How We Did It: Developing a COO for CEO Succession

In this How We Did It video, Matt Paese, senior vice president of DDI's executive services business, shares how one company worked with DDI to form a plan for developing a COO for CEO succession. 

See how DDI worked with this company's current CEO, board, and CHRO to form a concrete succession plan and development plan for the COO. Additionally, learn how the succession plan impacted the rest of the senior team, and how the COO's role has impacted overall company performance. 

Learn about DDI's approach to CEO succession.

Transcript: 

Beth Almes:

Hi there. And welcome back to How We Did It, our series where we showcase client stories and the success they had in working with DDI and developing their leaders for a better future. Today I have with me, Matt Paese, our senior vice president of executive services. And we're going to talk about a company that looked at CEO development and changed what they were doing to really affect the whole senior team dynamics and effectiveness. So, Matt, thank you for sharing your story with us today.

Matt Paese:

Thanks Beth. Happy to be here.

Beth Almes:

So tell me a little bit about the situation that prompted the company to change its approach to CEO development, and really take a hard look at what was going on with its senior team.

Matt Paese:

Okay. Like a lot of organizations, this one started in the board of directors who became, not concerned, but they put their attention on succession. They had had some concerns about succession. Prior experiences had sensitized them to some risks, and dilemmas that they didn't want to find themselves into. 

So they asked the CEO to begin thinking about it, begin planning on it. So they assessed, they, this organization with involvement from their HR leadership assessed a number of senior leaders and eventually settled on one leader that they believed would be their most likely next CEO, and began to make some changes based on that.

Beth Almes:

So once they decided on that next leader, put them in the COO role or the COO role to get ready for CEO. How did that dynamic affect the relationship between the two of them as executives, and then filter down to the rest of the team?

Matt Paese:

Well, that's right. So that's the first thing they did. You just said it. They created a new job on the senior team. They had had COOs in the past, but at this moment they didn't have one. So they took their finalist candidate, and said, "Let's put him into a COO role. Let's recreate that role." And they did so under the expectation that they would accomplish two things with that. 

One is that, of course, they would increase this leader's responsibilities, but two that he would begin to be able to experiment with some of the responsibilities of the CEO role as well as the COO role. So in essence, he began in this moment to take two new roles development towards CEO and the assignment of the COO role, which actually created a couple of challenges. The growth and development challenges that they set, the current CEO was kind of in charge of that.

And the board entrusted him to begin a development process and he set some fairly broad, and I'm going to say vague objectives. He really emphasized observation. And he said to the COO, "Look, I want you to sort of observe. Observe me, observe some of the meetings that I'm having." And that can be very effective of course, but what happened very quickly after that is the board of directors became concerned that the development plan was too vague. 

And one board member in particular said, "I'm not exactly sure what you're doing with this observation. What are you accomplishing with the observation?" And the response was, "Well, he's observing different parts of the CEO role." "Which parts of the CEO role?" And the back and forth became... It became clear very quickly that what the board, not just this one board member, but a number of board members said, "Look, we want more clarity in what you're actually doing from a development standpoint. We think observation's fine, but observation toward what?" But then there was a second part that was a problem that was created with this COO role.

And it's that the accountabilities of the COO job were not sufficiently distinguished from his prior role and also from the CEO's role. So it became unclear. What is this new job? How is it different? And a number of the senior team members began to be unclear about who to go to for what. Is this something the CEO should do? Is this something the COO should do? And remember the current CEO had said, "Just observe. Do a lot of watching and seeing what's happening." 

So in his mind, meaning the current CEO, he was just sort of going about business as usual, but what he needed to do was create some more space for that COO role, and create a clearer sense of accountability. So that's a little bit of long-winded way of saying there were two challenges that this approach created. One was getting more clear about the development plan, and the other was getting more clear about what the job was that they had put this candidate into the COO role.

Beth Almes:

So I imagine this is fairly common and that the successor to be is temporarily in a role where they feel a little bit handcuffed. And normally you would think this, somebody who's up for a CEO role is not usually super comfortable with that. 

They like to be, if they're in line to be CEO, they're usually someone who's very excited about really taking the reins rather than sitting a second in command for a while. So how was this COO feeling throughout the process and how did his feelings change as the development plan changed?

Matt Paese:

Yeah, at first, I'll be honest, really uncomfortable. And he wasn't quite sure where the boundaries of his own latitude of action and decision-making should start and stop. This felt like a big, exciting opportunity for him. He had humility for the role. He didn't necessarily feel like he was anywhere near ready yet. 

So he knew he had a lot of development to do, but he also felt like, "Wait, if I'm developing for CEO and this is part of what I'm supposed to do, aren't I supposed to begin thinking in that way? And shouldn't I exercise some of my own judgment in this?"

So struggling with the boundaries of where does my own development, and performance start and stop, and where does my decision making start and where should I defer to the existing CEO, or perhaps other team members. So, the ambiguity that started to surround this swelled for him. 

