Appointing a non-family executive (NFE) as CEO is one of the most significant – and fraught – transitions a family-owned business can make. Regardless of whether the NFE will serve as an interim leader or long-term steward of the business, bringing in an external CEO can irreparably harm the enterprise if handled inexpertly.
If you’re a family business advisor facilitating such a transition, you likely know how challenging it can be to meet the (sometimes competing) needs of your client and the NFE. You must ensure the CEO is empowered to thrive and that the business – and family, by extension – is well-positioned to meet its goals. A successful placement requires a strategic hand, judicious planning, and careful, consistent communication.
To help family business advisors navigate the challenges associated with onboarding non-family executives, Stranberg’s managing partner, Bill Stranberg, recently co-authored an article for FFI Practitioner. The piece, The Family Playbook: Preparing for the First Outside CEO, outlines how advisors can ease the transition and prime the CEO, family and business for success. A summary of the article is below.
1. Start with a Strategic Plan
It isn’t uncommon for family businesses to rush into the executive search process without first considering what their business needs from its executive team. Searching for who to bring in as CEO without first defining what makes the company tick and what its leadership team is driving toward, is a misstep that can lead to financial and reputational damage.
To avoid the pitfalls associated with a premature placement, families should devise a cohesive corporate strategy before the search for a CEO begins. When conceiving a corporate strategy, your clients should consider their business’ values, vision and long-term goals. Documenting what’s important to the family and what it seeks to achieve will establish a roadmap the new CEO can follow – and serve as a tool the company can use to measure the placement’s success.
2. Prepare the Family & Employees for the Transition
For the majority of family-owned and founder-led businesses, CEO turnover is an infrequent occurrence. When CEOs do retire or step back, it is often a disruptive transition – and one that can lead to in-fighting and attrition if handled incorrectly. Family members and non-family employees may jockey to fill the open position, which means the transition must be approached with delicacy and tact.
To reduce turbulence that will likely arise, advisors should counsel clients to approach the transition with:
Transparency: The business should tell employees and family members that the appointment must be strategic and based on merit – not inheritance
Fairness: To avoid the perception of bias, the business must only vet candidates that align with their values, vision and goals – and should also consider working with an outside firm
Even if the process is conducted transparently and fairly, your clients and any newly appointed CEO must be prepared to deal with inevitable bumps in the road. Encourage relevant stakeholders to communicate honestly and maintain a spirit of openness.
3. Ensure Proper Governance is in Place
Within family-owned businesses, it isn’t uncommon for governance – defined here as the functions that guide the business and family’s affairs – to be loosely structured.
To attract and keep top talent, you should advise your clients to evolve their governance model and provide clear guidance on responsibilities and decision-making authority. For an external CEO to succeed, the business must be transparent about its organizational structure, its expectations and its management practices.
Read the Article
For a more in-depth look at how advisors can support family-owned businesses as they prepare to hire their first non-family CEO, read the article, The Family Playbook: Preparing for the First Outside CEO.
As a second-generation, family-owned succession planning and executive search firm, Stranberg has helped legions of family-owned and founder-led businesses find executive-level placements that align with their values, help fulfill their vision, and drive toward their goals.
Ready to get started?
Comments