This article originally appeared in the June 2010 issue of
The journal of high-performance business
Leadership Mastering the move from COO to CEO By Nathan Bennett and Stephen A. Miles In the United States, the chief operating officer is often considered to be the CEO-in-training. Yet remarkably few companies have a rigorous succession plan in place to make that transition successful. Here’s what it takes to groom the COO for the top job. When McDonald’s chief Jim Canta- business matter of managing the lupo died suddenly in April 2004, workforce.” the board quickly named another veteran, president and chief operating To borrow a term from the recent officer Charlie Bell, as the new CEO. banking crisis, it is critical in this Not long after, Bell found out that environment for boards to stress-test he had cancer, and the board had to their succession plans. Accenture’s find another CEO. Thanks to con- work with boards and top manage- tinual, years-long preparation and ment teams, as well as our analysis a deep commitment to the develop- of research by others, makes it clear ment of a leadership pipeline, the that many plans would be unlikely McDonald’s directors did not have to to pass such a test. The good news is go outside the company to make the that the lack of a properly prepared appointment. successor—which is the outcome of many flawed plans—is something But among US companies, McDonald’s that can be addressed. is highly unusual in that respect. A recent survey by the National Ready or not? Association of Corporate Directors The best way for an organization found that 43 percent of US public to mitigate that risk is to develop companies had no formal CEO suc- strong candidates internally and cession plan, and 61 percent had then carefully manage the succes- no plan for replacing the CEO in sion event, as in the McDonald’s the event of an emergency. case. These candidates are known as “relay successors,” and research in- Today, there is growing pressure in dicates that companies that appoint the United States to improve those such successors outperform those kinds of statistics. For US-based that hire from the outside. companies, succession planning concerns are further accentuated But which insiders to short-list? as the issue of separating the CEO Of all the internal executive can- and chairman roles receives greater didates, the COO is most often con- attention. Indeed, the topic of CEO sidered to be the CEO-in-training. succession planning has never been Even when not formally designated hotter—or debated so urgently. as the heir, the chief operating officer—where that role exists—is Questions about the rigor of succes- usually given consideration by the sion planning are being driven out board for the top job. After all, the into the open not only by the soaring COO position offers a portfolio view complexity of business but by new of the company as a whole; when regulatory developments. On October properly designed, it includes regu- 27, 2009, the Securities and Exchange lar access to the CEO’s in-box. Commission’s Division of Corpora- tion Finance published new guide- In many cases, COOs are being lines that effectively put the agency groomed for the top spot, or even behind shareholders who want boards being tested as the organization’s to make the succession process more CEO-elect. And there is a steady transparent. migration from COO into the top position. In a recent sample of former The SEC document minces no COOs, Accenture found that one in words: “We now recognize that nine stepped into the CEO’s shoes CEO succession planning raises a within a year of her departure. 2 significant policy issue regarding Outlook 2010 the governance of the corporation Research also indicates that a little Number 2 that transcends the day-to-day over half of all chief operating officers see themselves as the “heir Further reducing the risks involved apparent.” Almost all think of them- in any succession requires that ev- selves as “the other half”—offering eryone—board members, CEOs and competencies, experiences, exper- heirs—fully appreciates the time tise and a management style that and effort it takes to get the relay complement those of the CEO. Nearly successor ready. all of the COOs surveyed believe that top operations executives are respon- So what does it take to get the sible for the long-term performance COO as prepared as possible for of their organizations. And more making it to that top rung on the than 85 percent say they are able to ladder? In a general sense, the key affect their organizations’ long-term is to develop and then continually performance. refine a nuanced understanding of the gaps between the capabilities Few guarantees and credentials of an heir and Yet the COO’s readiness for the high- what, looking forward, the CEO est executive office is by no means position is likely to demand. A central element of the a given. A central element of the challenge is that there are aspects of The gaps will be very different for challenge is that there the CEO position that simply can’t be the COO than they will be for rivals are aspects of the CEO experienced as an understudy—even for the top job, such as the CFO. when the COO has been formally One part of assessing the capabilities position that simply designated as the heir. of an heir is to understand where cannot be experienced he is now. Virtually every CEO we work with as an understudy. agrees that there are important The COO role is highly contextual, elements of the position that cannot and the characteristics of the current be fully understood until you are CEO and the challenges the company wearing CEO shoes. Time in the is facing are just two of many COO job is no guarantee of success situational elements that determine in the top spot, because the one role the nature of the role. Other elements simply isn’t the other. can include the skills the COO has demonstrated and the reputation she But the more pressing—and soluble— has earned. As a result, we contend, part of the challenge lies in boards’ the degree to which the role is understanding of what is needed to instrumental in the preparation prudently manage the transition risks of the heir depends largely on situ- involved with any CEO succession. ational factors like these. Even at companies that recognize the need to prepare the successor, For that reason, it is important to be boards may underestimate just realistic about specific challenges the what that preparation requires. COO faces when being considered for After all, replacing a CEO is not the corner office. These challenges can something that most boards have perhaps be best illustrated through a great deal of practice doing. a series of questions.
How fast is too fast to move?
