Chief operating officers play the important role of putting the bank's strategy into practice on the ground day to day. But many COOs serve their institutions in an additional capacity: as CEOs-in-waiting.

With succession planning a perennial issue for banks, smaller institutions in particular often look to the COO position to designate an heir apparent to the chief executive. In some cases, the appointment of a COO is part of an interim process to have someone ready to lead the bank once a soon-to-retire CEO departs.

A COO is "able to have hands in all the key touchpoints of the organization," said Robert Kaminski Jr., chief operating officer of the Mercantile Bank Corp. in Grand Rapids, Mich. "It does provide you a chance to groom the skills that you need to ascend to the CEO role." (The $3 billion-asset company announced in July that Kaminski would succeed the bank's retiring CEO at yearend.)

At larger institutions, however, the COO position is losing favor, not only as part of the executive suite but as part of a bank's succession plans, observers say. While COOs are generalists with a hand in many different parts of an institution, some of the focus has shifted toward subject-matter specialists, including compliance and legal officers and technology experts.

"There's a general trend away from the COO being the CEO successor driven by the changing business environment for all banks. All banks are facing increased regulatory burdens, a need to upgrade technology, a need to find new revenue sources," said Scott Petty, a partner in the Dallas office of the executive search firm Chartwell Partners.

Bigger publicly traded banks, those typically with above $10 billion in assets, may look to executives grounded more in technology and other expertise to have a line to the CEO's office, Petty said. "Technology is now such a major driver for both efficiency reasons and for driving new business, the CEO of the future is really going to have to have a strong grasp of the technology side of the ledger."

Still, data shows that COOs often aspire to become No. 1 in the corporate suite.

A survey of COOs and other operations executives — conducted in June by SourceMedia Research, an affiliate of American Banker — asked participants which future role they thought they were mostly likely to fill. A quarter of the 52 respondents named the CEO's job. (It came in second to "remain as COO or operations executives at current institution," which garnered 15 responses.)

COOs are regularly a company's first choice — across all industries — when looking for a CEO successor, said Nathan Bennett, a business professor at Georgia State University and author of the book "Riding Shotgun: The Role of the COO."

"When a company decides to promote someone internally to become CEO, it's nearly half the time the COO," he said. "The other half the time it's every possible position at the organization."

Kaminski, who was one of Mercantile's six original employees when the bank was founded 19 years ago, said his line to the CEO's office is part of an overall succession plan that also ensures there are lower-level employees prepared to fill roles behind him. Making sure those employees have more responsibility for day-to-day functions also helps the incoming CEO refocus on the big picture.

"As the organization grows and to keep the succession lines continuing to develop, so you're bringing up your successors behind you, you do have to make sure that the people are being groomed behind you and that you're having people in place so that if there's need for a succession event you're not caught blindsided with some gaps in your organizational structure," he said. "You do have to delegate to provide the growth opportunities for the people that are developing behind you but also to allow yourself to focus more on big-picture types of things."

Ronald Magoon, the chief operating officer at Franklin Savings Bank, a $426 million-asset mutual thrift in Franklin, N.H., is in a similar situation.

Last year, Magoon, who has been at the bank for 28 years, was promoted to president and COO, and the bank announced it had approved his becoming CEO when Jeffrey Savage, the current chief executive, retires late this year.

"I don't think it was a surprise to anyone," Magoon said of his being named incoming CEO, adding that succession planning is done at his institution for more than just senior executives. "We do it for all of our department heads, and in some cases even another level below that."

As COO, Magoon has been involved with every area of the bank, overseeing accounting, IT, risk management, marketing, retail banking, and commercial and residential lending.

"As I became the bank's COO and continued to expand my breadth of responsibility, it really positioned me uniquely well to have the experience and expertise necessary to succeed the retiring CEO, because of the depth of my responsibilities and experience," he said.

He said his discussions with Savage about the institution's succession planning have been going on "for a number of years."

"He's been really good about providing me opportunities to show that I was capable. I've had opportunities to oversee different areas of the bank," Magoon said. "It was all part of the plan to give me an opportunity to show that I was worthy of the opportunity."

Several other small banks over the past year have announced promotions of a COO to CEO. In February, the $520 million-asset Bridgewater Savings Bank in Raynham, Mass., said Peter Dello Russo, president and COO, would succeed retiring CEO James Lively in December. In May, the $1.6 billion-asset Chemung Financial in Elmira, N.Y., announced that Anders Tomson, president and COO of the bank subsidiary, would become CEO of the company at the end of the year. A similar promotion was announced in June for Kenneth Mahon, president and COO of the $5.5 billion-asset Dime Community Bancshares in Brooklyn, N.Y.

While banks need to think about succession planning, the executive groomed to be CEO does not necessarily need to be the bank's COO, said H. Lynn Harton, COO at the $9.7 billion-asset United Community Banks Inc. Harton had previous experience as a CEO at the South Financial Group in Greenville, S.C., which was sold to TD Bank.

"To me, the chief operating officer role becomes one of many that you could choose to bring in somebody to groom or to develop somebody internally," he said. "It is not necessarily a CEO-in-waiting. You could have somebody whose strength is operational and tactical and that's all they want to be, and they're going to be the best chief operating officer in the world. It is a good role to groom a CEO from, but I don't think it's the only one, nor do I think it's a foregone conclusion."

Some COOs say they are content to play a supportive role for the CEO — running a bank's operations — rather than becoming the CEO.

"For myself and for some others that I know that are in that role, it's a different sort of personality" than being a CEO, said David Cline, the COO of the $3.5 billion-asset State Bank & Trust in Atlanta. "I'm very happy in the tactical, strategic role that I have."

Different banks tend to view the COO role differently and not every institution sees it as a stepping stone.

Unlike more specific positions such as a chief financial officer or chief risk officer, COO is "a job that tends to be formed around personalities, meaning it's formed one of two ways," said John Rose, a principal at CapGen Financial Group, a private equity firm that invests in community and regional banks. "One is that the CEO is looking for a successor and the person is given a trial, allowing them to be the chief operating officer, which basically puts them in charge of everything, except they have to check with the CEO. They're the CEO-in-waiting."

Another popular model "is the CEO who is really good at generating business and at promoting the bank in the community but not so great at managing people," Rose said. "In those circumstances, the chief operating officer is a person who is there to compensate for the CEO's weaknesses."

COOs are uniquely positioned to rise up as CEO, Kaminski said. Unlike executives with a more specialized role, COOs have involvement in every area of the bank.

"If you're going to groom future leaders of the entire organization, you do have to have positions and opportunities where people can touch a number of different areas, so that they're able to break out of their area of specialty to a certain degree and have exposure to other areas that they may not otherwise have in a silo-type of a structure," Kaminski said. "Otherwise you will have situations where there is no one ready to assume the role of the full leadership of the company."

Lalita Clozel contributed to this article.

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