Why Your Company Needs a Second CEO

The success of Lufthansa Group shows the benefits companies receive by having two CEOs.

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The logo of German airline Lufthansa is seen in front of a display panel at the airport in Frankfurt, central Germany (Foto vom 27.07.11). Die Deutsche Lufthansa hat ihren Nettoverlust im ersten Halbjahr deutlich ausgebaut. Zwischen Januar und Ende Juni stand unter dem Strich ein Ergebnis von minus 206 Millionen Euro, wie der DAX-Konzern am Mittwochabend (27.07.11) in Frankfurt am Main mitteilte. (zu dapd-Text) Foto:

Thomas C. Lawton is a Visiting Professor of Business Administration at the Tuck School of Business at Dartmouth    

In the mid-1990s, Thomas Kropp managed Lufthansa's government and regulatory affairs office in Brussels, with a total team of nine people. The airline's "corporate embassy" to the European Union was one of the first of its kind among European airlines and the most substantial in terms of resource commitment. Its mandate was to monitor and interface with the EU policy-making process as it affected air transport and specifically, Lufthansa Group.

Like other major airlines at the time, Lufthansa was under growing pressure to increase fuel efficiency, reduce emissions, and adopt an overall social responsibility and sustainability strategy. Much of this pressure was being exerted at a European level, as policy authority for air transport shifted from national capitals to EU institutions in Brussels. As a result, airlines' external affairs emphasis also shifted away from bilateral international traffic rights, airport slot allocations, and engaging with national legislators and towards a more integrated, pan-European approach that transcended narrow, short-term political and social objectives.

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Seeing this evolution for what it really was—a game changer—Lufthansa recognized the necessity of an external affairs office well in advance of its industry peers. Further, as the demands placed on the company increasingly emanated from multiple jurisdictions, ranging from the EU to consumer pressure groups, the company shifted its attention to broader issues of customer rights, infrastructure, and competition. Structure followed strategy as new teams were created under the overall external affairs function around political affairs, social responsibility, environment sustainability and international relations. Recognizing the increasingly transnational nature of the social and political pressures facing the group, Lufthansa invested further in external affairs offices in Brussels and Washington, D.C., engaging with legislators and administrators, international organizations, NGOs, and trade associations. Furthermore, Lufthansa's chief executive routinely served as chairman of the influential Association of European Airlines. Good fortune followed good thinking: The air carrier gained first mover advantage by building a corporate strategy that closely aligned its business objectives and market positions with its political obligations and social responsibilities.

Kropp and his team further recognized that the narrow process of lobbying for influence was being superseded by the more transparent interest representation approach to policy shaping. At an EU level, a preference had emerged for a broader and more inclusive approach to policy consultation. When forging new policy and regulations, it was common for EU politicians and civil servants to create representative committees, drawing on all relevant stakeholder groups, including environmental NGOs, consumer groups, and others. So when the issues were related to air transportation, one company became the default industry representative: Lufthansa, represented either by its Chief Executive Officer or by its senior government affairs executives.   

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Thomas Kropp has since moved from Brussels back to Lufthansa's headquarters in Frankfurt. He is senior vice president and head of Group International Relations and Government Affairs. In this position he is a key member of Lufthansa's corporate strategy leadership team. In essence, Kropp is Lufthansa's chief external officer (CEO), having overseen the corporation's emergence as Europe's most politically astute, socially aware, and environmentally responsible air transport group.

It is no coincidence that during Kropp's tenure, Lufthansa emerged from near collapse in 1991 to being one of the largest and most successful air transport groups in Europe and globally. As public opinion and the regulatory landscape shifted, Lufthansa's other CEO was adept at moving proactively and seizing opportunities to propel Lufthansa into the pilot's seat of European public policy's new journey. Meanwhile, other national flag carriers including Alitalia and Iberia failed to recognize or respond rapidly to changing external contexts and new environmental realities. Their lobbying and communications efforts remained nationally focused, their external affairs structures remained fragmented and under-resourced, and their approaches were tactical rather than strategic. Today, these external relations laggards have been subsumed by stronger rivals or are heavily indebted and on the brink of bankruptcy. In contrast, Lufthansa's market success, supported by its ability to anticipate political and social trends and respond preemptively to external constituencies, provides a compelling case for companies to have two CEOs. 

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What should we learn from the parable of Lufthansa? That as companies increasingly face concurrent and coordinated pressures from governmental and civil society stakeholders, the traditional separation between legislative/regulatory affairs functions and those corporate activities focused on a broader set of stakeholders that include NGOs, community groups, and other nongovernmental actors, may no longer be viable. Issues like climate change, financial regulation and disclosure, cybercrime and terrorism, and the labor and human rights of workers in developing countries all require proactive strategies directed toward both political and social actors. Yet, most companies maintain distinct and separate offices for these functions, potentially leading to uncoordinated and at times competing—even conflicting – objectives and outcomes. 

Companies would be well served to unify these managerial areas.  However, the backgrounds and experience of executives who have traditionally filled the legislative and regulatory roles may not always be suited to the more fluid, ambiguous, and relational interactions with nongovernmental stakeholders. This suggests a new profile for those overseeing both functions: a new executive and even C-Suite level role, that of chief external officer.

Such a shift would require a two-stage operational change procedure within most companies. First, the integration of distinct and often non-aligned managerial functions dealing, on the one hand, with corporate responsibility and sustainability and, on the other hand, with government and regulatory affairs. Second, it makes sense to elevate this new merged position to a senior, strategic level within the organization, ideally at management board level. Doing so can lead to more proactive and better aligned business actions, policies, and strategies, ultimately serving to protect or promote the competitive advantage of the corporation.

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