It is easy to underestimate the versa. Performance expectations difficulties associated with the move may be inflated to the point where 3 from COO to CEO, because it is as- they are quite unrealistic, possibly Outlook 2010 sumed that the COO, as an insider, setting the new CEO up to fail. Number 2 understands the company, and vice The desire to get things moving job had been to make things move is understandable. New CEOs forward as quickly as possible, but want to establish themselves in the that as CEO, his job is often to role. Board members and coworkers slow things down—to make sure are anxious to learn what the new the final decision is the right one leader will be like. However, when for the company. the subtleties of bringing the new chief on board are ignored, it is not The key is for the board to ensure uncommon to see new CEOs taking that the same thoroughness and on too much in their efforts to patience that would be afforded a make their mark quickly. successor from the outside during her acclimation period be given the In many cases where the new CEO’s former COO as well. That way, the personality is very different from new boss has time to actually learn that of his predecessor, and when the role, to evaluate the executive the changeover happens too quickly, team from her new vantage point, the organization experiences a sort to understand how to relate to each of paralysis. People who are used to team member from the new position interacting with the CEO in a certain and to deepen her relationships with way often don’t know how to respond board members. to a different style. Even when the executive jobs and Although there is enormous pres- the people holding them don’t sure to perform, new CEOs have change—or at least not much—many told us that one challenge is actu- of the interpersonal dynamics will ally applying the brakes a bit. One change because, in effect, the top executive noted that as COO, his team is a new team.
How do I find time to work with the board?
The new CEOs we have spoken to ing how they will operate together, were unanimous in expressing their how they prefer to communicate surprise at how time-consuming and so on. That is especially criti- their relationships with board mem- cal when they inherit the previous bers can be. As one told us, “I’ve CEO’s board. come to understand that it isn’t a single relationship between me and Further complications may arise the board . . . it is 10 relationships— when the former CEO joins the board. one with each board member.” In this situation, the challenge is all about how comfortable he can be with Often, COOs are not used to devot- his successor. The new boss may be ing so much energy to something slow to act on her agenda, worrying that doesn’t directly concern run- that doing too much too fast may ap- ning the company. But when pre- pear disloyal to her former boss. paring for the CEO role, they have to recognize that running the board But failing to move quickly to is part of their job as well. When establish that agenda can reinforce they do move into the corner office, the perception that the former COO they will have to invest heavily in is skilled only at execution. So it is 4 building relationships with board vital to get early agreement on how Outlook 2010 members, understanding what is quickly the new agenda should be Number 2 important to each one and discuss- rolled out. Where do I find the time for everything else?
Since CEOs never have enough time, Some COOs who have made the they have to be ruthless about how move to CEO have noted that the they prioritize their responsibilities way they allocate their time now and disciplined in sticking to these sometimes seems unnatural. Said priorities. As one new CEO put it, one: “I am constantly reprioritizing “I have always been very busy and my time away from [the areas where active, but I was unprepared for the I have proven expertise] to what amount of requests for my time or the company needs and what only for participation in outside activities. I, as CEO, can do.” I don’t have a problem saying no. The problem is finding time for things I want to say yes to!”
Where’s my cover?
COOs who make it to Several former COOs concede how A second source of discomfort: the top often have to uncomfortable it can feel to be the being in the spotlight all the time. final decision maker. “Sometimes “I think I have reasonable self- recalibrate their image, I feel a bit naked,” confided one, awareness,” said one former COO. particularly within “in that there isn’t someone next “But as CEO, I am surprised at door to bounce ideas off. My board how hard those around me work to the organization. is a help—and my team is a help— interpret my actions, comments, but it still feels different than even my body language—even when I was COO.” when no message is intended.”
How do others see me in this role?
Easily the single biggest challenge Those who do use their old net- that COOs face as heirs is the works—however innocently—soon way they are perceived by others, discover that even a whisper from both inside and outside the compa- the CEO becomes a shout across ny. Because the COO role is chiefly the company. They also realize that about good execution, it is easy for they are no longer in a position to others—including board members— act on every snippet of anecdotal to see the COO as lacking in stra- information they receive through tegic capabilities. Those looking to the networks. Not only do they lack champion the COO as the next CEO the time to do so, but much of the must find ways to demonstrate his information is about day-to-day strategic potential to the board. operations, and is therefore no longer their primary remit. COOs who make it to the top often have to recalibrate their image, Nor can they be seen to be as ac- particularly within the organization. cessible as they probably were in Used to driving operations, they the COO role; they must master the have had deep webs of relationships art of keeping some “professional across the company. But we find distance”—without becoming overly 5 that we often have to coach new distant, of course. Outlook 2010 CEOs not to use those networks in Number 2 the ways they have been used to. Do I need someone the way my predecessor needed me?
