Designing CEO and COO Roles

Designing CEO and COO Roles

Over the past twenty years there has been a shift in the strategic distribution of leadership roles at the top of corporate organizations. Part of this shift has entailed the movement toward design and deployment of the executive team. With the increasing emphasis on the executive teams responsibility for governance, a need has emerged to more clearly define and structure the role of the team leader. The leadership responsibilities typically reserved for the chief executive officer have changed, and different leadership forms have evolved. In many organizations the position of chief operating officer has been created to directly manage internal operations. In others, the executive team functions as the COO. Increasingly, however, companies employ both an executive team and a COO. Neither governing role precludes the importance of the other; instead, designation of a COO opens the door to dual management of the team. Where both CEO and COO roles are employed, an effective working relationship between the two executives is increasingly critical to successful governance. This paper describes design options for structuring this CEO-COO working relationship. We begin with a taxonomy of corporate leadership

roles and related behaviors that together define the collective executive team leadership responsibilities of the CEO and COO. We then present some alternative models based on the strategic role distribution for structuring the CEO-COO relationship, along with a comparative analysis of each models relative advantages and drawbacks. The paper concludes with a discussion of two critical concerns that need to be addressed regardless of structure management and governance processes and partnership issues. We present the design options in the context of the following four key assumptions concerning the relative roles of the CEO and COO, whose working relationship is aptly described as a balancing act on the threshold of power: Although structural schematics are useful tools for discussing CEOCOO roles, the crux of the issue lies in determining who does what. Titles, lines, and boxes should promote, not replace, discussions of leadership roles and responsibilities. The balance of unique versus shared responsibilities at the top of the organization will change over time in accordance with the performance and comfort level of key executives. Severe hazards are inherent in the CEO-COO relationship and can easily be exacerbated by rivalry and corresponding defensiveness. Focusing on the assignment of spe-

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Designing CEO and COO Roles

cific responsibilities provides an opportunity for a constructive role discussion. The working relationship between the CEO and COO is crucial to the success of any structural arrangement. Clear reporting relationships and role differentiation will be of little help if the individuals involved are unable to confront and resolve their relationship issues. Corporate Leadership Roles and Responsibilities We have identified a set of roles and behaviors that are essential to governFigure 1: Corporate Leadership Roles
Role
Strategist Architect Ambassador Keeper of Corporate Image Policy Management Performance Management Operations Management Functional Management Process Management People Management Information Management

ing a large complex organization. For example, someone, either alone or in partnership with other senior executives, must set strategic vision and direction. Someone must establish organizational structures that ensure the achievement of those strategic objectives. Someone must serve as the external representative of the organization. These rolesstrategist, architect, ambassadorand others can be thought of as key categories in the job description of corporate leadership. In Figure 1 we define eleven specific roles that together constitute both the strategic and operational responsibilities of corporate leadership.

Activities
Shapes corporate strategic direction. Establishes organizational structure and operating systems to ensure achievement of strategic direction. Serves as principal external representative of the company. Sets tone and direction for relations with key external constituencies. Translates corporate vision and strategy into organizational policies, directives, and procedures. Sets and reviews corporate management performance targets. Manages operations of company in ways consistent with strategic goals and performance targets. Manages functional staff, such as HR, legal, PR, and finance. Ensures that core business processes are in place and working effectively. Develops and leads senior management. Serves as internal spokesperson for corporate messages.

Designing CEO and COO Roles

Design Options Our design options for corporate leadership roles reflect two basic models for structuring leadership at the top of an organization: first, the traditional hierarchical pattern and, second, a partnership structure (embodied in the notion of a corporate office). Multiple variations on these models are possible, based on the relationship of corporate staffs to the CEO and COO, and we describe seven of them. Readers will recognize of course that organizations are rarely structured in the pure, strict fashion described in this paper; these diagrams for purposes of illustration only hint at the complexity of the reporting relationships often found in todays corporate environments. Similarly, the real-world manifestations of these models are dynamic; roles and structures evolve over time, shaped by such factors as succession, external pressures, internal reorganizations, and mergers and acquisitions. Figure 2: Traditional Models
Option A1 : Traditional (Single Staff)

