Column: Business Revival

BUSINESS REVIVAL
The COO Option

If the downhill trend of a company is detected early enough, appointing a new COO might work, especially if the company is in a high-profile business.

By Pradip Chanda

Pradip Chanda, Turnaround Consultant

I am often told that turning the fortunes of an under-performing company need not necessarily require a new CEO at the helm of affairs. A summary change at the top, it is argued, causes both internal trauma and external loss of face that can have an adverse impact on a company's marketcap, its credit rating, and, above all, its reputation in the market.

A simple solution to avoid such stress is to appoint a Chief Operating Officer (COO) to take over the day-to-day running of the business, let the incumbent CEO continue as the public face, and to empower managers down the line to take critical decisions. In fact, if the downhill trend of a company is detected early enough, a coo option might work-especially if the company is in a high-profile and people-oriented business.

But the coo option may not work in companies going rapidly downhill, because the CEO will not willingly delegate authority, and when forced by the board to do so, will almost certainly ensure that the coo has no room to manoeuvre. Empowerment down the line is unlikely to be effective for similar reasons. The CEO will not be a party to the empowering process, especially if outside forces demand such distribution of authority.

When Lee Iacocca left Ford for Chrysler, both companies were faced with turnaround challenges. Iacocca, obviously, had what it takes to lead a successful turnaround, as he demonstrated at Chrysler. But with Henry Ford II at the helm of affairs at Ford, further empowerment of Iacocca was not on the cards. Iacocca had to move out of the company to prove his worth, and that too rather unceremoniously.

The need for a new CEO in times of stress, especially when sudden discontinuities cause such stress, has been established time and again. Jim Collins, who operates a management research laboratory in Colorado, presents some interesting findings from a painstaking research spanning five years and 1,435 companies appearing in the Fortune 500 list at least once between 1965 and 1995. Collins states that the research teams were given explicit instructions to downplay the role of top executives to avoid, what he calls, slipping into the ''credit the leader'' or ''blame the leader'' concept that is so common today.

Despite that, the data forced him to conclude: ''It didn't matter whether the company was in crisis or in a steady state, whether it was consumer or industrial, or whether it was offering services or products. It didn't matter when the transition took place or how big was the company. All successful organisations had (inducted) a leader at the time of transition.''

Collins concludes that a combination of professional will and personal qualities elevates a CEO to a level higher than that of an effective leader, a competent manager, a contributing team member, or a highly capable individual.

Skeptics question how a single person can change an entire organisation. The answer lies in the 'burning platform' theory propounded by Lawrence Bossidy of Allied Signal, one of the most admired leaders of corporate America in the mid eighties. Using an offshore oil rig as an analogy, Bossidy said: ''When the roustabouts are standing on the rig and the foreman yells 'jump into the water', not only will they not jump, they won't feel too kindly towards the foreman either. The water is too cold and there may be sharks in the water as well! They will only jump when they see flames shooting up from the platform.''

An incumbent CEO is like Bossidy's foreman-he has lost the respect of his team. His judgment is under suspect and his team won't jump until it is too late. But they will listen to a new voice, if only because there is no alternative.

But the selection of an alternative leader needs to be done carefully. We will see how in my next column.

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