For several years, there has been a steady decline in the number of companies with a chief operating officer on the leadership team, and that’s a problem. Organizations are voluntarily drying up their own talent pool.
Recent research suggests only 38 percent of the Fortune 500/S&P 500 companies currently have a COO—down from 48 percent in 2000. The trend is consistent with our assertion that increasing business volatility has resulted in global corporations seemingly deciding that CEOs, functional leaders, and business heads don’t need a middleman.
CEOs increasingly must contend with major strategic issues of ever-changing competitors and ecosystems. Likewise, the pressure from investors has continued to increase, and the need to participate in government relations and regulatory change has never been greater, so much so that the shifts in economic and trading power make the placement of strategic bets critical. So what happens when you add to the mix challenges that COOs traditionally contend with: the mastery of complex supply chains, managing scarce talent, or integrating procurement more effectively into design and production?
It strikes us that the absence of a COO throws up a number of immediate short-term risks. There is potential for the chief executive to get dragged into resolving operational conflicts and resource allocation issues across functions. It is also likely that business unit leaders and functional leaders would operate more independently and miss the connections and synergy opportunities of the business as a whole. In addition, accountability for performance and discipline to execute strategies might be diminished. More broadly, as the CEO takes on more direct reports, decision making, agility, and speed are likely to be slowed, especially in the absence of a COO.
This scenario raises the question: Is it wise to take the COO out of the C-suite and assign his or her operational duties to the CEO? Surely it can’t be a good thing for a company when the CEO position is designed as a “stretch role?”
While the separation of the chairman and CEO positions has been a positive development in many companies, allowing chief executives to become more “hands on,” the math doesn’t necessarily add up if a CEO’s time is then allocated to taking on the responsibilities of the COO. We would question whether the chairman and CEO will together have the skills and the bandwidth necessary to provide the sum total of leadership a company requires.
In the long term, dispensing with the COO risks the ability of a company to ensure leadership continuity. You needn’t look further than Tim Cook, Apple (AAPL)’s former COO, succeeding Steve Jobs as CEO to note how effectively the COO role has been used to groom successors for the top job. Or consider the 96 companies in the Fortune 1000 that replaced their CEO in 2010, with nearly half promoting the COO into the position. Indeed, when the new CEO was an internal hire—more than 70 percent of the time in 2010—no other position was tagged as often as the COO, according to our research.
We make no apologies for our advocacy for the COO role. Our varied experiences—in management consulting, leadership assessment, and coaching and research on top management-team effectiveness—make us believers in the unique value a COO brings to a leadership team.
While separating the chairman and CEO roles is a move aimed at improving corporate governance, squeezing the COO out of the C-suite risks spreading the CEO too thin between strategic direction and operational management. And it can result in reducing the options for leadership continuity.
Given the complexity of the challenges most companies face today, a strong case can be made for organizations to assign one executive to keeping his or her head down running operations and another keeping his or her head up focusing on the road ahead.