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Considerations for the Nonfamily CEO

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By Kelly LeCouvie, Ph.D.

Increasingly, we see family businesses seek candidates from outside the family to fill the position of CEO. For businesses historically managed by family members, transitioning to a nonfamily CEO can be challenging, stressful and a bit scary.

As the business moves through generations, family members may become more emotionally disengaged from the business and pursue other careers. Alternatively, they may be employed in the business in some capacity, but lack the desire to fill that leadership position. As the business grows, so does the need for specific expertise and leadership, and family employees may not have the required skills and attributes to be CEO.

Without a family member to lead the business, owners may choose to sell. But some families decide to keep the business for a number of reasons: they value the legacy that is associated with the business and the family; they benefit from increasing value and distributions that may not be achievable through other investments; or they may perceive that while no family members are available to serve as CEO at this time, that could change in the future. Often the decision to remain owners of the business emerges from a combination of these considerations.

It is not surprising in a growing business that senior positions cannot continue to be filled solely by family members. Often a decision is made to groom non-family members currently employed in the business. But there may also be a larger pool of talent from outside the organization. In any case, family shareholders want to hire a CEO who can both effectively manage the business and work with the family.

While the family has expectations around CEO performance, expectations certainly work both ways. A competent, qualified CEO candidate will also have established criteria that will guide his or her decision to accept or reject an employment offer.

Below is a list of some of the expectations from both the family and the nonfamily CEO.

What the Family Want What the Nonfamily CEO Wants
A CEO who will ensure strong overall health of the business. An already healthy business, or at least the opportunity to personally effect positive change for the business.
A competent CEO who has the skills and expertise required to make strategic decisions that will ultimately result in increasing shareholder value. Competent managers who can provide the support the CEO requires to successfully execute strategy to meet shareholder value expectations.
A CEO who shares values with the family and understands the unique dynamics and complexities within the family. A family that is committed to managing nepotism through the development of policies that are shaped by shared values.
A CEO that facilitates strong communication and relationships in the family. A healthy family that understands the importance of information transparency within the family and the business.
A CEO who sends a message to stakeholders that is consistent with the family's vision and values. A family that speaks to stakeholders with one voice, and publicly supports the CEO.
A CEO who effectively communicates with the board and solicits input from board members,

A board composed of appropriate directors who contribute to the quality of strategic decision making, and is able to provide meaningful feedback on the CEO's performance.

A CEO who is able to act as a mentor to junior generation members working and developing in the business. Family employees who understand the value of merit-based performance, and who strive to set a positive example for others.
A CEO who demonstrates a high level of satisfaction in the job. A work environment that fosters high job satisfaction.



Every family is different, and every family business has unique needs. This list, while not exhaustive, forms some of the considerations for both family shareholders and CEO candidates.

There is significant value to those family shareholders who prepare both the family and the organization for CEO success. And when there is consensus around expectations that can be articulated to potential candidates, the chances of appealing to the right person for the job are greatly enhanced.
 

 

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