What would happen if you shut down your corporate HQ tomorrow?

“One day I would love to conduct an experiment by replacing the entire board of directors of a major corporation with shop dummies and see how well things go. I’m confident most organisations would carry on regardless – and quite a few would unquestionably perform better. Out would go mad strategic initiatives, doomed takeovers, suicidal rebranding exercises and so forth. Responsible leaders on the ground would be able to get on with the job without distractions.
…After all, it is the operators in the field who actually sell to customers and deliver the goods. Too often, troops on active duty hate corporate HQ – they believe it is full of overpaid bureaucrats who spend their time on displacement activity. Unfortunately, these paper-shufflers represent the face of the corporation to many stakeholders. It is impossible to tell how much value they add and if their administrative and strategic functions are as vital as we are always told.”

LUKE JOHNSON, Financial Times (5 January 2010)

Entrepreneur and private-equity man Luke Johnson writes an engaging column in the FT, and he was on fine form recently. The questions may seem ridiculous, but trust me, they are worth asking.

What would happen if you sacked your board of directors and put shop dummies in their place? Would the place grind to a halt due to loss of the top decision-making organ, as the directors will tell you? Or will decision-making just move down to where where it really matters – amongst employees and facing customers? Would the company be rudderless and lack cohesion – or would it become nimble and effective because it wouldn’t have to wait 3 months for every decision to be approved?

A second one: what if you just shut down your corporate headquarters tomorrow, and simply delegated all responsibility to operating units? Would you be paralysed by the loss of an entity to connect the dots – or simply become quicker and more able to do the things that customers actually want?

Management theory tells us that we need overarching structures, oversight processes, reflective decision-making organs. But the reality of many firms is rather different. Corporate HQ is often large, unwieldy ostentatious and over-manned. I was once asked to participate in the restructuring of a major transportation body in London: the net result was the reduction of the corporate planning department from several hundred to just a couple of dozen. The planners – economists, statisticians, engineers, strategists – were producing outputs that had no impact on the organisation: they were just filed away.

Too often the group centre is populated with “overpaid bureaucrats” and “paper shufflers” as Johnson calls them, rather than employees adding genuine value. HQ people lord it over the others because they work in “group” rather than “ops”, but often become increasingly detached from the real action.

Make no mistake: a good board of directors and an effective group centre can add great value. But those who are removed from the real action must ask themselves what functions they really perform. I can think of a few vital ones: managing the strategy portfolio; allocating capital across units; managing corporate brand and reputation; managing the regulator; realising group synergies. The key point is this: there are not many functions that need to be managed centrally, and you had better be sure you have a lean machine in the centre that is focused on doing just those few things well.

On the other hand, if your HQ is posh and ornate; if its principal activity is the movement of paper from office to office; if its people are not missed in the slightest when they are on holiday; if cancelling a couple of directors’ meetings seems to have no negative effect on the organisation – then you may well need to rethink the role of your corporate centre.

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