Generational changes in family businesses traditionally take one of three different forms. In the first case, the family has a young member who is able and willing to assume leadership. The second option is to hire a CEO from outside the family, which we will discuss here. The third option is to sell the business entirely.
One of the crucial tasks of every founder of a family enterprise is to plan for succession.
This has to be done systematically over a long period of time, and it doesn’t matter whether the new CEO is from the family or not.
Integrating a new external CEO into the family structure
If the family decides to appoint a new CEO from the external environment, both the old and the new generations need to be on board with this step. It’s necessary to define competences and expectations very clearly, both those placed on the CEO and the expectations the CEO has of the family and its shareholding members. The family needs to suppress its management ambitions and give the CEO the opportunity to do their job. Extreme positions are, however, undesirable – while the parent has to withdraw from everyday operations, they must at the same time remain on hand as the CEO’s support and advisor. They need to come to terms with the fact that even though they know the company inside out, they’re no longer the boss.
The founder’s children must accept this as well. It’s impossible for them to approach the business in the same way as their parents did. Their position is completely different. The family needs to have its own rules for communicating with the CEO; the CEO wants to have just one partner and not five bickering siblings.
Relationships with management and employees
The process of handing over competencies from a parent to an external CEO must be gradual and, ideally, as unsurprising for the family and company as possible. It is to be expected that the employees will compare the new CEO to the founder. This, however, is unrealistic, and this should be pointed out in advance.
On the other hand, every new CEO has the ambition to do something new and take steps that would differentiate them from the previous leadership. If the company is running smoothly, this may not bring any actual benefits. The new CEO’s team is expected to be loyal, but not blind. A rational CEO must be sensitive to any negative opinions.
Relationships with the external environment
It’s vital to consider what type of business the company is engaged in, whether it’s an environment that’s strongly based on relationships and the CEO is expected to develop those that they have inherited and build new ones, or if their primary task is internal management. In both cases, time is of the essence.
To conclude, just as the family expects the new CEO to be absolutely loyal, so the new CEO expects the same from the family members as the company’s shareholders. Both sides, however, must treat this confidence with caution.
Published in the June issue of Forbes.