In the interest of full disclosure, I should begin this article by mentioning at one point in my career, I reported to a CEO. And I hated every minute of it. Well, not every minute—there were times when my boss took vacation.
But among CIOs, the prevailing sentiment is it’s best to report to the CEO. In an informal, anonymous poll I conducted of CIOs (none of whom are included in this article), I was not surprised to learn each of them felt the CEO was by default the best person to whom to report.
Craig Weber, senior vice president in the insurance practice at Celent, would tend to agree. “Reporting to the CEO is a positive,” he says. “It makes sense to have the CIO report to the CEO and have a chain of command that puts the business needs first and asks IT to support business.”
Not only do CIOs tend to prefer reporting to the CEO, but it’s also a motivating factor in career decisions. “People will go so far as to say if they don’t report to the CEO, they don’t want the [CIO] job,” says Margaret Resce Milkint, managing partner of staffing services firm The Jacobson Group. “There is cachet to that [reporting relationship]. It is a tremendous differentiator to be a part of that brain trust, and it will draw better talent into the organization.”
Now, you probably can guess the main reason a CIO would want to report to the CEO: a seat at the decision-making table. However, the desire for that seat isn’t simply an issue of real or perceived influence and control. Weber believes it’s because CIOs have come to recognize the vested interest they have in business strategy, not just technology.
“We asked CIOs about the business issues that drive their IT decision-making, and the things that bubble up on that list are high-level business strategies; for instance, company growth and a reaction to the softening market. That suggests CIOs want to work in tandem with the business and the CEO to set corporate strategy,” Weber says.
The role of the CIO also has changed from tactical to strategic since the position was first introduced about 20 years ago—an evolution enabled in part by the type of individuals who have sat in the CIO chair. “Many more CIOs today are coming from nontechnology positions. When you have business people becoming CIOs, they not only bring good strategic thinking, but they also have the expectation to be involved in strategic decision-making,” asserts Craig Lowenthal, executive vice president and CIO of New York Marine and General Insurance Company (NYMAGIC).
The reality, of course, is not every CIO reports to a CEO. In fact, Forrester Research found that by a 2:1 ratio, CIOs reported to someone else (see chart on page 20).
If the CEO is the best report for the CIO, why isn’t this ratio reversed? One reason might be a business doesn’t value the CIO—a sign of a bigger problem within the organization, with the CIO him- or herself, or both.
“There still are CEOs out there who view IT as the department that resides in the basement, working through the night, making sure things happen that are supposed to happen,” says Lowenthal, stressing this is not the case at NYMAGIC. “Or the CEO simply doesn’t feel the CIO is performing at a strategic level, in which case, you should get a different CIO.”
But assuming the business does view the CIO as strategic, there are many reasons companies construct reporting charts with lines leading elsewhere. “The CIO’s reporting relationship should not automatically default to the CEO,” maintains Deb Smallwood, who recently co-founded Smallwood Maike & Associates, a strategic advisory firm. Smallwood has spent a fair share of her career in leadership roles in insurers’ IT departments and also has served as vice president in TowerGroup’s insurance practice.
Instead, she recommends a matrix reporting structure with either hard or dashed org chart lines to both corporate and business areas. “My concern about a direct report to the CEO is the CEO tends not to be tech savvy and doesn’t get involved in day-to-day operations. A CEO defines goals, such as, ‘We need to drive ease of use with our agents and implement STP in underwriting,’ and expects the CIO to go get it all done. But the CIO needs to partner with the underwriting or line-of-business head and together make the right business and technology decisions that drive that goal to completion,” she explains.
Milkint observes some insurers are moving the CIO function under a COO instead of the CEO. “They have said it makes sense for the IT function to go under the operational umbrella,” Milkint says. She also states there has been a trend of reducing the number of direct reports to the CEO.
“Some CEOs today are tearing down that number [of reports] to as few as three,” she says. “In an organization where the CEO is stretched and has a variety of direct reports, it can be a benefit to everyone to make a change, and the CIO can have the ability to make perhaps greater strides by getting more time and attention.”