And we did have to, I was coaching him during this period and we did have to sit down and do some work to create more clarity and to facilitate some more structured Q&A, between both he and the CEO and between he and some of his colleagues on the senior team.

Beth Almes:

In this process where there's a lot of inter-team dynamics in play, there's a lot of feelings on the board among the CEO among the COO and the rest of the senior team. Where did DDI come into play there in terms of helping them have a little bit more objectivity and move forward with a more concrete succession plan and development plan?

Matt Paese:

Yeah, I'd say two big categories. One is helping to anchor their judgments and benchmark there on what do other companies do in these situations? How would someone handle this in a scenario where it's not been done before? This was new territory for them. 

The CEO had never developed a successor before, and this successor had never developed to be CEO before. Of course, right? It's their first time at this. Even their CHRO who had an enormous amount of experience had just never gone through something specific like this. So we were able to bring a number of examples in, and I was able to walk the candidate and the CEO and the CHRO through other scenarios, how might another organization do this? And so that allowed us to also apply some, the second part is structure.

So, and to me, the biggest part of what we help them do is structure two parts that we've already mentioned, structure the development to begin with and doing that we created something we call an experience map. And an experience map provides a template for what are all of the areas we think we're trying to develop in order to get a CEO candidate quote unquote, ready, even though you're never 100% ready, as ready as we can get. 

So we had a list of experience areas that we knew this individual needed to work on. And some that he already had: investor relations, treasury, board relations, media relations, and on, and on, and on. Some things that were part of his background that he had good experience in, and perhaps he was applying them in different ways in the now. And other things that he just hadn't done yet.

So it was easy to look with a simple little diagram. We created a visual for the board to say, where is he really having a lot of experience, and feeling as though I kind of got this and where has he not yet had experience? And so we created a simple way to look at that, and evaluate progress and to track it and monitor it. So that in subsequent board meetings from quarter to quarter, they could report, here are the kinds of experiences that we've engaged in. Here's the progress we've made. And so over time, the board begins to see a trajectory of growth, and where experiences are accumulating. 

And then on the other side, on the team side, we structured accountabilities for the COO role. So we looked at what his prior responsibilities were, the responsibilities of everyone on the senior team, the responsibilities of the CEO, and then him in the middle of that.

And we were able to partial out some more specific accountabilities that he, the candidate, then took to the CEO and vetted and said, "Look, I think this might be what we should think about in terms of where we should isolate my role versus your role. What do you think?" And they then began an ongoing dialogue and have become a lot more transparent with the rest of the team to say, "The two of us are going to do some things separately. So come to the COO for this, come to me, the CEO, for that. There are going to be some things we'd like to do together. So bring us both these kinds of issues", and it took maybe a couple, three months. 

And sure enough, after a while, everyone started to settle into a new, not radically different, but a slightly different way of handling things. And was it transparent that this COO was a candidate for CEO?

Yes. Was it a guarantee? No. Is there any assurance that he is going to be CEO? Only if he develops and grows and performs in the way that would make sense. The CEO has said to this current COO, there may come a point at which I may rotate someone else into your role and rotate you back onto the senior team. So don't assume that this is an automatic one direction, stepping stone from your prior role to COO, to CEO. 

What happens in the COO role matters. We feel positive about that, but it's part of what we're doing to manage our own risk. So a lot in that, and a lot that they learned about how it goes when you create a platform for someone to learn by creating a new job, which has got some complexities to it.

Beth Almes:

I really love that story. And the fact that this is also not in a short role, there's nothing 100% about it. Of course, it's with development, with understanding that this is where this is going, but it doesn't necessarily mean that it's a guarantee. 

The thing that you really said that struck me was that keeping in mind, this is almost everybody's first time, even though they're all incredibly sophisticated business leaders and executives, in most cases, a CEO only develops another CEO once, maybe twice in a career. A board member only maybe does this a couple of times maximum, the same with the CHRO. So I just, I just love that perspective of even among these incredible professionals that this is still a first time experience.

Matt Paese:

It's really true. A lot of this is not intuitive. How is it that I develop someone to do a role that's so complex? And the other part is no two CEOs are ever going to do the job in the same way. I always say that the CEO job is most like the person in it than any other job. And that's because there's so much discretionary territory for what you decide to focus on, how you want to be a CEO, the areas that are strengths, the areas that you might need help in. 

So every CEO incarnation is going to be a little bit different, and that adds to the complexity to how you develop someone else for it. And not to mention the fact that I'm sure the existing CEO didn't feel as though he was always in a position to be the best developer of talent. He needs help.

He asked me for help, and the rest of our team at DDI, they relied on assessments. They relied on other sources of insight and other professional coaches and outlets that were a series of resources for this individual and the rest of the team. 

