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How to find your first non-family CEO

During the life cycle of a family business, there may come a point when the current leader is ready to retire and there is no next generation member with the ability or the inclination to take over, writes Jurgen Geerlings. 

This recently happened to the Rothschild family, who appointed a non-family CEO in February for the first time in its 212-year history. Almost all family businesses will find themselves in this situation at some point and it does not automatically mean that the family should sell the business.

Recruiting from outside the family can actually be a positive step for both the family and the business. However, it can also be quite a dramatic one, especially when the business has only been managed by family members up until that point. It will affect the relationship between the family and the business as well as other family relationships. Moreover, the responsibility for the identity and reputation of the family is handed over to an outsider.

Taking this step requires a great deal of courage and trust. In order to ensure the process goes as smoothly as possible, it is important to make the necessary arrangements well in advance. The new situation could lead to a shift in the roles and responsibilities of the family owners, which must be taken into consideration.

In anticipation of the introduction of a non-family CEO, family owners should ask the following questions:

  • What qualifications will the new CEO need, given the business strategy for the coming years?
  • What are the family's expectations with respect to the potential of the business?
  • Who will judge the competences of the potential family successors?
  • Would a management team comprising one or two non-family members be sufficient in addition to a family member or members?
  • Is it an option to split the company and sell it partially? 

These questions need to be answered from a purely objective point of view. It would be beneficial if the family can ask the opinions of non-executive board members or close advisors who are familiar with both the family and the business.

As is customary in any business, the management will then need to draft a profile of what they are looking for in a new CEO. This could be done from two different perspectives: business strategy and business succession.

Business strategy should take into account the strategic goals the family has for the business such as the professionalisation of business processes or structure, a strategic reorientation or improved financial performance. The clearer that goal is, the easier it will be to choose the right candidate.

Business succession relates to how the family sees the long-term future of the business and the new CEO's part in that. There are several possible scenarios that can lead a family to look for its first non-family CEO:

  • There is no eligible family candidate and there will not be one in the long term
  • There is no eligible family candidate right now, but in the near a future potential successor is expected
  • The potential family successor is not yet ready to take his or her position
  • Several family members are eligible, however choosing just one will endanger family harmony 

Each situation has its own impact on the expectations and so also the profile of the new CEO. Given the different options within both perspectives, the following basic framework could be helpful while deciding what elements should be included in the profile for the new CEO:

  • A steward, who understands how to manoeuvre within the field of influence of both family and business
  • A general manager, who will improve and professionalise the business
  • An entrepreneur, who will give a new élan to the business while exploring and expanding boundaries
  • A coach, who will make sure that he has finished his or her job as soon as the next generation is capable of taking over the helm

It goes without saying that the non-family CEO, being either a steward, general manager, entrepreneur or coach, will have to be willing to get familiar with and adapt to the specific culture of the business as a family business. 

In order to find a person who will meet this criterion, the family will first need to make their values and culture explicit and then draft a shared vision on the future of their business including their role. The family must be willing and prepared to make that effort as a first step to entrusting their business to a non-family CEO. 

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