How effective are CFOs who hold the COO role?

More companies are combining the positions, and a study looked at the effect of one person filling both roles.
How effective are CFOs who hold the COO role?

This article presents a Q&A with academic researchers who have conducted a study on people who simultaneously hold CFO and COO positions. The conversation has been edited for length and clarity. Their findings were published in the Journal of Management Accounting Research in 2019.

In recent years, more companies have combined the COO and CFO positions. This practice has raised questions as to how effective one person could be at holding both roles simultaneously and how having a CFO in a dual role would affect financial reporting quality.

Steve Buchheit, Ph.D.; Austin Reitenga, Ph.D.; George Ruch, Ph.D.; and Daniel Street, CPA, Ph.D., studied these questions by examining data from organisations that had combined CFO/COO positions, which they referred to as “duality firms”, at any point during the years 2000–2016. Using data about executive characteristics from the BoardEx North America databases and company data from Compustat, they looked at 438 firms and more than 1,000 firm-years with dual CFO/COOs. They matched data from these duality firms with that of comparable firms that had executives in separate COO and CFO roles, which they called “single role firms”, and performed statistical analysis to see how duality and traditional firms differed. Their study showed that duality firms performed as well as single-role firms in terms of operational efficiency and had somewhat better financial reporting quality.

What prompted this idea? What made you want to write about this topic in the first place?

Austin Reitenga: I came up with this idea when I was reading CFO job titles as part of another paper I was working on. I kept coming across CFO/COO. I’d worked for 12 years as an accountant, and that struck me as odd, because in my experience the COO and the CFO would send completely different messages to accounting about accruals. We would typically hear from the COO at the end of the year, saying something like, “We’d really like to hit this earnings target. If you have any accruals squirrelled away, now would be a good time to unload them,” whereas the CFO would tell us to be much more conservative. In the world I lived in, the CFO kind of acted as the filter between the COO and accounting.

In a way I liked the idea of a CFO/COO because when I worked as an accountant, I always felt that accounting was underrepresented in the decision-making process.

What would you say are the most important findings of your study?

Reitenga: We found the companies that tended to have CFO/COOs rather than CFOs and COOs in separate roles were smaller with higher growth and lower profitability. So, they’d look like smaller firms that are still in the growth stage rather than a large, mature firm.

But the CFO/COO is likely to be different than a typical COO, too. They tend to be older. They tend to be more likely to have been a CFO than a COO at some point [before joining their current employer]. They’re less likely to be a CPA or a chartered accountant. They’re more likely to be on the board of directors, though that may partly be because of their position. What that looks like is a highly experienced CFO who’s probably a little more operations-based in their background than the typical CFO.

And then in terms of outcomes, do you damage accounting quality or accrual quality when you give the CFO/COO operating responsibilities? And the answer is no. If anything, accounting accrual quality might even be a little bit better. And can accountants make good business decisions? Our paper suggests that they make just as good a business decision as a traditional COO does.

Steve Buchheit: One thing our analysis suggests is that some aspects of financial reporting are better with duality firms. These dual-role executives predicted future cash flows better.

To test your hypothesis, you performed a statistical analysis. Can you describe what you did in layman’s terms?

Reitenga: As we mentioned, duality firms tend to be growth-stage firms, so they’re different. From a research standpoint, the challenge is that if those firms are different, and we find differences between them and single-role firms, are the differences because of the CFO/COO structure, or is it because the firms are just different? So, we would match a duality firm to a traditional firm that was similar in terms of size, growth, leverage, and profitability. We also matched them on CFO dimensions, so their CFOs had to have similar ages and similar backgrounds.

To measure the effect of duality firms on accounting, we looked at discretionary accruals. And then to measure their effect on operating decisions, we looked at discretionary expenditures. For both of those measures we looked at how deviations from normal discretionary behaviour affected future performance, and used that as a proxy for whether the CFO/COOs were doing a better or a poorer job. We then did our analysis to see if there was a difference between a firm with a CFO/COO versus a firm with both a COO and a CFO.

You found that CFO/COO duality has become more common in recent years and also that it is more widespread than you thought. Why do you think that is?

Buchheit: We’re not exactly sure why it’s happening, but we believe Sarbanes-Oxley played a role. The CFO and the CEO are the only two executives who have to sign off and certify that the financial statements are mirroring operations.

What we were surprised by was the prevalence of this CFO/COO combo. Of all the firms that had a COO, 10% were duality firms.

What can readers take away from your study?

Reitenga: For me, the biggest takeaway is that, at least in the right situation, you can give a CFO operating responsibility and maintain accrual quality or integrity. And then secondary would be the fact that CFOs appear to make operating decisions at as good a level as a traditional COO would.

Buchheit: One thing I think we would want to echo is our paper’s not a call to go out and make your CFO the COO. Certainly, in the case of the executives that we studied, somebody saw something about them that suggested they understood operations. If you think that an executive could handle the role, they probably can. There’s nothing about our evidence that would suggest that’s a bad idea.

Would you recommend that CFOs get more operational training or experience?

Reitenga: I’ve always thought that was a good idea. I worked for a vertically integrated grocery company, and I spent time on loading docks, in warehouses, in manufacturing plants, and in grocery stores. I would actually work in some of these jobs for a day or two just to understand what was really going on. Good accountants already know that the better you really understand the organisation at a nuts-and-bolts level, the better the accountant you are.

Buchheit: Accounting students, I don’t think, internalise the importance of understanding operations like they should. But if they’re looking at a future career, it’s ultra-important.

“Are CFOs Effective Operators? An Empirical Analysis of CFO/COO Dualityappeared in the Journal of Management Accounting Research in summer 2019. Steve Buchheit, Ph.D., is an associate professor of accounting at the University of Alabama. Austin L. Reitenga, Ph.D., is a professor of accounting at the University of Alabama. George Ruch, Ph.D., is an assistant professor of accounting at the University of Denver. Daniel A. Street, CPA, Ph.D., is an assistant professor of accounting at Bucknell University in Lewisburg, Pa.

Courtney Vien ( is an FM magazine senior editor.