Non-family CEOs need trust, support

By Barbara Spector

How many times have you heard a business leader say something like this: “I want to retire and our NextGens aren’t interested in taking over the business, so we have to sell it”? Or you might have heard this: “I’m ready to retire, but our NextGens are too young [or too inexperienced] to take over the business, so we have to sell it.”

There is a fallacy in that line of thinking. A family may decide to sell their business if the next family chief executive isn’t waiting in the wings, but they don’t have to sell it. The family could continue to own the company with successive non-family CEOs at the helm, perhaps with a family member serving as non-executive chairman. If a high-potential NextGen needs more seasoning before taking the reins, a non-family CEO could serve as an interim leader and help train the prospective successor.

But in order for a non-family member to succeed in the CEO role, several essential elements must be in place.

An atmosphere of trust. The family ownership group must trust that the non-family CEO will carry out the family’s mission for the business. The non-family executive must be trusted to keep sensitive information about the family and its finances in confidence. At the same time, the non-family CEO must trust the family to not allow family dynamics to interfere with the executive’s ability to run the business.

One way to build trust — and to fully prepare the non-family executive for the top job — is to bring the person on board to work alongside the retiring family CEO before the reins are handed over.

Values congruence. Before the search for a non-family CEO begins, it’s a good idea for the family to develop a written set of business values that everyone can agree on. Family values might include social responsibility, a long-term orientation and a commitment to responsible risk taking. The right candidate will be someone who fits in with the company culture and is excited about perpetuating these values. In a family company, prospective CEOs need more than a strong business track record.

A compensation plan that aligns interests. Non-family executives in a closely held family business understand that, unlike their public company counterparts, they will not be rewarded with ownership in the company they help to grow. In order to retain these talented leaders, it’s important to develop a compensation program that provides ample performance incentives.

Clearly defined roles and expectations. Non-family CEOs need the family to give them the authority that goes along with the title. The family must understand that the CEO was hired to run the business — not to mediate intrafamily disputes or field random calls from family shareholders.

Talented non-family leaders can help a family business grow so future generations will inherit a strong, sustainable enterprise. Family members should publicly acknowledge their contributions to the business. The family also needs to recognize that solid family governance plays an essential role in helping a non-family CEO achieve ambitious business goals.

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November/December 2018

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