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C-suite

The Rise of the Functional Manager Changes Afoot in the C-Suite

May 20, 2012 • Corporate Governance, LEADERSHIP, Leadership Development

By Maria Guadalupe, Julie Wulf & Hongyi Li

Research shows that the recent transformation in the C-suite, that is, the skyrocketing number of executive team of chief officers or Senior VPs that report directly to the CEO, shifts decision making power up, not down.

In the past three decades there has been a lot of talk, particularly in the popular business press, about the delayering of corporations and the flattening of the corporate hierarchy, with middle management being the victims. In fact, research on corporate flattening does show that CEOs have eliminated layers in management ranks; they have also broadened their spans of control, and changed pay structures by increasing the use of incentives – moves that suggest decision making has been delegated to lower levels of management.1 Yet, amidst the hue and cry about the flattening of the corporation and the death knell of middle management, another, less heralded, transformation has been occurring–and in the area that matters most: the C-suite, the executive team of chief officers or Senior VPs that report directly to the CEO. These are the executives that chart a firm’s course, coordinate activities, and allocate resources across business units–all activities that are critical to a firm’s performance. In the past two decades, their numbers have skyrocketed. Even as layers of management have been blasted, like rock walls, from the middle, the layer of direct reports to the CEO has been fortified. So, while it is certainly true that flattening, i.e. the elimination of middle management layers, has pushed some decision making down to the frontlines and given companies greater ability to respond to customers, our research shows that the addition of senior executives to the C-suite shifts decision making power up, not down.

According to our recent survey, the number of managers reporting directly to the CEO has doubled, from an average of five direct reports in 1986 to an average of 10 today. Using a unique panel dataset rich in details of managerial job description, reporting relationships and compensation structures for senior management positions in 300 Fortune 500 companies from over two decades (1986 to 2006) our research uncovered more details.2 Indeed, more than this boom in the CEO’s direct reports, it revealed that a marked increase in functional managers (e.g., finance, human resources, marketing) is filling the C-suite rather than an increase in general managers, usually heads of business units. The shift was dramatic. Of the five positions added to the CEO’s span of control, on average over the 20-year period of our research, four were corporate staff (functional managers) and only one was a line or general manager (e.g., division manager). Just to clarify, functional managers are responsible for corporate-wide activities of their specialized function (e.g., finance, legal, marketing, R&D). In contrast, general managers, also called line managers, are concerned with a broad range of functional activities within their business units and typically have profit and loss responsibility.3



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