The COO: CEO-in-Waiting?

It seems lately that every time one turns around, another CEO has abruptly "resigned for personal reasons" (Harry Stonecipher, at Boeing), has departed after a prolonged battle with disgruntled shareholders (Disney's Michael Eisner), or has been "elevated up" to "special adviser" status—and out of running the company—earlier than planned (Ray Gilmartin, at Merck & Co). The latest casualty is Kodak's Daniel Carp, to be replaced June 1 as CEO by President and Chief Operating Officer Antonio Perez because of Kodak's continuing difficulties evolving into digital imaging.

The Wall Street Journal's Carol Hymowitz, who writes about the corner office in her "In the Lead" column, believes that high-profile celebrity CEOs are on the way out, observing that "...many boards want CEOs who can mind the store. Pragmatism and a focus on day-to-day operations and the bottom line are in. So is being a team player with directors and other senior executives."

Considering "Mr. or Ms. Inside"

It sounds like Hymovitz is referring to the COO, the traditional "Mr. or Ms. Inside" who has been a long-term company loyalist, knows every aspect of the business and who gets the job done, quietly and efficiently, year after year; someone who is not flashy and avoids the limelight, but is a good communicator up and down the organization.

Someone like Richard Clark, for instance, whom the Merck board named to replace Ray Gilmartin. As expected, all the traditional plaudits were applied to Clark when he stepped up—"has consistently shown that he can lead necessary change... while remaining true to the company's core values," etc. Interestingly, Clark did not succeed Gilmartin as chairman of the company. Those duties are being assumed by a three-member executive committee, led by Lawrence Bossidy, who said, tellingly, "We can fulfill most of the duties a chairman normally would." Such splitting of the Chairman and CEO offices is occurring with greater frequency these days, as we've reported in prior e-Notes.

Excellent Talent Pool

When a firm is seeking a new CEO, either promoting from within, as Merck did, or going outside, it is critical to find the best-qualified, most experienced person available. In this regard, we believe COOs who have shown their mettle in that role are an excellent talent pool from which to draw.

The successful COO typically has considerable practical experience executing the business plan and hitting the numbers, and is frequently interested in moving into a top slot. We commend that ambition. If that success has been with his or her current company, so much the better because there will be a shorter learning curve in the new responsibilities.

Also because they are familiar with the COO, board members typically identify them as qualified internal candidates. Tapping such known quantities is laudable, provided the COO's qualifications measure up to current needs.

Evaluating Internal and External COOs

Whether an internal or external COO is the right person for the CEO position depends on the candidate's skill sets, breadth and depth of experience, and style "fit" relative to the organization's specific needs at that specific point in time.

In small to medium organizations, or in privately held firms, an internal COO frequently is fully competitive with outside candidates. Of course, the larger and more visible the company, the higher are the stakes, so that the skills required of the CEO become more differentiated from those of the COO, such as communicating with a broad range of external audiences.

Observes The Journal's Carol Hymowitz, "Investors, customers and employees expect them to articulate their strategies, stand up to scrutiny and converse about a wide range of global economic issues. Even if they don't want to become celebrities, knowing how to communicate is one of their most important jobs."

Creative, Strategic Thinking

"Articulate their strategies..." Quite often, it's the "vision thing." In today's 24/7 global economy, CEOs almost need to be clairvoyant to succeed. Says Jeffrey Sonnenfeld, at Yale School of Management, "Someone has to think ten years out, and boards have to be wary of choosing low-risk drones who don't have a creative edge."

Finding the right CEO, whether it is that strategic yet operationally focused, down-to-earth "people person" or the visionary with great communication skills, is not an insurmountable task. Despite the daily assault of negative-CEO headlines, our experience across the food, agribusiness and life sciences sectors is that good CEOs are at work every day, shaping the future strategically while successfully minding the bottom line.

When you want to identify and recruit your next CEO from the universe of qualified internal and external talent, please give us a call.

Until next time...

Kincannon & Reed
May 2005