Bottom Line: When companies are run by co-CEOs, sharing power equally doesn’t necessarily translate into better results.

Traditionally, firms, much like countries, have operated with one chief executive officer. But in recent years, an increasing number of high-profile companies — including Bed Bath & Beyond, Imax, and Whole Foods — have at times implemented a co-CEO structure.

When the authors of a new study weighed the impact of a co-CEO system on a firm’s return on equity (ROE), they found a complex relationship between the co-CEO structure and a firm’s bottom line. It turns out that things go better when there is a “first among equals.” Co-CEO arrangements appear to benefit the company most when a significant power gap exists between the two leaders — when more influence over strategic decisions is placed in the hands of one of the two CEOs.

Co-CEO arrangements appear to benefit the company most when a significant power gap exists between the two leaders.

But success depends on getting the balance right. If the power gap grows too wide, firm performance begins to slump. That suggests that a dramatic difference in the clout afforded to the two CEOs eventually results in considerable distrust, and communication breakdowns hamper the firm’s performance.

The authors analyzed 71 publicly traded U.S. firms that were helmed by co-CEOs for a sustained period during a recent 10-year stretch. They controlled for several factors that could affect performance, including long-term debt, number of employees, and acquisition activity, as well as the degree of board members’ independence. At the co-CEO tier, they controlled for the length of time the two executives served alongside each other and the age difference between them.

After combining several databases, the authors generated a measurement of each co-CEO’s power based on the individual’s salary, tenure at the firm, and level of stock ownership, and whether he or she also occupied the board chair position.

The authors found that when the CEOs shared influence evenly, firms experienced slightly negative ROE over the subsequent period. That suggests companies that divide power equitably may become bogged down in power struggles between leaders with equal sway over strategic decisions.

But as the gap in influence between co-CEOs widened, estimated ROE peaked at about 243 percent over the 10-year period. The finding strongly supports a twin-leadership model wherein one top executive holds most of the clout. However, firms’ ROE fell sharply, to 209 percent, as the power schism expanded further, and plummeted as the power differential between co-CEOs grew.

There are plenty of reasons to employ co-CEOs. Sometimes two merged firms want to keep both CEOs at the helm. On other occasions, siblings jointly assume control of the family business. In these scenarios, boards must carefully consider how they dole out power and responsibility to their respective CEOs in a two-party system, the authors advise.

“Boards of directors should be aware that the co-CEO leadership structure, absent clear differences in power between the co-CEOs, could indeed turn a firm into a two-headed monster,” the authors write.

Source: “Who’s in Charge Here? Co-CEOs, Power Gaps, and Firm Performance,” by Ryan Krause, Richard Priem, and Leonard Love, Strategic Management Journal, Dec. 2015, vol. 36, no. 13