Mercer - CEO and COO Roles

Designing CEO and COO Roles

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Designing CEO andCOO Roles

Over the past twenty years there hasbeen a shift in the strategic distribu-tion of leadership roles at the top ofcorporate organizations. Part of thisshift has entailed the movementtoward design and deployment of theexecutive team. With the increasingemphasis on the executive team’sresponsibility for governance, a needhas emerged to more clearly defineand structure the role of the teamleader. The leadership responsibilitiestypically reserved for the chief execu-tive officer have changed, and differ-ent leadership forms have evolved.

In many organizations the position ofchief operating officer has been creat-ed to directly manage internal opera-tions. In others, the executive teamfunctions as the COO. Increasingly,however, companies employ both anexecutive team and a COO. Neithergoverning role precludes the impor-tance of the other; instead, designationof a COO opens the door to dual man-agement of the team.

Where both CEO and COO roles areemployed, an effective working rela-tionship between the two executives isincreasingly critical to successful gov-ernance. This paper describes designoptions for structuring this CEO-COOworking relationship. We begin with ataxonomy of corporate leadership

roles and related behaviors thattogether define the collective executiveteam leadership responsibilities of theCEO and COO. We then present somealternative models based on the strate-gic role distribution for structuring theCEO-COO relationship, along with acomparative analysis of each model’srelative advantages and drawbacks.The paper concludes with a discussionof two critical concerns that need to beaddressed regardless of structure—management and governance process-es and partnership issues.

We present the design options in thecontext of the following four keyassumptions concerning the relativeroles of the CEO and COO, whoseworking relationship is aptlydescribed as a balancing act on thethreshold of power:

• Although structural schematics areuseful tools for discussing CEO-COO roles, the crux of the issuelies in determining who does what.Titles, lines, and boxes should pro-mote, not replace, discussions ofleadership roles and responsibili-ties.

• The balance of unique versusshared responsibilities at the top ofthe organization will change overtime in accordance with the per-formance and comfort level of keyexecutives.

• Severe hazards are inherent in theCEO-COO relationship and caneasily be exacerbated by rivalryand corresponding defensiveness.Focusing on the assignment of spe-

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cific responsibilities provides anopportunity for a constructive rolediscussion.

• The working relationship betweenthe CEO and COO is crucial to thesuccess of any structural arrange-ment. Clear reporting relation-ships and role differentiation willbe of little help if the individualsinvolved are unable to confrontand resolve their relationshipissues.

Corporate Leadership Roles andResponsibilities

We have identified a set of roles andbehaviors that are essential to govern-

ing a large complex organization. Forexample, someone, either alone or inpartnership with other senior execu-tives, must set strategic vision anddirection. Someone must establishorganizational structures that ensurethe achievement of those strategicobjectives. Someone must serve as theexternal representative of the organi-zation. These roles—strategist, archi-tect, ambassador—and others can bethought of as key categories in the jobdescription of corporate leadership. InFigure 1 we define eleven specificroles that together constitute both thestrategic and operational responsibili-ties of corporate leadership.

Role Activities

Strategist

Architect

Ambassador

Keeper of Corporate Image

Policy Management

PerformanceManagement

OperationsManagement

FunctionalManagement

Process Management

People Management

Information Management

Shapes corporate strategic direction.

Establishes organizational structure and operating systems to ensureachievement 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 strategicgoals and performance targets.

Manages functional staff, such as HR, legal, PR, and finance.

Ensures that core business processes are in place and workingeffectively.

Develops and leads senior management.

Serves as internal spokesperson for corporate messages.

Figure 1: Corporate Leadership Roles


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Design Options

Our design options for corporate lead-ership roles reflect two basic modelsfor structuring leadership at the top ofan organization: first, the traditionalhierarchical pattern and, second, apartnership structure (embodied in thenotion of a corporate office). Multiplevariations on these models are possi-ble, based on the relationship of cor-porate staffs to the CEO and COO,and we describe seven of them.

Readers will recognize of course thatorganizations are rarely structured inthe pure, strict fashion described inthis paper; these diagrams for purpos-es of illustration only hint at the com-plexity of the reporting relationshipsoften found in today’s corporate envi-ronments. Similarly, the real-worldmanifestations of these models aredynamic; roles and structures evolveover time, shaped by such factors assuccession, external pressures, internalreorganizations, and mergers andacquisitions.