Many CIOs report to the CFO, although the conventional wisdom is this relationship has inherent friction because the CFO is the bean counter. “The conversation often goes like this,” Weber remarks. “The CEO says, ‘We need to improve performance.’ The CIO says, ‘Here’s how we do it.’ Then the CFO says, ‘We can’t afford to do that right now.’”
But Weber also notes the role and perception of the CFO has begun to change, which is confirmed by CIOs in the field. “CFOs have become much more operational today. They’re not just financial anymore,” says Jim Klotz, CIO of the PMA Insurance Group. “We have to stop thinking of the CFO as a person in the back room with a visor and armbands preventing you from spending money. The CFO is supposed to be strategic—helping you fund strategic initiatives and understanding how you make and spend money.”
Finally, as the old adage goes, “Be careful what you wish for, because it might come true.” Reporting to the CEO can carry a potential downside.
“Reporting to the CEO, particularly when other officers do not, makes it seem almost like you got a coronation,” Smallwood points out. “However, what you don’t automatically have is credibility. That’s something you have to build and earn.”
Prior to his tenure at NYMAGIC, Lowen-thal had been CIO at other carriers and has reported to both the CFO and CEO. Reporting to a CFO proved particularly challenging, he says.
“I originally thought when I reported to the CFO it would be a positive because the CFO had ‘skin in the game.’ My success would be a reflection of the CFO’s success, and I would get the support and investment required,” he recalls.
But it didn’t pan out that way. “The CFO understood the strategy but didn’t necessarily agree with it. The CFO also was concerned we minimize IT investments and expenses, which did not match the expectations and strategy of the business.”
That created a disconnect between the CEO, CFO, and CIO. To compensate, Lowenthal created an IT executive committee that included himself, the CEO, president, and CFO. “I’d recommend that [strategy] to anybody who doesn’t report to the CEO so you do get face time with the CEO and CFO together to help foster understanding. It’s not perfect, but it is an improvement,” he says.
Beyond that formal committee structure, Lowenthal would work directly, yet carefully, with business leaders. “When I couldn’t get funding, I would suggest they go to the CFO and stress how important it was and build business support,” he adds. “However, I’d always rather get things done than make excuses for why I couldn’t.”
When Lowenthal considered the CIO role at NYMAGIC, it was important to him he report to CEO George Kallop. Lowen-thal also is part of the executive management team there.
“The good part is I can provide my input to other areas and processes. I am part of the team, and that helps me to feel even more strategic. Of course, that also means there’s no excuse for failure to deliver other than me,” Lowenthal says.
He also stresses reporting to a CEO does not automatically align technology and business. “If a CEO is off in a corner with the heads of underwriting and other folks and never thinks about the technology aspects of the plan and brings technology in after the fact, that’s not alignment. Technology should be a key factor in that decision-making, and that’s one thing we definitely do here at NYMAGIC.”
Alignment of technology to business depends not only on the CIO having input into business strategy but also on the qualities of the CEO. “The critical lynchpin in the whole thing is whether the CEO truly values what technology can do for the company from a competitive advantage standpoint and an efficiency standpoint,” Lowenthal contends. “And when that is achieved, the CEO needs to be interested in how the company can use technology to explore new options—business initiatives, new products, finding new ways to make it easier to do business with you.”
William Jenkins, CIO at Penn National, had reported to the COO at a prior company in his career. He says the arrangement worked well because the person he reported to was more important than the title that person carried. “The COO was much more of a force-driver than the CEO. He walked with a big stick and was the common denominator of all the corporation’s executives,” Jenkins says.
When he joined Penn National, Jenkins reported to the CFO, but a recent org chart realignment that happened as part of a perpetuation plan has him reporting today to Ken Shutts, president and COO.
Just as it was at his previous companies, the person he reports to, rather than the position, is more important to Jenkins. He says what really matters is a seat at the table, and at Penn National, that’s a six-person table made up of the CEO, president and COO, CFO, CIO, and chief underwriting and claims officers.