Traditional Designs Options A1 and A2 in Figure 2 represent traditional views of the relationship between the CEO and COO. They reflect a clear hierarchy and division of labor, with the CEO responsible for strategic issues, external relations, and overall corporate governance, and the COO primarily responsible for running internal company operations. Each of the executives reporting to the COO manages his or her own piece of the organization in ways consistent with strategies and policies from the top. In Option A1 the entire corporate staff reports directly to the CEO. In Option A2 staff functions are divided into two groupsstrategic and operational that report to the CEO and the COO, respectively. Strategic staff manage processes such as corporate policy and resource allocation and often include the distinct roles of corporate strategy officer, general counsel, chief financial officer (CFO), and so on. In contrast,
Option A 2 : Traditional (Dual Staff)

CEO

CEO

COO
Staff

COO
Strategic Staff

Operations Staff Operations Operations

Designing CEO and COO Roles

the responsibilities of operational staff often have shorter time horizons, focusing on current-year priorities, performance management, and integrated operations of business units. For example, human resources and information technology are often (but not always) part of the operational staff. Although specific roles and responsibilities vary from company to company, this two-person structure has been the dominant leadership model since it emerged in the 1960s. Corporations employing the traditional CEO-COO leadership dyad in recent years have included Eli Lilly & Co., (Tobias/ Taurel), Corning Inc. (Houghton/ Ackerman), and PepsiCo (Kendall/ Pearson). The traditional model offers distinct advantages. The well-delineated, clearly understood chain of command is typically associated with equally clear role differentiation. There is little ambiguity about who sets the organizations strategic direction and, by extension, who is ultimately accountable for the organizations success or failure. The clarity of a single voice and vision at the top of the organization comes at a price, however. The leader-manager distinction characterizing the traditional model frames the exercise of power and influence as a zero-sum game. Within this context, relatively mild personality differences between CEO and COO, exacerbated by insecurity, may develop into intense rivalry

and full-blown power struggles. Historical examples include the Brophy-Vanderslice disputes at GTE and the ONeill-Fetterolf conflicts at ALCOA. In addition, a large power differential between CEO and COO jeopardizes succession planning. Without stretch leadership responsibilities for the number two executive, it is difficult to assess his potential as a future chief executive. Corporate Office Designs As demands for speed, simplicity, customer focus, and cost reduction make governance processes more and more complex, the concept of the corporate office (also executive office, office of the chief executive, and so forth) has received increasing attention. In effect this is a structure with permeable boundaries that speeds the flow of strategic and operational information among executive decision makers. The primary difference between variants of this model and the traditional leader-manager model lies in the increased emphasis on shared responsibility, or partnership, at the top. Roles are less distinct than in a zerosum perspective and are blended, in the sense that more responsibility is jointly owned by the CEO and COO. (There is one exception: the operations staff still report directly to the COO.) This partnership can provide greater flexibility, with leaders less constrained by rigid and static job descriptions (resulting in such perspectives as thats your job, not mine).

Designing CEO and COO Roles

The next set of design options identifies the two top executives as members of a Corporate Office that oversees the entire organization. Within the Corporate Office the COO participates in many of the strategic leadership activities traditionally reserved for the CEO, and the CEO may have more involvement in key operational decisions than the traditional model. Increased partnership and sharing of leadership responsibilities at the top offers several important advantages: It sends a message of trust in the COO; It provides stretch assignments for the COO; When developed through a thoughtful allocation of roles and responsibilities, it allows each individual to maximize personal preferences and strengths; and It serves to reify the corporate teamthe Corporate Office creates a strong sense of team identity and unified leadership at the top. At the same time this design has several points of vulnerability: Partnership requires intensive and continuous work on chemistry and personal style issues; True partnership requires a high degree of trust between the individuals; and Without a high degree of formal structure, the design has potential

for ambiguity in reporting relationships. The Corporate Office design variations offer alternative reporting relationships for staff functions. In the simplest Corporate Office design (B1) (Figure 3), staff functions report to the Corporate Office as an entity rather than to any specific individual. The staff can therefore be thought of as reporting into the box. No formal distinction is made between strategic or operations staff. In the dual staff model (B2) (Figure 4) there are two sets of corporate staff. Some staff members report to the corporate office, while others report directly to the CEO. The CEOs role as the primary driver of long-term corporate strategy is so fundamental that even within these partnership models, the strategic staff continue to report directly to the CEO. Those staffs reporting to the corporate office, on the other hand, are not clearly aligned with either the CEO or COO, both of whom share the responsibility for managing those staff functions. The designated staff model (B3) (Figure 4) offers clearer reporting relationships between the staff and the corporate office than are found in the staff-to-the-box model (B1). In the designated staff model, individual staff functions are aligned with a primary contact, either the CEO or the COO. This is essentially a traditional staff structure with solid-line (primary) and dotted-line (secondary) reporting rela-

