Family businesses have four options for considering a new CEO, but the key decision is whether a family member or a stranger is the best choice. John A. Davis examines every option.
by John A. Davis
A good CEO success story is The CEO Within by Joe Bower, my colleague at Harvard Business School. Bower reviewed corporate performance after hiring a new CEO and determined whether the successor was hired inside or outside the company.
Bower strongly advocates that “insider outsiders” become your next CEO. These internal candidates with external opinions have a more objective and independent view of how your business needs to evolve and adapt. Managers with the right mix of insider and outsider attributes, Bower said, are likely to do a better job and create greater economic value as CEO. I agree, but the selection of CEOs is more complex for family businesses.
Options for family businesses
In family businesses, you also have the choice between family and non-family followers, giving you four great choices for CEO successors:
Each type of CEO has potential pros and cons.
The initiated family
Family insiders like Whitney MacMillan of Cargill and Axel Dumas of Hermes (see Figure 1) are the traditional and preferred choice of most family businesses. They have the support of the owners and bring a deep understanding of the business. They understand how business is done. But family insiders are not always the right choice. Family insiders often find it difficult to change their business model. A big change often requires loyal people to leave and abandon some of the company’s long-standing practices. In a rapidly changing industry, these changes are more common.
The Outsider family
The members of Family Outsiders, who make good candidates for the position of CEO, may be entrepreneurs such as Alejandro Birman, whose startup was so successful that he contributed more than $ 200 million to the sales of his shoe family, Arezzo. Or Tony Simmons (see Figure 1), who founded a manufacturing company for Manitowoc Cranes as Outsider’s CEO before buying and selling the company, and then McIlhenny Company, the manufacturer of hot sauces of his generation. These family members have good values and respect the strengths of society but are aggressive agents of change.
The non-familial exterior
Alan Mulally (see Figure 1), who does not belong to a family, had the skills and experience to change and expand the Ford Motor Company at the worst time in automotive history (under the direction and protection of Bill Ford, President of Family). , He also respected the strengths and culture of the company; all non-family members do not do it. In fact, some ignore the values and fundamentals of family businesses – and these leaders usually fail in a rather dramatic fashion. Hermès has had the best of both worlds in 2006, when Patrick Thomas, who was anchored in the family business Hermès and William Grant, took over the family insider Jean-Louis Dumas after 28 years of experience with Dumas (see Figure 1).
The non-family insider
Family insider Whitney MacMillan and Cargill’s Board of Directors have chosen to succeed the company by choosing Warren Staley, a non-family insider. The company has since developed effective non-family insiders (CEO Greg Page and David MacLennan). These frameworks understand the company’s internal systems and respect its culture. But non-family members may have the same difficulty changing societies as family insiders. Page and MacLennan did not have to make any big changes to Cargill, so they were not tested.
In your succession plans, I recommend that you first consider the four options. Do not assume that one or the other type is correct.
No matter which type of CEO you choose in the end, it’s a good idea to develop successful candidates who value your culture, respect your strengths, and nurture important relationships. But they should also be able to move the organization of activities and practices that impede them to those who can develop and revitalize the assets of the company.