In some circumstances family-owned companies have to rely on external executives to ensure their long-term future. Deciding to bring in, or not, an external CEO can be one of the most difficult decisions a family business has to make.
It’s a question all family businesses may have to face. At some stage in the family business life cycle, the owners might realize they need a non-family member with specific experience and skills, free of emotional family links and a fresh perspective to take the business forward. The difficulty of the decision resides in the reluctance to let go of power. Emotion aside, the decision to welcome external management has to be taken with care to ensure success for the company and its new corporate management.
First, there are several key aspects which family businesses should consider before hiring external management. Successful family businesses have clear rules about what happens when separating management from ownership. Most importantly these companies have a strong governance structure.
Integrating external candidates into family businesses can be a tough task. Finding the right candidate is only the start. Both the family and the company then need to devote time and energy to ensure proper integration of the external hires into the family business. Bringing in an outside CEO, can lead to the risk of “failed integration” for family or business culture reasons. Indeed, the outsider may get involved in family issues and get caught up in family dynamics. Besides, even if the CEO shares the same values, the changes implemented by the new CEO may be perceived as a threat for employees and owners.
Family business owners have to adjust their values and expectations with the external management they bring in to help manage their company. Incoming executives should also have the freedom to run with their own ideas. Given the importance of a company’s culture and the complexity of the relationships involved, a training program can be highly beneficial. The CEO needs to come out of it knowing how to handle family issues.
The biggest challenge for the external CEO is winning the family’s trust. For that to happen, the CEO would preferably need to have a proven track record and a great deal of experience in family businesses. Furthermore, the newly appointed external management has to prove its worth through action, and the non-family CEO has to strike a balance between preserving the key values of the family business and implementing change to prepare the firm for the long-term future.
Ideally non-family CEOs have the seven following attributes which allow fast integration in the family business:
Hiring a CEO in the latter part of his/her career, who could act as a mentor for the next generation of family managers, can also be beneficial. In this case the role of the external CEO is to manage the company through a “safe” transition into a future with growth opportunities and new governance structure in the company. Indeed, an experienced CEO is less likely to discourage promising family members who have chosen to dedicate their lives to the family business.
There are numerous cases of non-family CEOs who have become a trusted member of the family and the business. These successful examples show that an external CEO does not take away the crucial role the family plays in the company. However this does not mean the CEO assumes all the power, these family businesses have found the right blend of trust and communication – The CEO has trust but the family still has significant influence over key decisions and is frequently consulted.
Find out more about the successful integration of a non-family CEO.