The best person for the CEO’s job may not be a family member. In certain cases, it may be wise to consider an outsider to succeed the family leader – but be mindful of the potential pitfalls.
The suggestion that an outsider is hired to fill the top job rarely receives a warm welcome in a family business. yet the move offers numerous potential benefits and can make a great deal of sense in some situations.
An independent non-family CEO can provide a buffer between the family and the business. Placing a non-family member in the CEO’s office can also yield important management and human resources benefits. For instance, when the CEO is not related to the owners, other valued non-family employees may feel more motivated to stay with the company and work with enthusiasm toward collective goals. The presence of the non-family CEO proves that high-level career paths remain open to the most capable individuals, regardless of family status.
It also may demonstrate to non-family employees that the company can be run in a way that conforms to the family’s vision and at the same time adheres to the highest professional standards. This task is not always as simple or easy as it may appear to the family. Having a high-profile example in the CEO’s office can go a long way toward supporting the twin pillars of doing what the family wants, and doing the job according to industry best practices.
There are other valuable benefits, as well. Companies frequently count on non-family CEOs to provide expertise, contacts, or other assets that current family leaders lack. For instance, when a major restructuring or strategic shift appears necessary, a non-family CEO often seems particularly attractive, since he or she lacks previous commitment to the ways of the past. This is the same strategy often followed by publicly held companies seeking a change of pace.
The arrival of a non-family CEO need not signal the permanent end of high-level participation of family members in leading and managing the business. Non-family employees, including the CEO, often play key roles in mentoring next-generation family leaders. Non-family mentors offer a perspective that is, by definition, not available when the mentor is a relative, and they can teach future family leaders how to interact with non-family members.
NO GUARANTEED PANACEA
Still, not every family business problem is easily solved by installing an outside CEO. And it is a profound mistake to assume that family CEO candidates are somehow inferior. Only in certain circumstances, primarily the examples described above, does a non-family CEO offer advantages.
With any new hire, there is always a risk that he or she may not work out. And when an unsatisfactory newcomer occupies the top job, the potential for damage to the company multiplies enormously. Careful vetting of any outside candidates is an absolute requirement.
No matter the level of diligence, bringing in an outside CEO sometimes poses special risks. Chief among these is the potential for a non-family leader to take the company in directions opposed to the vision, values, mission, and will of the family. Many a non-family CEO brought in to change the strategic direction of the company has exceeded the mandate and fueled large and unwanted alterations in areas where the family preferred the status quo.
Even when external strategies appear consistent with family wishes, serious damage can occur to the company’s external culture, with negative consequences that may not appear for years and may last far longer. Non-family CEOs are often asked to introduce standardized policies, processes, and procedures to companies where somewhat idiosyncratic approaches have been followed for years or even decades. In the process of modernizing a traditional family firm, this culture based on values and vision may be replaced by bureaucracy.
Sometimes a family ownership group will bring in an outside CEO specifically to settle an internal family conflict. A non-family member, the view goes, may offer a superior ability to negotiate between sparring relatives. Often this is indeed the case, but sometimes family enterprises pursuing this solution go too far. They may seriously err by importing a tough, take-n-prisoners leader who exacerbates conflict by taking sides in conflicts, disregarding valid feelings, ignoring long-held stakes, and otherwise undermining family unity.
PROFIT TO PERIL
Given the potential for profit and peril offered by a non-family CEO, how does a family firm wisely assess whether it could benefit from one? And, if the answer is affirmative, what techniques can improve the chances of successfully installing a non-family CEO?
As is often the case, the first step requires careful assessment of the family’s long-term goals with regard to ownership, leadership, and management. If the strategy ultimately involves the sale of the business to a third party, a non-family CEO may help increase the value of the business to a potential buyer, since suitors might be worried about stepping on the toes of the founder of the heirs.
On the other hand, if the strategy calls for it, a non-family interim leader can steward the company through a transition period while next-generation leaders are groomed for the future. Clarifying the long-term strategic objective in this manner answers many questions about whether to hire a non-family CEO and, if so, what that person’s qualifications should be.
The role of family members in the business will likely require additional clarification when the ownership group considers a non-family CEO. Few family members relish being passed over for a job they expect to win. That goes double for candidates for the top office. The way to avoid this unpleasant scenario is to keep relevant stakeholders fully informed. When a non-family CEO is on the cards, all family members need to know in advance of hiring – even if they are not working in the business. this is especially important to those with careers in the firm. If possible, family members working in the company should have some part in the decision-making process. This small step will return huge benefits in terms of buy-in.
Aside from the potential for hurt feelings, there is another reason for being clear with family members. When the non-family leader takes over, some family members may need to assume new roles. This shift may require subtitles but important alterations in the way family members view the business. no longer can family members expect to make decisions strictly as a family? Now they will need to include a non-family member’s perspective. Clarity on this key reality is necessary as soon as possible.
Another group that must be clear about its roles is the existing non-family managers. Hiring from outside the family for a job that was always assumed to belong to a family member may generate resentment among existing employees who were passed over. Therefore, these individuals need to know they will be treated fairly if the top job opens up. By itself, that knowledge can do wonders to retain highly skilled executives who otherwise may seek opportunities elsewhere.
A non-family leader need not be hired from outside the company. Promoting an existing employee can offer great advantages, as he or she comes pre-indoctrinated in corporate culture and the family vision. But unless they get the training and opportunity to develop suitable skills, non-family managers may not be ready when the time comes.
What does the idea non-family CEO look like? Details vary depending on the company’s specific needs. One family may require an ethical makeover, while another needs only some new technical skills. Essentially, the non-family CEO must adequately fit the predetermined mold without significant compromise.
Beyond that, a non-family CEO must understand and agree with the family vision. He or she must accept the requirements for family oversight. The CEO should be ready and skilled to mentor family members who wish to pursue a career at the company. At the same time, an effective CEO is not a pushover. If the family is wrong on something, the chief executive must be willing and able to take a stand.
THE RIGHT CHOICE AT THE RIGHT TIME
Avoiding the minefield, while finding the perfect candidate to unlock the potential benefits of a non-family CEO, may sound like a tall order. Yet it is routinely accomplished.
So, is hiring a non-family CEO an abomination or a cure-all? The truth is, it's neither. Under the appropriate circumstances, a non-relative is the best choice to lead a family firm. But this won't work for every family company. And one non-family CEO’s effectiveness doesn’t mean that only non-family members should be considered as that person’s successor.
A non-family CEO can give a flat family enterprise new vitality, burnish a tarnished reputation, motivate a frustrated workforce and even soothe longstanding family conflicts. While the concept may seem to contrast with the basic idea of a family business, finding the next generation of leadership outside the family can, in fact, strengthen the family’s ability to maintain control. The right CEO at the right time will help to ensure that your company continues to produce the most important benefits for your family, even if the CEO’s DNA is different from yours.
Family Legacies www.family-legacies.com is a multidisciplinary family business consulting company. Our consultants are leaders in their respective fields including; Family Business Consulting, Strategic Planning, Financial Planning, Wealth & Risk Management, Corporate Finance, Business Transitions & Exit Planning - Buy, Improve, Grow & Sell Businesses, Commercial & Family Law, Executive Coaching, Leadership Development & Facilitation, providing our clients with a professional and integrated multi-disciplinary service.
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