Designing CEO and COO Roles

Figure 3: Simple Corporate Model Option B1 : Corporate Office (Staff To-The-Box)

Corporate Office

CEO

COO
Staff

Operations

tionships. At any given time actual reporting relationships are determined by the current business context. This avoids the ambiguity inherent in pure in-the-box reporting relationships. Aggregated Staff Designs Another set of corporate office designs entails the aggregation of key staff functions under the direction of a chief staff officer (CSO), who brings staff representation to the leadership table. In Option C1 (Figure 5) the CSO, CFO, and COO form an executive team, residing in the corporate office with the CEO as team leader. In Option C2 (also Figure 5) the CFO and CSO operate outside of the corporate office. The aggregation of staff offers some unique advantages: More efficient decision making. All corporate staff can be repre-

sented with two individuals (CFO and CSO); Lower overhead, more manageable meetings, less chance of process loss; and Potential for the CSO to foster development of other leadership talent. At the same time, designating one individual as the spokesperson or advocate of the staff functions for the purpose of executive team meetings may result in overrepresentation of certain interests in decision making, depending upon the interest and focus of the CSO. It should be noted that it is possible to aggregate staff through a CSO function in the more traditional models (A1 and A2; Figure 2) without the existence of a corporate office; however, in these situations the CSO reports to

Designing CEO and COO Roles

Figure 4: Dual and Designated Staff Models

Option B 2 : Corporate Office (Dual Staff)
Corporate Office

Option B 3 : Corporate Office (Designated Staff)

Corporate Office

CEO

CEO

COO
Staff Staff

COO

1 Staff

Operations

Operations

Primary Contact 1 = CEO 2 = COO

either the CEO or the COO, thereby simply adding another layer to the structure. In contrast, adding the CSO function to a corporate office expands the executive team, enabling corporate decisions to include, by representation, the voice of all corporate staff. The C1 design, as we said earlier, basically creates an executive team, and these are the general advantages associated with this team-at-the-top design: Benefits derived from team synergies, such as better-informed decision making; Development of other executives and future leaders through their participation in executive activities and decisions; and Increased coordination across functions. However, the following points of vulnerability must also be considered with the team model:

Intensified political behavior; Potential loss of individual accountability; Potential for team dysfunction, such as process loss, groupthink, diffusion of responsibility, and the like; and Special requirements for the CEO as team leader. Comparative Analysis of Design Options Although no design option is inherently correct or incorrect, the selection of a particular option should be guided by how well the model fits the current business context and the capabilities, styles, and needs of the individuals involved. Toward that end we have evaluated the seven options just presented on the basis of the following high-impact criteria:

Designing CEO and COO Roles

Figure 5: Aggregated Staff

Option C 1 : Aggregation of Staff (In Corporate)
Corporate Office Office Corporate Corporate Office

Option C 2 : Aggregation of Staff (Outside Corporate)

CEO CEO CFO

CFO

COO

CSO

COO

CSO

Staff Staff Operations Operations

Clarity of CEO and COO roles; Support of succession plans through validation of COO role; Provision of stretch assignments for COO; Effective governance in terms of coordination of various staff and operational functions; Efficient governance procedures in terms of numbers of meetings, streamlined decision-making processes, and so forth; and Use of governance process as a way to model and drive the desired operating environment from the top. After applying these criteria to the options available (Figure 6), it becomes apparent that the aggregated staff designs have greater benefit. Clearly, the final choice of option will be influenced by a number of contextual factors, such as players personali-

ties and styles, the CEOs assessment of the COOs competency, the organizations historical roles for the CEO and COO, and so on. However, all things being equal, partnership-oriented approaches to governance are preferable. In addition to the structure and role issues raised when evaluating alternative CEO-COO design options, relationship and management process issues demand attention. Management Processes Whatever the organizational structure selected, to ensure organizational performance corporate leadership must design and manage three sets of processes: 1. Core business processes. Developed to manage the core work of the organization, such as product development and delivery, innovation, order fulfillment, and customer support.

