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PFI Advisors has written extensively about the COO role within an RIA firm. However, we are always seeking new perspectives by periodically examining this role’s impact on other industries and how the different approaches might influence our own thoughts and decisions about implementing this role at RIAs.

We are pleased with the refreshing insights of Nathan Bennett and Stephen A. Miles in the updated edition of their book, Riding Shotgun: The Role of the COO.  By giving this role its own due attention and conducting thorough research on how it has been implemented at firms ranging from aerospace to private equity to even Starbucks, they chip away at the dearth of writing on this role and assist with anyone looking to hire a COO, become a COO, or even originate the role from the beginning.

Chapter 1: The Role of the Chief Operating Officer

This chapter begins with one of my favorite quotes about teamwork, “If we have no second fiddle, we have no harmony.” -Leonard Bernstein. 

This book examines the COO role in its unique structural, strategic, social, and political contexts, and emphasizes especially the relationship between the CEO and COO, as the COO is simultaneously a leader and follower.  However, the COO role is not uniform in all aspects at all companies and is often a role that is created for very specific purposes.  After careful research drawn from twenty-six interviews with various c-suite executives, Bennett and Miles were able to distill a “Typology of COOs” into seven categorical reasons for creating the role:

  • To provide daily leadership in an operationally intensive business
  • To lead a specific strategic imperative undertaken by management, such as a turnaround, major organizational change, or planned rapid expansion, or to cope with a dynamic environment
  • To provide a mentor (COO) to a young or inexperienced CEO (often a founder)
  • To balance or complement the strengths of the CEO
  • To foster a strong partnership at the top – the two-in-a-box model (COO and CEO)
  • To teach the business to the heir apparent (CEO) to the current CEO
  • To retain executive talent that other firms may be pursuing

In our work at PFI Advisors, we see several of the above situations for RIAs hiring a COO, especially providing daily leadership and strategic management for growth opportunities. Unique in this position is the ability to complement the strengths of the CEO, and as a key step in succession. Several of our friends in the industry, like Eric Hehman of Austin Asset or Heather Fortner of SignatureFD, have taken on the CEO role after serving as the COO.

Chapter 2: How Firms Use Their COOs

As shown in the list above, there are a number of reasons for establishing the COO role at a firm and myriad methods of structuring and implementing such a role.  In Chapter 2, Bennett and Miles draw upon the examples of Disney, IBM, Intel, Microsoft, and Hewlett-Packard to provide insight when structuring the top of an organization: the need for a full vetting process to ensure that personality differences between the number one and two do not lead to organizational issues; the utility of the COO role for training an heir apparent; the stability that a very long-term succession plan provides for a firm; how a flexible leadership model can allow for innovative leadership configurations; and “the difficulties that can emerge when one individual tries to manage both large-scale strategic issues, such as a merger, and the day-to-day challenges” associated with running and operating a firm in growth mode.

That last point should not be overlooked — a firm does not need to be as large as Intel or Hewlett-Packard for its leader to quickly get overwhelmed. Many growth-centric RIAs often run into difficulties when they have a CEO that is serving clients, guiding strategy, and involved in daily operations. At this point, it becomes a pivotal strategic decision to bring on professional management, either a CEO to lead M&A activity, or a COO to take over the daily operations, all depending on the firm leader’s natural skills and experience.

Chapter 3: The Number Two Job

In this chapter, Bennett and Miles dig deeper into three categorical types of COO: the internal leader who handles the day-to-day, the firm partner with the CEO where leadership is evenly split between the two, or the “situational” COO which is a catch-all category for any COO that does not fit nicely into the first two.  The individual in the first category needs deep industry knowledge and credibility, while the one in the second category requires a seamless alignment with the CEO on vision, relationship, and communication. For the third, each organization needs to make a complete evaluation of what they are looking for before starting a search for their ideal operations professional.

While the COO role must be defined in detail before an individual is hired, a company must also recognize and convey their own needs as this role can be approached in many ways. Regardless of either above category (or the hybrid between the two), the role requires a balance of ideal characteristics that should match the needs and desires of the firm.

Chapter 4: The Search for a COO

Drawing upon conversations with two executive search professionals, Bennett and Miles establish a list of ideal personality traits for a successful COO:

  1. Being comfortable outside the spotlight
  2. Being results-oriented
  3. Establishing a trusting relationship with the CEO
  4. Being skilled interpersonally

While it is imperative that the COO approach the position with humility, it is also crucial that the CEO, board, and firm leadership have developed a robust COO job description and can share decision-making power with this individual.  The CEO must be able to trust that the COO will operate on their own impetus.  When making the decision to bring on a new C-level executive, it is vital that all leaders involved in the candidate search understand the benefit of having a dedicated individual managing the day-to-day operations of the firm.

Chapter 5: Attracting and Managing a COO

When it comes to attracting a COO, Bennett and Miles state that the search has to originate from the right place, the determination of which comes from answering the following three questions:

  1. Is the business rationale behind creation of the position sound, as well as contently understood by the board and the top management team?
  2. Is the CEO fully prepared to share which is typically viewed by many CEOs as “giving up” – power and support the COO’s authority as legitimate?
  3. Is the CEO prepared to commit to a significant investment of his or her own time and energy in the success of the number two, both before and after hiring?

It is crucial that the firm answers the above questions in the affirmative because if the COO is not adequately aligned with the CEO, does not have enough room to operate well, or does not have clearly defined goals, then the newly appointed COO is doomed from the start.  As COOs do not typically come cheap, it is important that the firm invests time in the individual and the role, not just money.

Chapter 6: Contemporary Shifts in the COO Role

While this book was written back in 2017, Bennett and Miles’ insight about how emergency situations necessitate the acquisition of new skills and technologies that later can drive individuals and firms to new heights rings true in our pandemic-stricken present: “All this change is requiring COOs to develop deeper skills in finance and technology than they previously were expected to display.”  But they caveat this with, “new technologies truly do give with one hand while taking with the other – each capability comes with a concomitant challenge.”  Beyond mere technology, Bennett and Miles state that the COO’s “fundamental duty is to develop an execution plan around strategy and to then rally [the] team around that execution plan.”

This requires not just technical skills, but people skills to prevent a team from falling into “political intrigue.”  Also required is a firm resolve when developing a culture that resonates with the values of the company and one that is able to capably execute upon its stated vision, regardless of whatever environment or malicious threats may stand as obstacles in their path.

Chapter 7: Parting Words, Key Considerations

To wrap up and crystallize their message, the authors state that it is simply table stakes in today’s world that a COO can operate effectively as both a leader and a follower, transcend personality differences with other firm leaders, transform vision into execution, effect a strong culture into being, and bring in additional skillsets that will allow them to effectively react to any number of operational challenges.

As the RIA industry grows from a collection of practices to fully fledged enterprises, I believe that the need for COOs and those possessing these key competencies will grow along with it. Those who establish themselves most firmly will be the ones who proactively search for key operational personnel who possess the traits mentioned in this book.

Our Conclusion

This book is very informative, as it shines a light on the often over-looked and rather complex role of the COO and how, when the right individual is chosen, the firm can achieve new heights.  A good COO will free up the CEO’s time by taking on either the day-to-day operations or strategic initiatives such as M&A activity and can be instrumental in shaping the culture of the firm.  With only 219 pages and a simple and easy-to-follow chapter format, this is certainly a must read for anyone considering or currently holding a chief operational role at any kind of firm, RIA or otherwise.