Traditional Designs

Options A1 and A2 in Figure 2 repre-sent traditional views of the relation-ship between the CEO and COO.They reflect a clear hierarchy and divi-sion of labor, with the CEO responsi-ble for strategic issues, external rela-tions, and overall corporate gover-nance, and the COO primarily respon-sible for running internal companyoperations. Each of the executivesreporting to the COO manages his orher own piece of the organization inways consistent with strategies andpolicies from the top.

In Option A1 the entire corporate staffreports directly to the CEO. In OptionA2 staff functions are divided into twogroups—strategic and operational—that report to the CEO and the COO,respectively. Strategic staff manageprocesses such as corporate policy andresource allocation and often includethe distinct roles of corporate strategyofficer, general counsel, chief financialofficer (CFO), and so on. In contrast,

Option A1:Traditional (Single Staff)

CEO

Operations

StaffCOO

Option A2:Traditional (Dual Staff)

Operations

Strategic Staff

Operations Staff

CEO

COO

Figure 2: Traditional Models


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the responsibilities of operational staffoften have shorter time horizons,focusing on current-year priorities,performance management, and inte-grated operations of business units.For example, human resources andinformation technology are often (butnot always) part of the operationalstaff.

Although specific roles and responsi-bilities vary from company to compa-ny, this two-person structure has beenthe dominant leadership model sinceit emerged in the 1960s. Corporationsemploying the traditional CEO-COOleadership dyad in recent years haveincluded Eli Lilly & Co., (Tobias/Taurel), Corning Inc. (Houghton/Ackerman), and PepsiCo (Kendall/Pearson).

The traditional model offers distinctadvantages. The well-delineated,clearly understood chain of commandis typically associated with equallyclear role differentiation. There is littleambiguity about who sets the organi-zation’s strategic direction and, byextension, who is ultimately account-able for the organization’s success orfailure.

The clarity of a single voice and visionat the top of the organization comes ata price, however. The leader-managerdistinction characterizing the tradi-tional model frames the exercise ofpower and influence as a zero-sumgame. Within this context, relativelymild personality differences betweenCEO and COO, exacerbated by insecu-rity, may develop into intense rivalry

and full-blown power struggles.Historical examples include theBrophy-Vanderslice disputes at GTEand the O’Neill-Fetterolf conflicts atALCOA. In addition, a large powerdifferential between CEO and COOjeopardizes succession planning.Without stretch leadership responsibil-ities for the number two executive, itis difficult to assess his potential as afuture chief executive.

Corporate Office Designs

As demands for speed, simplicity, cus-tomer focus, and cost reduction makegovernance processes more and morecomplex, the concept of the corporateoffice (also executive office, office ofthe chief executive, and so forth) hasreceived increasing attention. In effectthis is a structure with permeableboundaries that speeds the flow ofstrategic and operational informationamong executive decision makers.The primary difference between vari-ants of this model and the traditionalleader-manager model lies in theincreased emphasis on shared respon-sibility, or partnership, at the top.Roles are less distinct than in a zero-sum perspective and are blended, inthe sense that more responsibility isjointly owned by the CEO and COO.(There is one exception: the operationsstaff still report directly to the COO.)This partnership can provide greaterflexibility, with leaders less con-strained by rigid and static jobdescriptions (resulting in such per-spectives as “that’s your job, notmine”).


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The next set of design options identi-fies the two top executives as mem-bers of a Corporate Office that over-sees the entire organization. Withinthe Corporate Office the COO partici-pates in many of the strategic leader-ship activities traditionally reservedfor the CEO, and the CEO may havemore involvement in key operationaldecisions than the traditional model.

Increased partnership and sharing ofleadership responsibilities at the topoffers several important advantages:

• It sends a message of trust in theCOO;

• It provides “stretch” assignmentsfor the COO;

• When developed through athoughtful allocation of roles andresponsibilities, it allows each indi-vidual to maximize personal pref-erences and strengths; and

• It serves to reify the corporateteam—the Corporate Office createsa strong sense of team identity andunified leadership at the top.

At the same time this design has sev-eral points of vulnerability:

• Partnership requires intensive andcontinuous work on “chemistry”and “personal style” issues;

• True partnership requires a highdegree of trust between the indi-viduals; and

• Without a high degree of formalstructure, the design has potential

for ambiguity in reporting relation-ships.