Designing CEO and COO Roles

Figure 6: Evaluation of Design Options Against Criteria

Traditional
A Single Staff
1

Design Options

Corporate Office
B Staff to the Box
1

Aggregate Staff
C1 Inside Corporate Staff Low Moderate High High High C2 Outside Corporate Staff Moderate High High High High

A2 Single Staff

B2 Dual Staff

B3 Designated Staff

Criteria Clarity of role COO role validation COO development High Low Low High Low Low Low Low Low Moderate Moderate Moderate Moderate Moderate High Moderate Low Moderate Moderate High Moderate High High

Effective coordination Moderate Efficient governance processes Driver of desired operating environment Moderate

Low

Moderate

Moderate

Moderate

Moderate

High

High

Note: Cell entries denote the degree to which each design option enables achievement of a given criterion.

2. Management processes. Developed to help guide the enterprise, allocate resources, and ensure performance, such as strategy development, operating plan development, portfolio management, and performance management. 3. Support processes. Designed to support the other management and core business processes and develop and manage infrastructure, such as information management and human resource management. In a large and complex corporation the core business processes are managed by the operating units and at times may be championed by a senior executive. However, the core management processes and selected support processes are the exclusive responsibility of the executive leadership. The

leadership of these processes happens in various forums (committees, teams or groups, and regular meetings) at the executive level. Typically, the executive level has two primary forums for the management of processes: one devoted to the strategic management of the enterprise and usually a second devoted to the nearterm (current year and next year) operations of the company. Critical issues include determining the appropriate forums for managing processes, who has responsibility for the leadership of each forum (the CEO, the COO, or another executive), and how these forums will function. Relationship Issues A genuine partnership between the CEO and COO can be hard to achieve.

Designing CEO and COO Roles

Rivalry, defensiveness, and issues of control often exacerbate an inherently intense alliance between two powerful individuals responsible for running an organization. Consequently, attention and effort must be dedicated to building a bond of mutual respect and trust. It is imperative that both parties feel not just comfortable enough but absolutely compelled to raise difficult issues with one another in a timely and constructive manner. Their sharing of information must go beyond due diligence to a rapport that is characterized by a strong sense of interdependence and joint responsibility. There are two very important strategies for building this type of unique relationship. First, as early as possible in the development of the partnership, the parties must discuss in explicit terms the distribution of roles and responsibilities. One of the greatest sources of stress between the CEO and the COO is ambiguity about who is in charge of what. Second, the CEO and the COO must candidly express their individual wishes and aspirations concerning both the roles under discussion and their long-term career goals. In addition they must address their feelings and concerns regarding the partnership. This open, honest discussion is essential if the parties are to confront and deal with any potentially destructive interpersonal dynamics that might, over time, undermine the relationship. Due to the sensitive and

often awkward nature of such discussions, outside facilitation might be necessary. The CEO and COO share the responsibility for successfully resolving most partnership issues. However, two areas of responsibility are solely incumbent upon the CEO: empowerment of the COO and the positioning and development of the COO as CEO successor. To carry out these responsibilities, the CEO must: Give guidance to the COO by sharing the insights and wisdom gained through experience as CEO; Work with the COO to develop a shared approach to shaping the future direction of the organization; Work diligently to validate and support the COOs role through high-impact assignments and symbolic activities; and Provide timely and thorough performance feedback to the COO. Just as the CEO has some unique responsibilities for strengthening the alliance, the COO also has several corresponding responsibilities. He must: Provide upward feedback; Push back on the CEO by testing assumptions, questioning decisions, and disagreeing when necessary;

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Designing CEO and COO Roles

Seek high-impact stretch assignments; and Actively support the CEO in all forums and situations where anyone other than the two of them is involved. Clarifying structural, process, and relationship or role issues demands significant time and focused attention on the part of the CEO and COO, possibly with third-party support. To aid discussion, a worksheet is provided in the Appendix at the end of this paper that details the collective responsibilities of the CEO and COO. The worksheet is intended to facilitate determination of which responsibilities are shared, which unique and primary, and which secondary. We also suggest that much of this work be done off-site in order to devote enough uninterrupted time to discuss these important issues. These discussions should have the goal of producing clear documentation of the agreements reached and an explicit communication plan for start-up and implementation of the desired model. We believe that in many organizations the partnership-at-the-top model is not only workable but potentially highly productive. But its success will depend on both the CEOs and COOs commitment to the alliance. True partnership involves more than lines and boxes on a piece of paper; in the end it will be the attitudes and behavior of the individuals involved that will determine the arrangements ultimate success.

