MLR

Is a nonfamily CEO right for your company?

It often takes a different set of skills to grow a company than it does to start one.

new CEO

Entrepreneurs are usually risk-takers, tolerate uncertainty well and love to defy conventional wisdom. These traits allow someone to successfully take an idea from conception, navigate hurdles and create a viable business.

But once the business is established and running smoothly, many entrepreneurs find both their interest and their abilities lacking. Often they prefer to work independently and don’t have the patience for administration.

In other cases, the company succeeds beyond their wildest dreams, and instead of a small and manageable enterprise, they have a huge corporation to run.

A scaled-up operation means decisions have greater impact and require more planning. Changing direction on the fly is no longer possible.

Recognizing that a position is beyond the owner’s abilities and experience isn’t a weakness. It’s necessary for the business to survive its own growth.

If suitable management can’t be found within the family, then it may be time to look outside. Hiring an experienced leader adds credibility to a company’s image and sends a positive message to customers, suppliers and employees.

In addition, industry expertise will ensure that the business navigates a changing marketplace successfully and takes advantage of opportunities. Another advantage to having a capable person at the helm is that family members, relieved of day-to-day pressure, can turn to other pursuits, including new businesses.

The primary issue in deciding to select a nonfamily CEO is whether family management can let go of some authority and decision-making power. Even in companies where the owner merely needs to hire additional management staff, this can be a problem. Entrepreneurs are used to running things their way and making all the decisions.

Unfortunately, the areas they find uncomfortable or distasteful tend to get shelved, to the detriment of the organization. Managers and employees find their decisions second-guessed or stalled, which is frustrating and undermines their commitment. Taking a long, honest look at how present and future management will work together is key.

Putting thought into this up front will prevent an untenable situation for the new leader.
Financial and personal privacy will also be lost to some extent. Closely held companies don’t make their books available to outsiders beyond trusted advisers such as attorneys or accountants.

Another area to consider in advance is how any concessions the family is making to less productive members will be handled, if such situations exist. The new CEO’s duty is to the health of the business, and at times some previous decisions may not have been to the company’s benefit. Examples include placing family members on the payroll who really don’t work or issues such as drinking on the job.

The search for an outside CEO should be thorough and probably slow, with no hasty decisions made. Trusted advisers, family members, key employees and others can help the present management honestly evaluate the company strengths and weaknesses.

Hiring a new leader is an opportunity to address shortfalls that are hampering operations. For example, with a growing work force, perhaps the new CEO needs supervision and hiring skills. Or a desirable candidate might need expertise in a new line of business the company is exploring.

Where does the company – and the family – want to be in the next three to five years? If there is potential future leadership within the ranks, what grooming and education do they need?

Some businesses hire interim CEOs to bridge the gap between old and new leadership. The qualifications and experience of applicants should be reviewed in light of the question: Can they take us to the next level?

On a practical level, how will decision-making and communication work? What are the boundaries and parameters of the CEO’s role?

Beyond ability to do the job, there is the question of fit. The CEO will need to be able to build and maintain relationships with the family, whether at the board level or as employees. They need to be discreet and trustworthy and have high integrity.

Hiring an outside CEO can have a lot of advantages. Take enough time and thought to make the right choice. – Elizabeth Penney, M.B.A.