The Corporate Office design variationsoffer alternative reporting relation-ships for staff functions. In the sim-plest Corporate Office design (B1)(Figure 3), staff functions report to theCorporate Office as an entity ratherthan to any specific individual. Thestaff can therefore be thought of asreporting into the box. No formal dis-tinction is made between strategic oroperations staff.

In the dual staff model (B2) (Figure 4)there are two sets of corporate staff.Some staff members report to the cor-porate office, while others reportdirectly to the CEO. The CEO’s role asthe primary driver of long-term corpo-rate strategy is so fundamental thateven within these partnership models,the strategic staff continue to reportdirectly to the CEO. Those staffsreporting to the corporate office, onthe other hand, are not clearly alignedwith either the CEO or COO, both ofwhom share the responsibility formanaging those staff functions.

The designated staff model (B3)(Figure 4) offers clearer reporting rela-tionships between the staff and thecorporate office than are found in thestaff-to-the-box model (B1). In the des-ignated staff model, individual stafffunctions are aligned with a primarycontact, either the CEO or the COO.This is essentially a traditional staffstructure with solid-line (primary) anddotted-line (secondary) reporting rela-


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tionships. At any given time actualreporting relationships are determinedby the current business context. Thisavoids the ambiguity inherent in purein-the-box reporting relationships.

Aggregated Staff Designs

Another set of corporate office designsentails the aggregation of key stafffunctions under the direction of a chiefstaff officer (CSO), who brings staffrepresentation to the leadership table.In Option C1 (Figure 5) the CSO, CFO,and COO form an executive team,residing in the corporate office withthe CEO as team leader. In Option C2

(also Figure 5) the CFO and CSO oper-ate outside of the corporate office.

The aggregation of staff offers someunique advantages:

• More efficient decision making.All corporate staff can be repre-

sented with two individuals (CFOand CSO);

• Lower overhead, more manageablemeetings, less chance of processloss; and

• Potential for the CSO to fosterdevelopment of other leadershiptalent.

At the same time, designating oneindividual as the spokesperson oradvocate of the staff functions for thepurpose of executive team meetingsmay result in overrepresentation ofcertain interests in decision making,depending upon the interest and focusof the CSO.

It should be noted that it is possible toaggregate staff through a CSO func-tion in the more traditional models(A1 and A2; Figure 2) without the exis-tence of a corporate office; however, inthese situations the CSO reports to

Option B1:Corporate Office (Staff To-The-Box)

Corporate Office

CEO

Operations

StaffCOO

Figure 3: Simple Corporate Model


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either the CEO or the COO, therebysimply adding another layer to thestructure. In contrast, adding the CSOfunction to a corporate office expandsthe executive team, enabling corporatedecisions to include, by representa-tion, the voice of all corporate staff.

The C1 design, as we said earlier, basi-cally creates an executive team, andthese are the general advantages asso-ciated with this team-at-the-topdesign:

• Benefits derived from team syner-gies, such as better-informed deci-sion making;

• Development of other executivesand future leaders through theirparticipation in executive activitiesand decisions; and

• Increased coordination across func-tions.

However, the following points of vul-nerability must also be consideredwith the team model:

• Intensified political behavior;

• Potential loss of individualaccountability;

• Potential for team dysfunction,such as process loss, groupthink,diffusion of responsibility, and thelike; and

• Special requirements for the CEOas team leader.

Comparative Analysis of DesignOptions

Although no design option is inher-ently correct or incorrect, the selectionof a particular option should be guid-ed by how well the model fits the cur-rent business context and the capabili-ties, styles, and needs of the individu-als involved. Toward that end wehave evaluated the seven options justpresented on the basis of the followinghigh-impact criteria:

Option B 2:Corporate Office (Dual Staff)

Corporate Office

CEO

COO

Operations

StaffStaff

Option B3:Corporate Office (Designated Staff)

Primary Contact1 = CEO2 = COO

Corporate Office

CEO

COO

Operations

Staff

1 1 1 2 2

Figure 4: Dual and Designated Staff Models


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• Clarity of CEO and COO roles;

• Support of succession plansthrough validation of COO role;

• Provision of stretch assignmentsfor COO;

• Effective governance in terms ofcoordination of various staff andoperational functions;

• Efficient governance procedures interms of numbers of meetings,streamlined decision-makingprocesses, and so forth; and

• Use of governance process as away to model and drive thedesired operating environmentfrom the top.

