COO-to-CEO Succession Planning: 5 Tips for Middle-Market Manufacturers
The progression from COO to CEO has long been a primary pathway in the C-suite. This is particularly true in the automotive supply base and manufacturing operations, where operational experience is highly valued. This contrasts with industries like consumer products, where sales and brand management play a more significant role in executive leadership.
For example, Borg Warner recently announced that Joseph Fadool, the company’s executive vice president and chief operating officer, would become CEO on Feb. 6 after a long and carefully planned out series of promotions.
Famed Emerson CEO, the late Chuck Knight, is said to have had a “war room” adjacent to his office with Emerson’s entire organizational structure diagramed on a wall. When there was a strategic opening, Knight and his human resources leader would use this diagram as a road map to fill roles, promote high potential, or go outside to build the ranks. Knight’s management approach produced a number of successful executives, including his successor, David Farr, who became CEO after serving as COO for six years.
While these are two examples from large, global companies, the process for middle and lower middle market companies is just as important.
The challenge for smaller companies, those under $1 billion in sales, is a simpler business structure limiting ownership’s ability to test executives with different products, production, or market-facing challenges. Therefore, the path for succession planning is not well-honed or disciplined.
In 2023, 57% of new S&P 1500 CEOs were promoted from COO or president roles, a jump from 43% in 2022, according to a report from Spencer Stuart.
A successful transition requires a lot of transparency between the board, the CEO, and the COO candidate that begins even before the COO is hired or promoted into that job.
Here are five ways to make a transition successful in middle- and lower-middle-market companies:
1. The CEO and board need to be aligned on what success looks like
The existing CEO and the board of directors should have open and direct conversations about the succession plan, anticipated timeline and definition of the COO role. Potential candidates should understand the metrics and performance indicators on which the board will make a future decision.
2. The CEO needs to be fully on board with the plan
The CEO needs to be on board with the timeline communicated to candidates. The board chair and independent directors also need to regularly monitor this timeline and the COO’s progress.
3. The COO should have all operating functions reporting to him/her
This includes plants, engineering, supply chain, warehouse and distribution, functional human resources and integration operations.
If the company’s priority is commercial growth, then the COO will have marketing, product development, sales, channel management and pricing.
No carve-outs, period. In other words, no other top executive should have oversight over a major segment of the business that could be misinterpreted as a potential competitor. It needs to be communicated that this is not a horse race with any other executive.
Along the way, the COO can be tested by adding IT, administration, legal and/or other corporate roles.
4. Commit to coaching and skills development
During the assessment process, prior to being hired, the company should have a good idea of the candidate’s operating strengths, leadership and communication skills, temperament and personal goals and objectives. Human resources leaders and the CEO should map out clearly the support that will be offered to the new COO and the outcomes desired.
5. The board chair and independent directors need to stay involved
To assist in the on-boarding transition, the board’s governance committee should remain available on an ad hoc basis to help iron out the bumps a new executive will naturally have as he/she integrates into a new culture.
The COO transition plan must encourage the development of relationships with the board of directors to manage issues that may arise as the COO integrates, develops his or her operational or commercial vision, and makes changes in budgets or talent to execute.
Every CEO has his/her favorite [sacred] people, operations, products, airplanes or executive perks that an incoming COO could potentially trip over. The board’s job is to make sure this does not happen.
