COO position slowly going extinct, but not done yet

Photo courtesy of Smithsonian's National Zoo

Photo courtesy of Smithsonian’s National Zoo

Rob Swystun, Pristine Advisers

We all know extinction is terrible. Once something is gone, it’s gone for good. In the business world, there seems to be a bit of an extinction going on right now. The position of Chief Operating Officer seems to be going the way of clear and concise communication in the business world (meaning it’s disappearing).

According to a Forbes article by Gary L. Neilson, the senior executive search firm Crist Kolder Associates found that the percentage of Fortune 500 and S&P 500 companies with a COO has steadily declined from 48% in 2000 to 36% in 2014.

More than a third of Fortune 500 and S&P 500 companies still have a COO, so clearly many companies are still finding the position useful. Others, like McDonald’s and Twitter, for example, aren’t. Those two companies simply deleted the position when their last respective COOs retired while at other companies, COOs have moved into the role of CEO — a natural succession — and have simply not bothered to replace themselves in their former role.

Neilson, who is a senior partner with Chicago-based Strategy&, says based on years of experience advising CEOs and other senior executives on organizational leadership and change, he sees three big reasons for the ongoing extinction of the COO.

  1. CEOs are becoming increasingly more effective

Today’s CEOs are much more hands-on than they used to be. While in the past, they relied on reports from others to tell them what was going on with the company, nowadays, they have all sorts of information at their fingertips which has led to them being able to double the number of their own direct reports (from five to 10, on average) over the past couple of decades, meaning they have a much better understanding of what’s going on with their companies.

This is partly due to them having more sophisticated information and communication technology than in the past like email, voice mail, video conferencing and social media. It allows them to be more hands-on in the company’s operations. Management dashboards also enable them to get performance metrics much quicker than they could see them in the past.

CEOs also tend to have more time to dedicate to management, as another extinction that is going on in the business world is the dual CEO/board chair position.

Each year, more companies split the CEO and board chair roles. In North America, the number of CEOs who also hold the board chair position has declined from 52% in 2001 to 11% in 2014.

And, boards have become more accountable for their decisions and don’t want to be perceived as just rubber stamping all CEO decisions. Directors want the CEO to be involved more in the business and know more detail about the operations and inner workings rather than delegating that detailed insight and responsibility to the COO.

  1. Companies are becoming increasingly flatter and focused

Companies are slowly de-layering and concentrating more on their core capabilities, meaning there is less need for someone to have to manage diverse operations.

Neilson points to the consumer packaged goods industry to illustrate this point, where companies like Procter & Gamble and Unilever expanded into mammoth enterprises with multiple sectors throughout the 1980s and ‘90s but once the 21st century hit, have gotten rid of businesses that don’t fit into their core capabilities. As these companies become more focused, the COO’s role diminishes because their operations become simpler.

The old hub and spoke model of engagement between the top dogs and the company — where the CEO and COO were at the center and received information and issued directives to satellite units — has been replaced with a more collaborative approach. The CEO now uses their aforementioned direct reports to assert their own insights and expertise in a more collective approach to sharing information and making decisions, allowing them to manage the business more horizontally. This often leads to the removal of the COO position.

  1. Companies are no longer pre-appointing successors for the CEO

The COO has often been seen as the CEO-in-waiting, and this can be a roadblock to the recruitment and development of new executive talent. Having a COO can prevent companies from being able to hire talented executives.

The third reason we see fewer COOs in major corporations relates to succession planning. As the perceived “CEO-in-waiting,” the chief operating officer position can inhibit executive recruiting and development.

“We don’t see many one-over-one situations anymore — where you have a COO between the CEO and the rest of the executive team,” Neilson quotes Crist Kolder Associates president Tom Kolder as saying. “It’s hard to attract a world-class chief financial officer, for example, who is not going to report directly to the CEO. The same holds true for the general counsel, the head of HR, and most staff functions.”

Executive development is becoming more horizontal, with firms rotating promising executive talent through various operational and functional assignments around the world. Developing executives this way allows companies to develop a well-rounded group of executives who can handle the integration role formerly held by the COO. This way, companies don’t have to rely on a single person for this integration role, but can have several executives with integration skills.

Without a COO, it’s now common for CEOs to set up governance committees and forums to help with the operation of the company, making decisions, conveying information and deliberating about the company’s prospects. Not only do they help to extend the reach of the CEO, but they also serve as executive development bodies.

As Neilson puts it: “The COO role is becoming less relevant as organizations foster a deeper, broader, and richer executive bench.”

Sometimes, you need a COO

COOs still have their place in organizations in certain situations. Neilson points to three times when it makes sense to keep the COO position.

  1. Transparent succession

When companies want to be completely transparent with their succession plan, so they have as little disruption as possible during the switchover, appointing a COO can be a way for them to tell shareholders and the public that everything is completely under control.

Research has shown that planned successions within companies have been increasing since 2000. If the current CEO announces well ahead of time that they’re stepping down within the next couple of years, naming a COO and grooming them during that time can make the handoff as seamless as possible.

  1. Strategic leadership

Sometimes the CEO’s attention needs to be elsewhere besides the day-to-day operations of the company, particularly if it’s going through some kind of transformation like restructuring. If the CEO is dealing with something else, having a senior operational executive who has a company-wide perspective to help can be extremely beneficial. They can either help with driving the transitional changes that are taking place or help keep the company on track during the transition.

  1. Counterbalance

The COO can balance out the C-suite and complement the CEO’s skill set sometimes. Maybe the CEO lacks operational experience or is new to the firm. In these cases, keeping a COO can help to establish a more robust set of competencies at the top and stimulate the performance of both the CEO and COO and maybe even the CFO, as well.

“There are also instances where there are a number of candidates vying for the CEO chair, and there is significant value in keeping the runner-up involved in the company,” Kolder says.

So, while the COO position is slowly becoming less important in the business world, it seems like it’ll probably go the way of the giant panda rather than the dodo; endangered, but not completely extinct.

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