After applying these criteria to theoptions available (Figure 6), itbecomes apparent that the aggregatedstaff designs have greater benefit.Clearly, the final choice of option willbe influenced by a number of contex-tual factors, such as players’ personali-

ties and styles, the CEO’s assessmentof the COO’s competency, the organi-zation’s historical roles for the CEOand COO, and so on. However, allthings being equal, partnership-orient-ed approaches to governance arepreferable. In addition to the structureand role issues raised when evaluatingalternative CEO-COO design options,relationship and management processissues demand attention.

Management Processes

Whatever the organizational structureselected, to ensure organizational per-formance corporate leadership mustdesign and manage three sets ofprocesses:

1. Core business processes. Developedto manage the core work of theorganization, such as productdevelopment and delivery, innova-tion, order fulfillment, and cus-tomer support.

Option C 1:Aggregation of Staff (In Corporate)

Option C 2:Aggregation of Staff (Outside Corporate)

Corporate OfficeCorporate Office

CEO

Operations

CFO COO CSO

Staff

CFO

Corporate Office

CEO

Operations

Staff

CSOCOO

Figure 5: Aggregated Staff


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2. Management processes. Developedto help guide the enterprise, allo-cate resources, and ensure per-formance, such as strategy devel-opment, operating plan develop-ment, portfolio management, andperformance management.

3. Support processes. Designed to sup-port the other management andcore business processes and devel-op and manage infrastructure, suchas information management andhuman resource management.

In a large and complex corporation thecore business processes are managedby the operating units and at timesmay be championed by a senior execu-tive. However, the core managementprocesses and selected supportprocesses are the exclusive responsibil-ity of the executive leadership. The

leadership of these processes happensin various forums (committees, teamsor groups, and regular meetings) atthe executive level.

Typically, the executive level has twoprimary forums for the managementof processes: one devoted to the strate-gic management of the enterprise andusually a second devoted to the near-term (current year and next year)operations of the company. Criticalissues include determining the appro-priate forums for managing processes,who has responsibility for the leader-ship of each forum (the CEO, theCOO, or another executive), and howthese forums will function.

Relationship Issues

A genuine partnership between theCEO and COO can be hard to achieve.

Criteria

Corporate OfficeTraditional

Clarity of role

COO role validation

COO development

Effective coordination

Efficient governanceprocesses

Driver of desiredoperatingenvironment

Aggregate StaffDesignOptions A

SingleStaff

1 ASingleStaff

2 BStaff

to the Box

1 BDualStaff

2 CInside

CorporateStaff

1BDesignated

Staff

3 COutside

CorporateStaff

2

High High

High High High

High High

High High High

High High High

High High

Low Low

Low Low

Low Low

Low

Low

Low

Low

Moderate Moderate Moderate

Moderate Moderate


Moderate Moderate


ModerateModerateModerateModerate

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

Figure 6: Evaluation of Design Options Against Criteria


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Rivalry, defensiveness, and issues ofcontrol often exacerbate an inherentlyintense alliance between two powerfulindividuals responsible for running anorganization. Consequently, attentionand effort must be dedicated to build-ing a bond of mutual respect andtrust. It is imperative that both partiesfeel not just comfortable enough butabsolutely compelled to raise difficultissues with one another in a timelyand constructive manner. Their shar-ing of information must go beyond“due diligence” to a rapport that ischaracterized by a strong sense ofinterdependence and joint responsibil-ity.

There are two very important strate-gies for building this type of uniquerelationship. First, as early as possiblein the development of the partnership,the parties must discuss in explicitterms the distribution of roles andresponsibilities. One of the greatestsources of stress between the CEO andthe COO is ambiguity about who is incharge of what. Second, the CEO andthe COO must candidly express theirindividual wishes and aspirations con-cerning both the roles under discus-sion and their long-term career goals.In addition they must address theirfeelings and concerns regarding thepartnership. This open, honest discus-sion is essential if the parties are toconfront and deal with any potentiallydestructive interpersonal dynamicsthat might, over time, undermine therelationship. Due to the sensitive and

often awkward nature of such discus-sions, outside facilitation might benecessary.

