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EXCERPT:
Charles Schwab
By John Kador

©2002 John Kador
Permission Granted for Reprint for Review Purposes

www.jkador.com

FROM CHAPTER 17: UNFINISHED BUSINESS
In the end, Chuck abdicated his responsibility. By insisting on sharing the CEO title, instead of accepting the chairman role reality has persistently tailored for him, Chuck has failed the main test of a leader. For all of Chuck's accomplishments-and his place at the table of business visionaries of the first order is secure-he has been unable to transcend the limitation that has snared almost every company led by its founder.

Succession is perhaps the most critical responsibility of a leader. The reality is that Chuck has repeatedly stepped away from this responsibility. In this area, the Schwab board of directors has failed, as well.

On the subject of succession, Chuck refuses to engage. "The whole issue of Schwab's transition away from Chuck has not been dealt with," a source close to the board says in that passive voice that passive boards favor. One has only to look at the makeup of the Schwab board to see that this is true. The board has an audit committee, a compensation committee, and a customer quality assurance committee. Significantly, the Schwab board does not have a nominating committee, the venue where strategic succession issues traditionally get discussed. When a board member periodically inquires about why the company does not have a nominating committee, Chuck simply says, "I don't want one" and then changes the subject, according to the source. "Look, Chuck is an icon. It's his name on the door. He has a hard time letting go and is clearly in denial about this. Chuck continues to feel an enormous responsibility for his legacy."

Chuck's unwillingness to take himself out of operating responsibility has had devastating consequences for the company throughout its history. In the early years, he delayed acknowledging that others were more suited to managing the company than he was. In those earlier episodes, the scale of the company and Chuck's personal charisma made the resulting consequences manageable. Today, the stakes are much higher and Chuck is at an age where many companies enforce retirement. The company is simply not prepared for a post-Chuck reality.

Chuck's inability to deal with the inevitability of a Charles Schwab & Co. without him has created an awkward situation for the board and a toxic environment for the executive management of the company. The dynamics at the executive committee level has become so distorted by Chuck's insistence on sharing the co-CEO title with David Pottruck that recruitment is difficult, retention problematic, and healthy executive development almost impossible.

The problem is not the co-CEO structure per se. A number of such partnerships at Goldman Sachs and other financial services firms have demonstrated that the structure is not only viable, but offers a number of benefits. But the arrangement requires the partners to be equals. The most successful co-CEO partnerships in business history are just that, true 50-50 partnerships. But let's be clear. Even the casual observer understands that the co-CEO arrangement at Schwab is not 50-50. Pottruck goes out of his way to acknowledge that Chuck is the senior member. So it's not 50-50. Is it 55-45? Or is it 51-49? It hardly matters. Whatever it is, it diminishes Pottruck without strengthening Chuck. The pretense of equality debilitates the organization.

In 1998, Chuck made a video. The narrator asked Chuck what he wanted the business pundits to say about his company in two hundred years. His response was very uplifting. He said that this "little company on the West Coast" had started a revolution that allowed people who had never had access to financial markets to make a happier and more secure future for themselves, that we had demystified a vital part of the system for the majority of Americans." On that score, the little company that Chuck started, and to which tens of thousands of men and women have devoted their hearts and minds, is a success. Chuck's cause—"to build the most useful and ethical financial services company in the world"—is complete.

"A category of one." For Charles Schwab & Co. it continues to work. But it's an increasingly lonely place to be.

Further Information:
• Review of Charles Schwab
• Interview with John Kador