Summary This paper has investigated the advantages and drawbacks of seven options for designing a CEO-COO working relationship that can meet the modern organizations governance needs. These models are based on a taxonomy of corporate leadership roles and related behaviors that together define CEO and COO responsibilities. We also addressed the management process and relationship issues that members of an executive team must deal with openly to form an effective partnership. Although a number of considerations will affect a CEOs design choice, including his views of comparative personalities and management styles, of a COOs competency, and of the way CEO and COO roles have been patterned in the organizations past, we conclude that typically the partnership models of governance are preferable to the traditional model.

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Designing CEO and COO Roles

Appendix Roles and Responsibilities for CEO and COO Worksheet

Instructions: For each responsibility, determine whether it is unique or shared. If it is shared, then determine if it is a primary or secondary responsibility for the CEO or COO.

Strategic Responsibilities Strategist

Sets corporate strategic direction (vision and strategy). Shapes the company's long-term aspirations. Makes decisions on key strategic issues facing company (e.g., market entry, acquisitions). Communicates and builds commitment to corporate strategic direction among external constituents (Board, analysts, customers, etc.). Communicates and builds commitment to corporate strategic direction among internal constituents (management, associates, etc.). Periodically reviews the company's overall strategy to ensure organization anticipates and responds to changing business conditions.

CEO

COO

Architect
Establishes organizational structure and operating systems to ensure achievement of strategic objectives. Defines desired corporate philosophy, values, and operating environment. Defines core business processes.

Ambassador
Serves as principal external representative of the company. Develops successful alliances and joint ventures.

Keeper of the Corporate Image

Protects and builds brand integrity. Sets strategic marketing direction. Sets tone and direction for relations with key external constituents (clients, shareholders, analysts, etc.). Sets tone and direction for relations with key internal constituents (Board, senior team, management, employees, etc.).

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Designing CEO and COO Roles

Policy-Related Responsibilities
Translates corporate vision and strategy into organizational policies, directives, and procedures. Develops guidelines for use of corporate assets (people, brand, information). Communicates and builds commitment to organizational policies, directives, and procedures among key external constituents (board and so on). Communicates and builds commitment to corporate strategic direction among key internal constituents (management, associates, and so on). Integrates organizational policies, directives, and procedures into coherent framework. Ensures implementation of policies, directives, and procedures. Monitors effectiveness of policies, directives, and procedures.

CEO

COO

Operational Responsibilities Performance Management

Sets corporate performance targets (balanced scorecard). Translates corporate vision, strategy, and performance targets into business unit plans and performance targets. Deploys corporate vision, strategy, and performance targets into business unit plans and performance targets. Reviews and approves business unit strategies. Reviews business unit process performance against world-class criteria (for example, Baldrige National Quality Award).

CEO

COO

Operations Management
Manages operations of the company in ways consistent with strategic goals and performance targets. Monitors operational progress against performance targets and organizes counter measures when required. Manages infrastructure required to support operating units. Manages resources (including people and capital) across lines of business. Resolves critical shared-resources issues. Manages corporate staff resources. Resolves issues of conflict between business units and staff functions.

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Designing CEO and COO Roles

Operational Responsibilities Functional Management

Manages financial information and compliance activities. Manages the attraction, retention, and development of a high-performance workforce. Manages public relations.

CEO

COO

Process Management
Ensures that core business processes (for example, time to market, integrated supply chain, customer service, and so on) are in place and working effectively. Integrates company-wide business processes. Ensures effective management processes (for example, decision making and conflict resolution) are in place at all levels. Ensures that quality tools and methods are used in managing the business.

People Management
Ensures the right leadership team is in place, with complementary skills represented. Leads senior team. Develops and monitors succession-planning process for top leadership positions. Ensures all critical executive positions are adequately staffed. Develops top leadership through selection, coaching, and reinforcement. Ensures replacement personnel are suitably trained and developed.

Information Management
Transmits top-level decisions throughout organization. Serves as internal spokesperson for corporate messages.

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ABOUT MERCER DELTA

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