Why do companies hire chief operating officers (COOs) when their efficacy is questionable? A 2004 research found no support for the contingency view explaining when COOs are most beneficial. Instead, it found “CEOs [Chief Executive Officers] who have COOs deliver lower organizational performance than those who do not.” (Hambrick, D., & Cannella, A., 2004).1
Fifty Percent in C-suite Say COO Function Not Needed
An Ernst & Young 2012 study reported “a compelling story” for the COO’s role. But it said that depended on the context of the company’s industry, and internal dynamics and politics of the management team. About fifty percent of C-suite executives interviewed said the company would be no worse off without a COO. And these sample comments from COOs who took part suggest the role is complex, needs decisiveness, and good people skills:
- One in three strongly agreed their role was one of the most difficult in the management team
- Six in 10 said complexity and diversity of the role made it worthwhile
- Forty percent aspired to be CEO within five years
- Eighty-seven percent said highly developed leadership qualities and interpersonal skills were the most crucial attributes; while 57% admitted to the need for sharper leadership skills.
- Seventy percent considered the ability to take part in strategic discussions a vital skill for the job
At the end of 2014, thirty-six percent of Fortune 500 and S&P 500 companies had chief operating officers — a steady decline since 2000, when forty-eight percent of those companies had one.
“Decline is unmistakable: COOs are fading from view throughout the business world. Many high-profile companies such as McDonald’s and Twitter deleted the position when their COO retired or resigned. At others, COOs chose not to replace themselves in that role when elevated to CEO.”Summer 2015 issue of Strategy + Business, The Decline of the COO
COO Function Declining in Major Corporations
The elimination continued with Nissan (2015), Lowe’s (2018), Nokia (2019), Macy’s (2021), GIII Apparel Group (2021), Deutsche Bank (2021), and other major companies abolishing the role.
Gary L. Neilson, author of The Decline of the COO, identified three major reasons for the demise:
- Improvements in CEO management capacity: Over two decades before 2015, CEOs doubled their direct reports (from five to 10, on average) because of a pronounced increase in their own leadership productivity
- An overall trend toward flatter organizations: As companies de-layer and concentrate more on their core capabilities, there is less need for a COO to corral and quarterback diverse operations.
- A shift in succession planning: As the perceived “CEO-in-waiting,” the chief operating officer’s position can inhibit executive recruiting and development
The COO’s role is unlike other C-suite roles, such as the CFO (Chief Financial Officer), with no standard qualifications. Whom you choose will depend on the industry, timing, and rationale for the role. Still, not all CEOs will be open to a second in command. For instance, Carly Fiorina, former CEO of Hewlett-Packard, resisted pressure from her board to hire a COO, which probably cost her job. A separate issue is: Would HP’s board have pressed a male CEO to appoint a COO? Meanwhile, Apple appointed Tim Cook as COO as Steve Jobs’ heir apparent, and it worked well.
Why Continue COO Function
Why do companies continue with COOs? The most obvious reason is when there is a clear heir apparent to the CEO, as in Tim Cook’s case. Otherwise, unless distinct bases exist to signal to the organization that the CEO’s job isn’t in jeopardy, the COO’s job is redundant. At least three reasons exist where a COO could add value and complement the CEO:
- Company developmental stage: The CEO might wish to focus on strategy development and so hires a COO to focus on the day-to-day operations with an emphasis on staying close to frontline workers and customers.
- Complimentary skill set: The CEO might need someone with particular skills to drive innovation or special projects at a particular time. Or the COO could be an experienced, non-ego driven leader hired to mentor a young CEO.
- Start-ups: A COO might clear up chaos from rapid growth, while overseeing implementation of the founder’s vision. Besides, the founder might need general and focussed help for day-to-activities and to set up effective internal control practices.
COO Must Focus on People
One size doesn’t fit all, so this debate will continue. But the function won’t disappear. Meanwhile, six ingredients must exist for the COO’s role to succeed:
- Defined, transparent COO role understood by CEO and COO
- Trust between the CEO and COO
- Respect for the function in the C-suite
- COOs parking egos outside the firm
- COOs grasping that people are the firm’s greatest assets, and they must create a safe workplace for employees to flourish to achieve the mission
Often, CEOs task COOs to improve performance, which means hiking the bottom line. COOs must learn quickly to identify key inputs that drive earnings growth. The simple formula is A+B=C, attitude plus behavior equals consequences. Profit, cash flow, and earnings per share are consequences. COOs must stress and model proper attitudes to generate right behaviors to get desired results. They need to focus on values, principles, polices, procedures that empower people, and give employees needed resources to delight customers. Improved morale, a safe workplace, and rising bottom line will be the consequences.
© June 2021, Michel A Bell
(1) (Hambrick, D., & Cannella, A. (2004). CEOs who have COOs: contingency analysis of an unexplored structural form. Strategic Management Journal, 25(10), 959-979.)