The CEO and COO share the responsi-bility for successfully resolving mostpartnership issues. However, twoareas of responsibility are solelyincumbent upon the CEO: empower-ment of the COO and the positioningand development of the COO as CEOsuccessor. To carry out these responsi-bilities, the CEO must:

• Give guidance to the COO by shar-ing the insights and wisdomgained through experience as CEO;

• Work with the COO to develop ashared approach to shaping thefuture direction of the organiza-tion;

• Work diligently to validate andsupport the COO’s role throughhigh-impact assignments and sym-bolic activities; and

• Provide timely and thorough per-formance feedback to the COO.

Just as the CEO has some uniqueresponsibilities for strengthening thealliance, the COO also has several cor-responding responsibilities. He must:

• Provide upward feedback;

• Push back on the CEO by testingassumptions, questioning deci-sions, and disagreeing when neces-sary;


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• Seek high-impact stretch assign-ments; and

• Actively support the CEO in allforums and situations where any-one other than the two of them isinvolved.

Clarifying structural, process, andrelationship or role issues demandssignificant time and focused attentionon the part of the CEO and COO, pos-sibly with third-party support. To aiddiscussion, a worksheet is provided inthe Appendix at the end of this paperthat details the collective responsibili-ties of the CEO and COO. The work-sheet is intended to facilitate determi-nation of which responsibilities areshared, which unique and primary,and which secondary. We also suggestthat much of this work be done off-sitein order to devote enough uninter-rupted time to discuss these importantissues. These discussions should havethe goal of producing clear documen-tation of the agreements reached andan explicit communication plan forstart-up and implementation of thedesired model.

We believe that in many organizationsthe partnership-at-the-top model is notonly workable but potentially highlyproductive. But its success willdepend on both the CEO’s and COO’scommitment to the alliance. True part-nership involves more than lines andboxes on a piece of paper; in the end itwill be the attitudes and behavior ofthe individuals involved that willdetermine the arrangement’s ultimatesuccess.

Summary

This paper has investigated the advan-tages and drawbacks of seven optionsfor designing a CEO-COO workingrelationship that can meet the modernorganization’s governance needs.These models are based on a taxono-my of corporate leadership roles andrelated behaviors that together defineCEO and COO responsibilities. Wealso addressed the managementprocess and relationship issues thatmembers of an executive team mustdeal with openly to form an effectivepartnership.

Although a number of considerationswill affect a CEO’s design choice,including his views of comparativepersonalities and management styles,of a COO’s competency, and of theway CEO and COO roles have beenpatterned in the organization’s past,we conclude that typically the partner-ship models of governance are prefer-able to the traditional model.


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AppendixRoles and Responsibilities for CEO and COO Worksheet

CEO

• Sets corporate strategic direction (vision and strategy).

Strategist

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 COO

• 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.).

• Establishes organizational structure and operating systems to ensure achievement of strategic objectives.

• 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.

Architect

Ambassador

• Defines desired corporate philosophy, values, and operating environment.

• Defines core business processes.

• 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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CEO

• Translates corporate vision and strategy into organizational policies, directives, and procedures.

Policy-Related Responsibilities COO

• 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.

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).

• Ensures implementation of policies, directives, and procedures.

• Monitors effectiveness of policies, directives, and procedures.

CEOOperational Responsibilities COO

• Manages operations of the company in ways consistent with strategic goals and performance targets.

Operations Management

• 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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CEOOperational Responsibilities COO

• Manages financial information and compliance activities.

Functional Management

Process Management

• Manages the attraction, retention, and development of a high-performance workforce.

• Manages public relations.

• 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.

People Management

• 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.

• Leads senior team.

• Ensures the right leadership team is in place, with complementary skills represented.

• 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.

ABOUT MERCER DELTA

Mercer Delta Consulting, LLC works with CEOs and senior executives on the design and leadership of large-scale organizational change. We have worked closely with more than200 organizations, including 150 Fortune 500 companies, and our collaborative approachto change focuses on these practice areas:

Organizational Architecture Change ManagementExecutive Leadership Strategic CommunicationExecutive Teams Organizational ResearchLeadership Alignment and Development Organizational AssessmentExecutive Succession Corporate Board Effectiveness

Strategic Choice (Strategy Development)Strategic Combinations (Mergers, Acquisitions, Joint Ventures, etc.)

Operating Environment (Culture Change)

To obtain further information about Mercer Delta or to request additional publications,please contact us at 212-403-7500 or at [email protected].

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