Playing Co-CEO Card At Madison Dearborn

A curious executive shuffle is underway at Madison Dearborn Partners, the Midwest's fastest growing private equity investor and among Chicago's most important companies.
Today, longtime chairman and CEO John Canning, 63, said he's giving up the CEO title and will remain as chairman. This move is not a huge surprise for the busy Canning, who was recently named chairman of the Federal Reserve Bank of Chicago and is also putting together an investment group to acquire the Chicago Cubs from Tribune Co.
What is perplexing, however, is that Madison Dearborn did not name one CEO but two co-CEOs, Paul Finnegan and Sam Mencoff, to replace Canning. Both men were co-presidents before the promotions.
Typically, co-CEO managements have crashed and burned, especially at high-profile companies. Here's some examples where sharing the power didn't work and ended badly: Kraft Foods; Bank One/First Chicago NBD; Citicorp/Travelers, Bank of America/Nationsbank;AOL/Time Warner; Exxon/Mobil; and DaimlerBenz/Chrysler.
Usually, co-CEO deals are forged from huge mergers. Installing co-CEOs is a crafty device used to soothe giant executive egos, get past tough negotiations and button-up deals.
At the outset, everyone involved says the sharing arrangement will work but once the merger is complete, the power grabs and trouble begins. Ultimately, the corporations' boards are compelled to pick one leader who can move the company forward.
Another problem with co-CEO tenures: Investors and Wall Street get edgy because they don't know where the company is headed and fear it's focus on management issues will trump going after the competition. Meanwhile, many key employees are confused because they don't know who's the real boss.
Now, Madison Dearborn can assert that it's a different animal.
Foremost, it is a privately-held partnership and not a corporation in the traditional sense of the word. It's mission is to attract investors and use their money to back companies that will, over time, provide hefty returns.
Madison Dearborn has been accomplishing that task quite nicely for many years. Its made big money for some of the country's largest institutional investors and many of the area's wealthy elite. Since opening up shop in 1992 with a $550 million fund, Madison Dearborn now has assets under management of about $14 billion. It recently opened its sixth fund.
Because the company is comprised mainly of a group of separate funds there may be more distinct divisions and less overlap than at a typical corporation. That means Finnegan and Mencoff, who along with Canning founded the firm and are impressive leaders with good track records, could operate with relative autonomy and not get in each other's way.
And as a privately-held partnership, Madison Dearborn doesn't have to be overly worried about immediate Wall Street reactions to the executive switch.
Yet even under the best of circumstances, there's reason to be skeptical that this executive arrangement will work.
On top of the inherent troubles with co-CEO stewardship, history has also shown that private equity firms are often based on a cult of personality and center on the vision of one strong leader. As a result, succession efforts can be more difficult to execute than at companies with a traditional corporate hierarchy.
Madison Dearborn expects to be the exception, especially to the perils of having co-CEOs.
Nevertheless, dealing this new management hand could end up being one of the company's riskiest plays.