Who Needs a COO?

With chief operating officer positions becoming rarer all the time, companies are relying on CFOs for a lot more than keeping score.

When Starbucks announced on Tuesday that it was eliminating its chief operating officer position, it became the latest member of an ever-growing club. And as COOs slowly fade from the C-suite, CFOs are stepping in to fill the gap, assuming more responsibility for areas that redound to the bottom line.

CFOs are gaining a higher profile in their organization as a result, along with, apparently, more compensation. But the downside is more pressure — more hours in the day required to accomplish more tasks, and more blame when profits fail to meet expectations or just fail altogether.

“Over time, it’s become more critical for organizations to have financial input on business decision-making,” says Tom Kolder, president of recruiting firm Crist|Kolder Associates, which specializes in C-suite searches. “They need to have a finance leader who is more than just a scorekeeper; who is a key partner to the CEO.

“But as CFOs take on more intensive business activities like operations or strategy,” adds Kolder, “they become more culpable if things go wrong. You’re no longer in a support function; you’re on the front lines, accountable for the good and bad.”

According to Crist|Kolder’s latest Volatility Report on the movement of CEOs, COOs, and CFOs at top U.S. public companies, issued late last year, the prevalence of COOs is headed downward and is now at its lowest level in at least a decade. Among the 548 companies that have been part of either the Fortune 500 or the S&P 500 since 1995, there were 227 COOs in 2006 compared with a high of 255 in 1999, an 11 percent decrease.

C:Documents and SettingsDavidMcCannDesktopCOOcht.gif

Kolder says concurrent trends for both CEOs and CFOs to be more involved in operational details squeeze COOs: “When you have the combination of those two elements, the need for a COO goes away.”

Jonathan Schiff, founder of the Finance Development and Training Institute, an alliance of 15 global companies dedicated to deepening the bench strength of their finance organization, attributes the decline of COOs in large part to Wall Street’s demand for a single strong leader at the company helm. “Wall Street rewards companies that have clarity in their stories,” says Schiff, who is also an accounting professor at Fairleigh Dickinson University. “But when there’s both a CEO and COO, there’s less clarity about who’s running the show. Accountability is at the core here.”

Even at many companies with COOs, the position seems more CEO-in-waiting than a career goal in itself. While slightly less than half of Fortune 500 companies with a CEO age 58 or older employ COOs, the percentage increases as CEOs age, to 58 percent for companies with CEOs 62 or older, according to the Crist|Kolder report. (Just over one-third of Fortune 500 companies have a CEO who is 58 or older.)

Kolder explains that an heir-apparent to a chief executive might be given the COO title until he or she takes over as CEO. “We see a significant number of cases in which a COO seems specifically in place to satisfy career development,” he says. “When that person moves up, the COO position is not necessarily backfilled.”

Discuss

Your email address will not be published. Required fields are marked *