Why are COOs on the decline? 3 reasons

The COO has traditionally served as the No. 2 person in the C-suite and the most likely candidate to succeed a departing CEO. However, the COO role has recently begun to dwindle.

The percentage of Fortune 500 and S&P 500 companies with a COO dropped from 48 percent in 2000 to 36 percent in 2014, senior executive search firm Crist Kolder Associates found, according to a report by Strategy&. Despite the decline of the COO, the position is still considered valid and valuable at more than a third of the surveyed companies. Additionally, almost half — 44 percent — of CEOs at Fortune 500 and S&P 500 companies previously served as COOs.

However, the COO role is increasingly being dropped from high-profile companies, such as McDonald's and Twitter. Some firms choose not to hire replacements when COOs retire or resign, while some COOs promoted to CEO are choosing not to fill their previous position, according to the report.

Earlier this year, Charlotte, N.C.-based Carolinas HealthCare attracted national attention when it eliminated its president and COO position, previously held by Joe Piemont. Michael Tarwater, the health system's CEO, said the decision to eliminate the COO role was part of an effort to make Carolinas HealthCare "more nimble" and cut $110 million in expenses from its 2015 budget.

Why is the COO — a position typically looked to as the second-in-command — fading? According to Strategy&, there are three main reasons.

1. CEOs today have greater management capacity than in the past. CEOs are increasingly effective managers, and boards expect them to be closer to the business than ever before, according to the report. Because of increased leadership productivity, CEOs have doubled the number of their direct reports from five to 10, on average, over the last two decades. Additionally, the advancing sophistication of digital communications technologies, such as email, voicemail, video-conferencing and even social media, has afforded CEOs new opportunities for instantaneous communication with employees, stakeholders and partners. As a result, there is less need for the management duties typically executed by the COO.

Another trend contributing to the decline of the COO role: the division of the CEO and chairman role. In the past, CEOs often also served as the chairman of the board of directors. Now, it is becoming increasingly common for a different individual to serve as chairman, enabling the CEO to spend more time running the organization and less time working with the board. According to Strategy&, the percentage of incoming CEOs in North America who are also appointed chairman by their board has declined from 52 percent in 2001 to 11 percent in 2014.

2. Companies are becoming "flatter." Many companies across various industries have begun trimming the operations of their organizations to become flatter and focus on just their core capabilities. As a result, there is less need for a COO to manage and coordinate diverse operations, according to the report.

CEOs are also largely embracing collaborative approaches to leadership and management with the C-suite and other top managers.

"The CEO and COO no longer sit in the center, receiving information and issuing directives to satellite units and functions," according to the report. "Instead, the CEO's direct reports work with one another as well as with the CEO, bringing their own insights and expertise to bear in a more distributed and collective approach to information sharing and decision making."

Employing this type of horizontal management system often enables the company to remove the COO position from the hierarchy entirely.

3. No more pre-selected successors. Another major reason companies are beginning to say goodbye to the COO is the belief that automatically regarding the COO as a CEO-in-waiting hinders executive recruitment and development.

According to Strategy&, the presence of a COO can be demotivating to other executives. "We don't see many one-over-one situations anymore — where you have a COO between the CEO and the rest of the executive team," said Tom Kolder, president of Crist Kolder Associates. "It's hard to attract a world-class chief financial officer, for example, who is not going to report directly to the CEO. The same holds true for the general counsel, the head of HR and most staff functions."

As organizations become more horizontal, so does executive development. Many companies are adopting lateral executive development models, which have the opportunity to create a robust team of executives who can pick up the duties previously relegated to the COO, according to the report.

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