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Families and Businesses: Preparing the family for a 'non-family CEO'

After the FBO and the CEO have agreed on the deliverables, a formal and informal tracking and reviewing system needs to be established by the FBO.

Sonu Bhasin   New Delhi     Last Updated: October 27, 2017  | 15:41 IST
Families and Businesses: Preparing the family for a 'non-family CEO'

During my consultations, family business owners (FBOs) often speak to me about non-family CEOs in the business. When I look back at all such conversations, there are some common threads across all. These include the following thoughts expressed in a variety of polite and not-so-polite words: "you know how much we paid for a professional CEO? But he was ineffective"; "He came and wanted to take control of our business"; "He (always a he!) had no regard for the people who helped me when I started the company"; "He tried to create a wedge between me and my son"; "We were extremely patient with him but ultimately we had to let him go".

There are always two sides to a story and the version from the professionals is at complete variance!

However, keeping our focus on the FBOs and their non-family CEOs, it is good to understand the genesis of the situation. Most family businesses start off as a one/two-person business. With a single-minded focus, the FBOs get the business off the ground and then grow it. There is immense passion and commitment invested into the business. The growing business is typically headed by a family CEO. It is when the business becomes larger, spread over a larger geographical area and with more people that the strain on the family CEO starts showing. It is now that the family starts a conversation about the possibility of bringing in an external CEO.

The conversation is usually centered on the profile of the possible CEO, his qualifications, his probable salary and his deliverables. Seldom does the family look inwards to ask themselves if they are, themselves, ready for a professional CEO. Some of my clients are startled at this question. "You mean I need to prepare the family before I bring in a professional CEO?" is the question asked of me, always in an incredulous tone.

My answer is always in the affirmative. The success of the non-family CEO is directly proportional to the readiness of the family to let him function optimally. Here are some suggestions to FBOs to get the most out of their non-family CEOs.

Communicate within the family: An external CEO is often looked upon as a threat by the gen-next and even by the older employees who are family loyalists. In an open discussion with the interested stakeholders, the FBO needs to address the concerns of the internal stakeholders. At the same time, he also needs to communicate clearly his support to the incoming CEO. A point of argument that works for most FBOs is reminding the internal stakeholders that their own wealth will be further enhanced as and when the CEO grows the business. Money is the best motivator!

Be aware of the family mafia: Each family has its own informal channels of communication that are very effective and, often, sharp. The incoming CEO will not be part of it and may miss out on crucial information passed on within the family. It would be good for the FBO to be aware of these channels and keep the CEO protected from the family mafia.

Desist from back-seat driving: It is obvious that the new CEO will not have the same knowledge about the business as the FBO. It is also a fact that it will take him a while before he gets up-to-date. The smart FBO needs to keep away from the temptation of giving instructions to the CEO on a day-to-day basis. The FBO would do well to remember that if he, or any other member of the family, could run the business themselves there would be no need for the CEO.

Trust but verify: This quote is an old Russian proverb and was made famous by Ronald Reagan. This applies to the family business and the non-family CEO as well. After the FBO and the CEO have agreed on the deliverables, a formal and informal tracking and reviewing system needs to be established by the FBO. Handing over complete charge of the business to the CEO without a monitoring process will be a recipe for disaster.

(The writer is the author of The Inheritors - Stories of Entrepreneurship and Success)

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