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How Many VPs Should a CEO Chuck Out if a CEO Could Chuck Out VPs?

By Evan M. Dudik

Over the past few months I've been working with two very different companies. One is a small Internet-based financial services - fast-moving, New Economy, single digit millions in revenues, privately held. The other is a gargantuan health care company with double-digit billions in revenues, over 100 separate profit centers spread around the country. Executive compensation is greater than the GNP of some members of the United Nations. It is a publicly held company with a stock that's appreciated 80% above its low due to some remarkable turnaround efforts.

  • Question Number One: Which one of these companies has the larger top management team?
  • Question Number Two: Which one of these companies has the most effective top management team?

I've worked closely with the top management teams of both companies. Both teams have some very bright, energetic, ambitious people on board. The top managers in the Internet company are young, think they are experienced, ruthless and motivated by stock options. The top managers in the health care company are older, know they are experienced, ruthless and motivated by the potential promotions - and the chance to make their under-water stock options worth something.

In my experience, there have been, typically, only two real determinants of the size of a company's top management team:

#1: The personality of the CEO. Some CEOs are by nature highly inclusive - or they, frankly, enjoy an audience. There is nothing wrong with this. They want everybody in the company who might be affected in the slightest to be part of the team, whether to get their buy-in, applaud and salutate or just receive orders. That's the way it was with the Internet company. Other CEOs are much more private, spending much of the "noodling time" with two or three other key people whose opinions they value. That's the way it was with the former CEO of the health care company. He would go for long walks in a nearby park with he chief legal counsel, who served as general advisor. If the roses had ears, they would have heard the biggest decisions about the company being made during these long walks in the California sun.

#2: The size of the conference room. No, I am not kidding. I have seen this make an enormous difference in the size of the top management team. If the CEO is an inclusive or expansive type (see #1), then the only limit on who's invited is the fire marshal's seating capacity limit.

Of course, I'm exaggerating a little here about the conference room. But I must say, that whenever I've been working with an expansive or inclusive CEO almost invariably every seat was filled, and extra chairs brought in!

Then, too neither of these two factors - the CEO personality or the size of the conference room have any material bearing on how large the top management team should be. That should depend entirely on the nature of the business and where it's going. But it doesn't. I've rarely seen that criterion - "what does this business need?" - applied to the crucial question of who the top management team really is.

By now you've probably guessed the answer to Question One: Which company had the larger top management team? The answer is that the two team sizes were almost identical - even though one company had 2,000 times the revenue of the other, operated in 50 times the number of locations and was a public company! It's as if the size of the company and the complexity of the business weren't related to the top management team size at all!

It wasn't that the large health company's CEO was a recluse. I was never in a meeting in which all the needed people weren't present (and a few whose presence was perhaps at least distracting). It was that this CEO had learned to pare the top management team down to a size where:
  • Ideas can be communicated effectively. This means time for repetition, saying things in other ways and getting feedback to make sure the communication has been received, processed and incorporated into the receiver's mental gymnasium. You just can't do that with a cast of thousands.
  • Responsibility can be localized. This means that the CEO and COO don't have to search the company's employee list to find who was responsible for the important contract bid that was left on the back seat of the Silver City cab last Thursday or why production in the main factory is 12% under target. He or she can make the call to one of seven or 10 phone numbers.
  • Consensus can be gained (when it's warranted). This means that where there are few enough voices that the ones that are there can actually be heard! One of the problems with large teams is that perversely, people have less say than when teams are small. It's often better if the top management team is small but that each top management team members own subordinate team has great access to the team leader in particular and the other team members in general.
Consider this.
  • For a 5-member team, there are 10 possible one-on-one relationships that can be formed and have to be managed.
  • For 7-member team, there are 21 relationships.
  • For a 10-member team, there are 45 relationships
  • For a 17-member team, there are 136 relationships.

And this doesn't even include the relationships among the various sub-groups in the team that inevitable form.

Some will say that American firms have learned from Japanese companies the importance of inclusion and consensus. I totally agree. But having worked with Japanese firms, I can tell you that many times that the consensus is built up in layer after layer of groups of people. It also takes an extraordinary amount of time to ensure that all voices are heard that communication is understood and that meanings are unambiguous. And I can tell you that often the decisions are not really the result of broad consensus at all. Often they're the work of a tiny "in crowd." What looks like the work of broad consensus generation and large teamwork is really a process of selling and creating loyalty.

So it is now also pretty obvious what the answer to Question Number Two is: The huge health care company had the more effective management team. Internet, dot-com aggressiveness to the contrary not withstanding, the very cumbersomeness of the Internet company's top management team got in the way of the job that had to be done.

What should the dot-com CEO have done? Pared down that top management team - all those vice presidents - ruthlessly. You don't need to fire them; you need to give them someone to report to who will listen to them and get the most out of them. Seven to ten is a good number of top management team members. For thousands of years, history has shown that beyond about 12 to 15 people, teams - no matter how talented - are too unwieldy, to indecisive to be effective.

If you can't do that - get a smaller conference room.
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