So there's a lot to think about. And like you said, no, one's really got a tried and true playbook that allows you to look at this and say, "Oh, here, I know exactly what to do." There's always something that's going to be novel about it.

Beth Almes:

So as this was all going on with the CEO, looking at his role and his role in development, as well as the COO, what's going on on the rest of the team? How did this dynamic affect the remainder of the senior team who all have very big jobs in front of them as well?

Matt Paese:

Right. Well, I think the first thing, one thing that a lot of people ask, because it's not uncommon for multiple people to be competing for the CEO role, and what this organization wanted to do, and by creating the COO job, they wanted to take that ambiguity off the table, and say, "Look, even though we're probably two, three, four years away from making a change in CEO, let's put someone into the job that would be the assumptive CEO in case something should happen. 

Again, it's not a promise, but it's an assumptive moment. So it takes the horse race off the table, which is one choice that can be made. There's other ways to handle that too. But the next thing that did come up is that people started to wonder who should I go to for what? And so people have relationships, as we know, and people have relationships that are centered around key assignments or initiatives or pieces of work.

So the current CEO had been advising a number of his team members and working with them on a variety of initiatives and the current CEO and the COO then had to decide, where do we want to perhaps shift some of these assignments or share them or change them entirely. And that was tricky for some of the senior team members, because if I'm currently working with the CEO and now I'm going to work with the COO, does that mean I've taken a step down or that my influence in the organization has shifted? And implicitly the answer was no according to the current CEO, or COO. 

But if you're an executive working with someone in the organization, and you're not working at the second level, not the top, there is something that feels unusual about that. So they had to work through some of those challenges and the way they did it, by the way, is just to talk about it openly with the whole team and say, "Look, there is going to be some shifting of how I, the current CEO and the COO now handle some things. We're going to do some things together."

And the CEO was very transparent. He said, "Look, I'm not going to be here forever. I don't know when I'm going. I don't have a plan to leave right now, but in order for me to make a healthy transition, I need to start dishing some of the things I do to someone else. And right now, some of that's going to be to our current COO, but I may choose some of you to transition some things as well, but we do need to think about my job, and who's going to take it." 

So most people get that once you talk about it. And if you are transparent about the things that are reasonable to be transparent about, everyone will appreciate it. And it takes a lot of the mystery out of it. So I think they handled it well, but that's another area where there's no playbook.

People are not generally good at knowing what to talk about openly versus not. And most organizations default to being more secretive about it, which tends to be less useful than being more transparent in general, if you're in a holistic development process, you can always fall back on that because it's virtuous. 

And when you're developing people, that's the way you're trying to get ready for the future. And anyone can develop and anyone can grow. And so we all have to make decisions, but a developmental kind of flavor across the whole thing helps it to be very productive, and optimistic, and positive. And people feel like it's a good dynamic.

Beth Almes:

So this process has already taken probably a year or two to get in place as this new COO has stepped up, the CEO has really engaged in their role. And obviously they're not ready yet for that next transition of CEO leadership. But how are they doing currently? As they've grappled with all of this, how has it impacted overall company performance?

Matt Paese:

This is a very good question. So from a company performance standpoint, this is an organization that's doing extraordinarily well, and they've escalated their performance in the midst of all this. And by the way, a lot of people know about the fact that this individual is probably seen as the next CEO. No one's come out and said that publicly, but in analyst meetings, board meetings, shareholder interactions, interviews, this COO is showing up a lot more and people can do the math. 

They sort of imagine, well, this must be what they're thinking. And that actually acts as a point of stability. And the only thing I'll say though, is that the COO himself for his part would say that his performance, what he would say with a lot of humility, I believe, he would say, "I really went through a rock trying to figure out how to be an effective leader in a role that's second to our CEO." He's accustomed to running a business.

He's had a number of businesses. His jobs have continually escalated. This one was definitely an escalation, but he felt like he got promoted in order to slow a little bit. And observing, for example, just observed for a while, that just did not feel right to him. I don't just observe anything. I perform. I go make things happen. I want accountabilities. 

And that's one of the big lessons that I've taken away from this it's that no development happens without accountability. If you just ask someone to observe something, sure, they're going to know what it looks like, but the real development happens when they have to have responsibility for it. And that is true at a frontline supervisor level.

And that is true right on up to CEO. And this is a very experienced executive who's saying, "Wait, give me the ball. I'm ready to do this. Give me this. I want to do it." And that tension is part of what he and the CEO talk about pretty regularly. So the company's performance is good. The COO feels like his performance still has a long way to go, in terms of his ability to not just be in the COO role, but to make the COO role something that's really contributing, and helpful to the organization.

Beth Almes:

Matt, that's such a powerful story. Thank you for sharing about all this team has created and this whole different dynamic around development, and succession, and the individual roles that contribute to that. So it's not all the CEO show. It's all about the other people on that team. So this is a great story. Thank you so much for sharing today.

Matt Paese:

Thank you, Beth. Glad to be here.