“There is a strong appreciation here of the value of IT to the business. If everyone is a peer at the table, it doesn’t matter who your direct report is because you all get to voice your opinions,” Jenkins maintains.
“The culture here is people are able to present the business case for what they feel is important,” he explains. “In 99 out of 100 times, if you do a good job of presenting that case, the project will be undertaken. My sales process isn’t hard because it’s a collaborative decision-making environment.”
Still, when a decision is a 3-3 split, the CEO breaks the tie. Jenkins also realizes he has to continue to earn his seat at the table.
“You have to understand the business and its drivers. You have to show you’re able to deliver on what the business needs. You have to be a good communicator. You also have to keep introducing new technology to make sure the business is educated in what’s possible and how it can help them,” he asserts.
PMA’s Klotz used to report to the company’s CEO but now reports to the CFO. He relates the move was made to free the CEO’s time to handle new initiatives regarding the company’s efforts to create a more diverse revenue stream and to handle demands of recent acquisitions.
Because a number of executives were involved in the realignment, Klotz didn’t take the change personally. “If I thought the move was being made because they thought I wasn’t doing a good job, that would be different,” he says.
Klotz also has a good relationship with the CFO, who treats him as an equal. “The CFO is pretty hands off in how I handle my department. Also, officers who still are reporting to the CEO treat me as a peer,” he says.
Still, Klotz admits the change carries the risk of taking him a step away from the decision-making loop. “The potential is being devalued in your company, where other people do the thinking and IT does what it needs to get that done rather than being part of the process. It can get to be a downward spiral—each year you have a little bit taken away, a little [less] money and authority,” he notes.
“The other thing that can happen is line area organizations might try to use political clout to influence what’s going on. Therefore, maintaining a good relationship with the CFO and all the other executives is essential,” Klotz says.
The new hierarchy of reporting at PMA Group means the informal type of conversation that previously could take place around the executive meeting table has to be replaced with formal structures. “You now have to count on people in that room to come back to you with information,” Klotz points out. “You have to rely upon disciplined communication to get a sense of strategy. You can’t rely on casual communication.”
One of the steps Klotz has taken to boost that formal communication is creating a project management office. “Part of the reason for that development is to offset my being moved ‘out of the room,’ if you will, and force the room to come back to me in a disciplined manner,” Klotz says. “But more important, it’s designed so people don’t try to start projects outside priorities.”
Klotz sees a possible silver lining to the new reporting structure. “If the driver for changing the reporting structure is the CEO needs to free up time, then access to your direct boss will be higher with the CFO than if it’s with the CEO, who is asked to do many different things. It’s easier for me to walk down the hall and talk to the CFO than it would be to talk to the CEO,” he says.
But he knows vigilance is needed to keep IT out front so it does not become a back-room function. “If I don’t do a good job at getting people to recognize the value of what IT brings, if I allow the CFO to be the only representative of IT who is front and center, over time people look at IT as an enablement of the strategy, not a part of the strategy,” Klotz says.
The bottom line is CIOs are concerned about getting things done, delivering value through technology, and yes, advancing the impact of their role. Although the perception is reporting to the CEO is the best way to achieve those goals, it doesn’t guarantee it will happen. In fact, if you’re not getting things done, don’t blame your reporting structure. Take a look in the mirror.
“Where CIOs report is kind of a paper issue. The more practical issue is how the CIO communicates technology strategy back to the people who matter—how they tie technology strategy to business and financial strategy,” Weber says.
“Naturally, most people want to report to the CEO, but the truth is that what’s more important is how the CIO role is defined or what you can make of it,” Klotz says.
That kind of attitude is essential to success in the CIO role, particularly since it’s likely a CIO will not report to the CEO.
“If they get hung up on whom they’re reporting to, they’re not the right people for the job. They need to work to get the proper alignment, build trust and credibility, and just get it done,” states Smallwood.
“We so often put shackles on ourselves in terms of structure when we should be thinking about goals and strategy and how to empower ourselves to achieve those goals,” she concludes. “To be a leader, act like a leader.”