Boards are often anxious to have off to a good start. Seven action the CEO tap a new COO right away. items stand out for the succession However, that may not always be team as a whole. the right thing to do. 1. The COO should run a P&L. Our research has found that the Several relay successors stressed COO role is most effective when how valuable and important it it fully supports the CEO. To get was to run a profit-and-loss center the best person for the job, the while they were still COOs. As new CEO must first have a sense one of them shared with us, “Some of how she wants to play her role COOs are strictly about operations. and where the potential gaps in Running a P&L forces you to think the leadership team could be. as much as seven years out; it forces you to think strategically.” Naming their successors too quickly COOs without experience at running can have a significant downside a P&L noted that it was critical for relay successors. Not only does to at least have opportunities to immediately having a new COO work closely with business unit make it more difficult for the CEO leaders on their strategic planning to establish himself as the company’s activities. new leader, the situation adds a layer of organizational and reporting 2. The COO should flex his strategy complexity. Ed Zander, who had muscle. One former COO appreciated plenty of experience in the COO role that his predecessor had pushed at another high-tech company before him into strategy roles by, for he became CEO at Motorola, is a example, putting him in front of good example of a leader who did the board to present issues with not rush to add a COO when he took strategic ramifications. In those on the top job. situations, the CEO would “be just another member of the board” and From our research, it’s clear that would let the COO take the lead— the right preparation matters a great without letting him fail at it. As deal. COOs who were explicitly a result, the board became com- named as the departing chief execu- fortable talking strategy with the tive’s heir found the transition to second in command. CEO to be relatively smooth. When there is one clear heir, the CEO, the 3. The COO should get to know board and other stakeholders can external constituents. It is equally invest in the evolving relationship important for COOs to be exposed to without appearing to play favorites. situations such as investor meetings, meetings with political officials, The transition is smoother still trade association gatherings and when the CEO is ready to move so on. At McDonald’s, replacing on. Said one former COO: “As an the chief executive on very short heir, the best thing to have is a notice was made much easier by CEO who is clearly comfortable the fact that the CEO had long about leaving the position.” made a serious effort to give his COO some of the spotlight during 6 Besides the COO herself, the directors meetings with analysts and other Outlook 2010 and the exiting CEO have important constituents. Whenever possible, the Number 2 roles to play in getting the new chief designated heir should attend these meetings on her own, on behalf of 6. The new CEO should establish the company. his own group of trusted advisors. Although the chairman and the 4. The directors should craft a board are there for the CEO, they complete onboarding plan. The should not be used as sounding board’s job is not complete when boards for everything. It is indeed the successor is announced. The lonely at the top; it is often a big directors must monitor and support adjustment for new CEOs to realize the transition in order to manage that they have to make the big the risk. Although much is made of decisions without a safety net. A “the first 100 days” for new leaders, good way to make it easier is to our coaching suggests that a establish a network of senior advi- 12-month transition and coaching sors—even if the network and meet- plan is more appropriate, even for ings are fairly informal. The best an internal successor. such networks blend outsiders with carefully selected insiders. 5. The board must understand the outgoing CEO’s plans and motiva- 7. CEOs-designate must build tions. The exiting CEO can often shared expectations with the create challenges—especially when board. A good way to accomplish he moves on to the chairman’s role. this is to have third-party facilitators Our studies indicate that the former who can lead sessions between For further reading CEO’s new role should really be the incoming CEO and the board reevaluated within six months. We to help establish powerful working “Chief operating officers: Off to a fast have seen former CEOs overstay relationships from the start. The start,” Outlook, September 2008 their welcomes; when boards are more that can be done early on to not strong enough to ensure that remove the guesswork and potential those new chairs transition onward, misunderstandings, the lower the the resulting conflict can be very risk of a mishandled COO-to-CEO disruptive indeed. transition.
In this article, we have focused solely on the COO’s move to CEO. But it must be remembered that any succession plan involves many moving parts. Other valuable executives may have been part of the succession process; some may even have been in line for the top job themselves. So it is crucial that any succession planning takes into account the retention of other valued senior managers.
At the same time, the COO-to-CEO transition has to be viewed as just part of a broader approach to the development and sustenance of a leadership pipeline. The best-prepared boards and management teams are working several layers deep to ensure that there is a flow of high-potential candidates from the middle management ranks on up.
Eight years ago, the Sarbanes-Oxley Act prompted boards in the United States to begin to talk the talk about succession planning. The SEC’s recent bulletin will force them to finally walk the walk.
7 Outlook 2010 Number 2 About the authors
Nathan Bennett is the Catherine W. and Edwin A. Wahlen Professor of Management at Georgia Tech. His research focuses on the effectiveness of top management teams, challenges in strategy execution and leadership development. His work has been published in Harvard Business Review and featured in the Wall Street Journal, the Toronto Globe and Mail, the Guardian and the Financial Times. He is coauthor of Riding Shotgun: The Role of the COO (Stanford University Press, 2006).
Stephen A. Miles is a vice chairman of Heidrick & Struggles, overseeing the firm’s worldwide executive assessment/succession planning activities. With more than 15 years of experience in assessment, top-level succession planning and organizational effectiveness, Mr. Miles specializes in CEO succession and has worked with numerous boards of global Fortune 500 companies to ensure a successful selection and transition. Coauthor of Riding Shotgun: The Role of the COO, Mr. Miles is recognized as an expert on the role of the COO and has consulted to numerous companies on the establishment and effectiveness of the position and supporting the transition from COO to CEO.
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8 Outlook 2010 Number 2