More than 90 percent of businesses in the US are family owned. Collectively, they employ 62 percent of the nation’s workforce, contribute 64 percent to the US Gross Domestic Product (GDP), and create 78 percent of all new jobs.1 Sometimes family business owners need to hire nonfamily Chief Executive Officers (CEOs) to lead their companies. While the reasons for this type of change vary, the following best practices are helpful for selecting a nonfamily CEO:
- Establish a strategic plan: To prepare for succession, family business owners need a strategic plan. This roadmap for desired growth and initiatives is fundamental to the selection, onboarding, and retention of an effective nonfamily CEO. After developing the plan, family business owners can identify the qualities and talents needed in future leadership. The strategic plan helps match goals and objectives with both the technical and subjective qualifications needed in a nonfamily leader.
- Evaluate your company’s familiness: Take time to identify your company’s distinctive familiness. Distinctive familiness is a combination of the unique cultural dynamics, unwritten values, and systems existing in your business that help generate wealth and profit. During the process of identifying these advantages, families may also recognize some constrictive familiness. These constrictive attributes and behaviors are hindrances to your company’s success caused by the same dynamics, values, and systems that allow it to thrive.2 Families should address these limitations head-on to attract the most talented CEO candidates.
- Communicate the decision: Clearly communicate—to all vested family members—the decision to look outside the family for the next leader. If this is the first time the company has considered a nonfamily CEO, there will likely be many questions and concerns. Using your strategic plan and analysis of distinctive and constrictive familiness within your business, keep family members informed about the recruitment process and the reasons behind an external search. This helps set the stage for change and enables the successor to enter a more supportive environment.3
- Conduct a thorough search: Executive search firms can assist family-owned companies by providing access to a broad pool of properly qualified candidates. In addition to technical qualifications, search firms can vet candidates for cultural fit. No matter how talented or how successful a candidate may have been elsewhere, if he or she do not share similar values to those present in the family business, recruitment may be unsuccessful. To improve the chances of success, several rounds of interviews and social time spent with key family members are highly recommended.
- Develop a communication plan: Once you’ve identified a successful candidate, develop a well-framed communication plan. The preceding CEO and successor should collaborate to prepare a joint statement to employees, vendors, and customers that outlines the company’s objectives and strategy and delineates all shifts in responsibility. An announcement about the outgoing leader’s plans for the future should be included, particularly if they plan to play a continuing role in the business. The successor should convey his or her commitment to the business and the family in the statement.3
- Trust, but verify: After making the announcement, the work begins. Using the family’s strategic plan as a baseline metric, the board or family council should express clear expectations for the new CEO’s performance. In the first years of the CEO’s tenure, schedule formal and informal performance reviews. Moreover, the nonfamily CEO should meet periodically with the company patriarch or matriarch to gain a historical perspective.
While the process of identifying and recruiting a candidate with the necessary demeanor and qualifications can be an arduous task, often a new leader brings unique skillsets and forward-thinking initiatives to the table. Although it is rare that a successor brings identical talents to the company as the founder or predecessor, CEOs are individuals and businesses develop around their strengths and weaknesses.3 A well thought out candidate selection process helps assure these attributes are properly identified so that the family’s vision for the business is achieved.
For more information on this topic, or to learn how Baker Tilly executive search consultants can help, contact our team.
1“Firms Worth Fighting For: Family Businesses Keep Hope Alive.” UConn Business, 2, no. 1 (2010). Accessed January 30, 2015.
2Van Wyk, Rene. “Constrictive vs. distinctive familiness and the culturing of familiness capital (FamCap).” African Journal of Business Management, 6, no. 36 (2012): 9892-9900.
3BMO Harris Bank. “The Talent Imperative: The Essential—and Overlooked—Ingredient for Corporate Growth.” Forbes Insights. 2013.
Habbershon, Timothy G., and Mary L. Williams. “A Resource-Based Framework for Assessing the Strategic Advantages of Family Firms.” Family Business Review, 12, no. 1 (1999): 1-25.