Many business owners dream that their sons or daughters will take over the family business, but struggle with feeling confident it’s what’s best for the company. In a report from the Family Business Institute, 88% of family business owners said they believed their family would control their business in five years. Yet, according to the report, only about 30% of family-owned businesses survive into the second generation.
How do you determine if it’s better to pass things on to a family member or a hire non-family member to take the reins? Although it may feel difficult, taking a close and objective look at your company’s current financial and organizational state, employees, and goals is critical in targeting who will be the best leader to carry out the strategic vision of the company.
Every family business is vastly different, so there are many things to consider before you decide on hiring a new leader. It is important to think carefully about how this decision will impact your business and your employees.
As you weigh your options between a family versus non-family CEO, be sure to put some thought behind these questions:
1. Should I enlist help in deciding on a family vs. non-family successor?
This is a decision you won’t want to make alone. When determining who’ll run the company after you, be sure to talk with not only your family members, but your trusted advisors, including your company's lawyer and accountant. To help with selecting a successor, some CEOs choose to consult the Board of Directors or form a search committee to assist in the decision.
2. Is there a skill gap between the current and next generation of your family employees?
If you answered yes, a qualified, non-family CEO might be the best fit for the time being. Often, the next generation family members will be in need of mentors and coaches; they usually have an easier time taking direction from someone who functions as more of an advisor rather than a parent. If no-one in the family really wants the pressure of running the day-to-day operations, a non-family CEO will enable the family business owner(s) to pursue other interests.
3. Who is more likely to be able to “hit the ground running” … family or non-family?
The next generation of family business leaders usually need more hand-holding, i.e, guidance, help with goals, business performance feedback and strategic planning advice. Non-family CEOs are more likely to have experience in larger corporations where they were exposed to or involved in strategic planning, budgeting and performance appraisals. This is valuable because they can use that experience to enhance and improve systems to support the next generation's learning curve while simultaneously moving the business forward.
4. Will the non-family CEO coming on board be given enough autonomy by the outgoing family CEO to manage daily operations?
If the answer isn’t an enthusiastic “yes”, a non-family CEO will have a difficult time succeeding and the business will probably suffer. If the current owner/manager consistently “oversteps,” he/she will undermine the non-family CEO's authority, credibility and effectiveness. As the saying goes, “timing is everything” and the current CEO needs to be completely ready to pass the baton.
5. What can you do to help ensure the CEO’s success?
To set the stage for the best possible transition, a detailed CEO job description should be created, with input from HR and top-level managers, outlining expectations, boundaries and performance measures. Once this happens, the incoming CEO must be given the space, time and resources to develop short-and-long-term goals, form effective management teams and build strategic management systems that will ultimately spur industry growth and success.
6. What are some of the risks of bringing in a non-family CEO?
The current owner must prepare to lose both personal and financial privacy. There is also the risk that as the non-family CEO gets more up to speed about the company, long-buried family secrets could emerge. Another risk is related to compensation. Remember, this is not a time to try to save money by hiring a less experienced candidate. It’s also important to avoid “unfairness,” by being transparent when discussing all things related to the business.
7. What are some of the rewards of bringing in a non-family CEO?
Outsiders can bring expertise that doesn’t currently exist in your family. That might include international product development or global growth. They may also provide crisis transition leadership in the event of the unexpected death of the current CEO. A well-qualified, personable CEO can strengthen both the external and internal credibility of your company.
Even More Food For Thought...
What traits should you look for in a family or non-family successor?
- Competence and credibility to make strong, successful decisions
- Team-building and coaching skills to support ongoing learning
- Self-direction and willingness to take direction for optimal goal achievement
- Shared vision for future viability of the company
- Integrity and courage to build trust and ensure competitiveness in the marketplace
- Flexibility to change direction and plans as industry demands change
How does leadership development come into play during succession planning?
Leadership development can apply to either a family or non-family candidate. Organizational survival in a globally competitive environment depends in part on having identified and developed replacements (i.e., successors) for key positions beyond the C-suite level. Leadership development is a long-term process that builds skill sets through mentoring, training and hands-on experience in order to prepare individuals for expanded responsibilities—broadening the capacity of an individual to be effective in leadership roles and processes.
What does the transfer of authority look like when the current CEO is ready to step down?
Business owners should begin to let go of day-to-day control of the business gradually. It’s most beneficial when the current CEO is able to work directly with the chosen successor for at least 1-2 years so that all aspects of the business can be learned. If the CEO is interested in staying involved at the board level, it is often beneficial due to his or her deep knowledge of the organization.
Once you’ve hired your successor, how can you retain him or her?
Our experts recommend 6 standards of excellence for retaining any new hire:
- Provide fair compensation in line with job duties
- Make sure expectations and responsibilities are regularly communicated
- Offer trust and autonomy for him/her to perform the job
- Deliver training to support growth and development
- Give recognition for achievements and contributions
- Maintain a positive culture where kindness reigns
What kind of timetable should be established for transitioning the new CEO?
Be sure to set up a training schedule and a timeline for shifting control of the company. If succession is to be successful, you, your successor and your management team need to know who is in charge of what, and when. You might even want to consider developing a specific training program for your future successor. It’s smart to train this person to learn all aspects of the business, because as time goes on, he or she will be advising on various company functions.
We’ve given you a lot to think about as you deliberate over targeting a family or non-family CEO. You have some tough decisions ahead of you, but if you take your time with the selection process, consult your advisors and communicate the process company-wide, you will prepare everyone for this important transition. Soon, you will be on your way to choosing a well-qualified successor to lead your company into the future.
To dig deeper into the succession planning process, look for other blogs in our series such as:
5 Get-Started Planning Strategies for Small Businesses
Also, be sure to check out our free, downloadable templates referenced below, that cover even more topics.
Download Our Free Succession Planning Templates
Are you looking for a way to find the right person to take over a position? Fill your talent pipeline? Ensure that valuable knowledge is transferred before it's lost? Or, did someone say the word, "retirement?" Our easy-to-use templates can get you started.Download Templates