamp the big decisions?”
The above example of decision-making occurs in organizations of all types and sizes. Alexander the Great had Aristotle, FDR had Harry Hopkins and Bill Gates had Steve Ballmer. While CEOs have executive committees and boards of directors, most seek the advice of a less formal, inner circle when making big decisions. Why?
Teams in general are unwieldy vehicles for making difficult decisions. Tapping into an executive committee to provide information that forms the basis of a decision is invaluable, but pulling the entire team through a complex decision-making process, which often involves changing information, multiple meetings and a fast time line is difficult. In addition, the team could have members with conflicting roles. Executive committee members are often heads of divisions or have departmental responsibilities that may be adversely affected by the decision.
Another problem occurs when C-suite executives are unable to think strategically, at a company level. Members of a management team or executive committee often rise to their positions of influence because they excel at creating high-performing teams in their field of expertise. This can cause their view to be more parochial and often leads to discussions against moving forward with a plan because of the tactical obstacles the plan may present.
What tends to happen is a CEO will, over time, gravitate to the people with more valuable views, often found inside and outside the company. An informal inner circle creates a flexible situation for the CEO with minimal downside because: a) its members can change depending on the talent needs of the CEO; b) it is not on any corporate organization chart, so employees can”™t lobby for inclusion; c) it can be filled with people outside the organization, who have no stake in the decision”™s outcome; and d) it leaves the executive committee”™s time to be used more effectively.
It”™s the responsibility of the CEO to find smart, experienced people to help. That though, is not an easy task. “During five years of research I spoke with dozens of leading CEOs, and an equal number of top managers, about their closest, most trusted advisers,” wrote adviser Andrew Sobel in “Who Advises a CEO?” on the website AndrewSobel.com. “The results were surprising. Most of us would assume that CEOs have access to the best advisers in the world and regularly profit from their wise counsel ”“ yet many corporate leaders professed great difficulty and frustration in finding truly objective individuals to help them resolve their most important issues.”
Research shows that boards of directors now function less as an advisory role, and more as a shareholder advocate and therefore may not be the best choice when seeking advice.
Utilizing the right members of your management or executive team will provide insight that others outside the organization will not have. These people know your business, employees and customer”™s best. Look to include members who are nay-sayers and pessimists and who are willing to point out flaws in the CEO”™s logic.
But, there are parts of a decision that even the most objective and informed employee may not be the right one for a CEO to seek council. “Jim Robbins, president and CEO of Cox Communications, summed it up when he told us, the adviser has to come from outside your organization. It is not a good practice to divulge all to a guy who reports to you. You sacrifice an important element of your leadership,” Sobel said.
So, a good recipe for making a big decision will be to include persons both inside and outside the organization who can think strategically and who are willing to disagree with the CEO. But after all the analysis is made, advice is heard, thoughts are absorbed and discussed, it”™s the CEO who has to make the big decision.
Mark L. Fagan, CPA, is managing partner of Citrin Cooperman”™s Connecticut office. With more than two decades of audit, tax and business advisory experience, his areas of expertise include business formation, profitability enhancement and mergers and acquisitions. He can be reached at 203-847-4068 or at mfagan@citrincooperman.com. Citrin Cooperman is a full-service audit, accounting, tax, and business consulting firm with offices in White Plains; Norwalk; New York City; Plainview, N.Y.; Livingston, N.J.; Bethesda, Md.; and Philadelphia. The website is citrincooperman.com.
