How important is a chief operating officer to the success of a CEO? Would Carly Fiorina still be leading Hewlett-Packard if she had ceded to pressure from the board to appoint a COO to help manage the Compaq merger? Almost certainly.
There are many visible examples of COOs who made positive differences for the CEO and the company- Mort Topfer at Dell and Ray Lane at Oracle come quickly to mind. And COO appointments have recently been made by companies in a wide range of industries, including Microsoft, Radio Shack, Airbus, KPMG, Alcatel, Nissan Motor and Medtronic. Finally, the next CEO is often the person sitting in the COO position, as was recently the case with Nokia’s Olli-Pekka Kallasvuo.
All this would suggest the role is a useful one, but one recent study found that firms led by a CEO-COO duo underperformed firms without a COO and that in poorly performing firms the presence of a COO increased the likelihood the CEO would be dismissed. Granted, it would be a mistake to conclude- on the basis of a single study- either that the CEO-COO structure is a poor way to lead or that CEOs should be afraid of replacement by their COO. At the same time, the studies do suggest that at least in some cases, companies execute the COO role with poor results. How should the role be executed so that it creates value?
In the most positive case, what might be achieved between CEO and COO is the work arrangement that has come to be called “two in a box”-a situation where CEO and COO co-lead the company. If that is viewed as the best-case scenario for leadership at the top of an organization, then the other extreme was characterized best by Harry Levinson who addressed the challenges inherent in creating a No. 2 role: “The relationship between the chief executive officer and the chief operating officer in any organization is fraught with many psychological complexities. Perhaps it is the most difficult of all organizational working relationships because more than others, it is a balancing act on the threshold of power.”
The key to understanding the COO role is to recognize it is an amorphous one. Rather than finding one answer to the question “What is the right way to structure a COO role?” three questions need to be considered:
- Does the COO fit the CEO in terms of personality, skills and style?
- Does the COO fit the company in terms of having what it takes to meet the challenges of the job?
- Does the COO fit the opportunity in terms of his or her career aspirations and the company’s succession planning?
First and foremost, the COO has to be a fit with the CEO. The fit between these two individuals is quite complex and should be evaluated carefully during the search process. The pair become enormously dependent on one another for success. They spend long hours working on difficult problems, have to be able to disagree without damaging their relationship, and so on.
Executives have been quick to point out that the single most critical element to a successful pairing was the rapid establishment of a deep mutual trust-without it, the partnership was doomed. Several things need to be true from the CEO’s perspective for this trust to develop. As Mike Lawrie, former CEO of Siebel Systems, said, “If the CEO is insecure, unsure of what needs to be done, it [creating a COO role] can be a very volatile situation.” Further, the CEO has to be willing to give the COO autonomy. As Carol Bartz, CEO of Autodesk, said, situations where the “CEO just can’t give up the control or doesn’t really want a No. 2 are disastrous for all involved.”
Sometimes, CEOs realize intellectually that they want a COO but they can’t operationally have one; they can’t develop enough trust to give the COO room to do the job. Some have suggested that making sure the CEO and COO skill sets were not redundant was one way to reduce a CEO’s tendency to cling to work that the COO should be executing. Shantanu Narayen, president and COO of Adobe Systems, says that if the CEO and COO “both like doing the same things or are good at the same things, there is a lot more second-guessing and less appreciation than if you bring different skills to the table.”
Next, the COO has to be a fit with then demands of the position. What CEOs and companies need from a COO varies. Obviously, this begins with a shared, clear understanding of what the COO job entails for this company at this point in time. As Bill Swanson, chairman and CEO of Raytheon, explains, not only do the CEO and COO need to agree on what each will be doing, but the division of tasks needs to be communicated throughout the organization. While the division may shift over time, it should not be dishonored by allowing circumvention from executives who want to try to get around it in search of a friendlier audience.
As Steve Reinemund described of his time as COO to Roger Enrico (former CEO, PepsiCo), “We never, ever had a rough spot. That may sound naÃ¯ve, but I think it is because Roger clearly defined what the role was and what it wasn’t. If both parties understand that, then it [the COO role] works. Many times, the CEO is not disciplined enough to stick to what they laid out as the role.”
Finally, the COO needs to be a fit with the opportunity. Again, there are many dimensions that make up this fit, but arguably the most critical is the degree to which the opportunity is instrumental to the COO’s career goals. Though there is reason to believe some COOs are quite happy to remain in a No. 2 position, most view the role as a way to prepare for a CEO position-whether at their current company or another.
When pressed, most executives felt a three- to five-year term was the proper lifespan for a COO. When the COO was in position longer, others might conclude it was because they did not have the “right stuff” to take on a CEO position. In the end, if the succession probabilities and timeframe are not well-communicated to the COO, this is a harbinger of conflicts to come.
More important than just the passage of time, however, is the degree to which the CEO and COO stay aligned on critical issues, like strategy. As Ed Zander, CEO of Motorola, said when discussing the lifespan of the role, “After three or four years, my feeling is that you start to think more and more about the CEO decisions. I started to think to myself, I would buy this company€¦I would change the compensation€¦ I knew the strategy direction I wanted to take. That’s how I knew it was time to move on.”
Similarly, Yahoo COO Dan Rosensweig says “it is a mistake to stay in the job if you actually think that you should have the CEO job versus the person in it. If you don’t have confidence in the leader, you should get out of the job.”
For boards and CEOs considering the creation of a COO role-or for those interested in making sure their leadership team of CEO and COO are on the right track-these issues of fit are critical things to monitor. A place to begin is with understanding and communicating widely the reason for the existence of the position. We found that there were seven motivations for the position:
1.To Lead an Operationally Intensive Business
2.To Provide Leadership for a Specific Strategic Imperative
3.To Mentor an Inexperienced CEO/Founder
4.To Complement the Strengths of the CEO
5.To Create a Strong Partnership at the Top 6.To Develop the Heir Apparent
7. To Retain Executive Talent Being Courted by Another Company
It is important to note that any of these motivations for the creation of the COO position can be done well or poorly. Efforts to understand the effectiveness of the COO position need to be sensitive to disentangling causes for performance that should be attributed to the COO’s efforts, the structure itself or a poor implementation. It may be that a company’s motivation for and/or its implementation of a COO position, as well as its success in finding the candidate who is the best fit, might be important contributors to subsequent poor firm performance.
Is the COO friend or foe? The answer to the question lies in appreciating just how nuanced the position is. The multidimensional fit that needs to be achieved for the role to succeed is easy to understand but challenging to achieve and to manage. Boards and CEOs who are able to invest the time and energy necessary to create it, however, are going to be rewarded with the positive results that come from adding to the management team a high-caliber player. Once this fit is achieved, the ongoing challenge is to keep the CEO and COO-and with them, the rest of the company- on the same page as to the responsibilities of each officer. In cases where the fit is not developed, the dark elements of the role identified by Levinson years ago are likely to emerge: unhealthy rivalries, defensiveness, over-control, rigidity, misconceptions and doubt.
Nathan Bennett, a professor at Georgia Tech College of Management, and Stephen A. Miles, a partner at Heidrick & Struggles, are co-authors ofRiding Shotgun: The Role of the COO (Stanford University Press, June 2006), from which this article is adapted.