In the March 2014 edition of “Working Knowledge” published by the Harvard Business School, John Davis, Senior lecturer in Entrepreneurial Management discusses when to make a change at the top of a Family Business. Firing the CEO is never easy. It is a tough decision when the CEO is a “hired gun”, but this issue becomes especially problematic if the CEO is a family member.
The decision to fire the CEO often suggests that something has gone very wrong and the organization could be in trouble. It implies that the person was a bad choice in the first place, which reflects on the judgment of those who hired the CEO.
Davis argues that the family should fire their CEO when either of the following conditions exists:
There is a weak and irreparable fit between the CEO’s skills and the needs of the company
The CEO does not support, or worse, disrespects the core values of the company
And if the CEO must go, the family should develop good options to replace him or her, with manageable consequences that are generally positive.
In the article, Davis elaborates on each of these.
Factor 1: Fit
High performing companies require CEOs with the right skill set, decision style, and values. They are able to build strong executive teams that can help develop the strategy of the company and then execute it. A good CEO always as strengths, but of equal importance, they recognize their weaknesses. So they surround themselves with strong executives who complement their skills, and help chart the right course for a company.
The family needs to look for a leader with the right skills, values, and abilities and who can build a strong leadership team. If a family member has the right mix of strengths, having a family leader is usually the better choice. If not, find a non-family executive who is a good match.
The CEO is always accountable for whatever affects overall performance. But Davis states that in a family business that more interested in long-term success, poor short term performance may not be enough reason to fire the leader. There may be circumstances that lead to the poor results, and the current CEO may even be the right person to help restore good health. Davis recommends that the family look beyond current performance to the kind of leadership the company needs over the long-term. Often, if not usually, this is difficult for the family to clearly analyze and articulate, especially if the CEO is a son or daughter.
The family needs to judge their CEO on his or her fit with the needs of the company, and work to remove whatever may be blocking the leader from doing their job.
So if there is a good CEO-company fit consider Factor 2. If not, then a change may, and likely is, needed.
Factor 2: Does the CEO support the core values of the company?
There is nothing more detrimental to the culture of a company than a CEO that violates the company’s core values. This may manifest itself by cutting corners to boost profits when the company says it stands for excellent quality, or by showing disrespect to the legitimate needs of employees. Employees watch what the CEO does much more that what they say. They see what he or she will tolerate and adjust their behavior accordingly. If the CEO violates the company’s values (which is the same as violating the values of the family), the family must take action and fire the CEO, even if he or she is otherwise performing well. Procrastination only serves to further damage the culture of the company. When values are ignored or overridden by the CEO, employees see what is going on. And once the CEO is gone, the family will be greeted with the comment “What took you so long?”
Refer to my post dated Friday, December 27, 2013 “Do You Know Your Company’s Core Values?”
Factor 3: Do you have good options?
Finally, the family should have options ready if they must fire their CEO. Even if they don’t contemplate a CEO change, they should always develop alternatives in the form of a succession plan in the event of an emergency situation. Unfortunately, they rarely do.
Davis concludes that the best approach is to make every effort to avoid the need to replace the CEO in the first place. The family as owners must make sure that they provide the CEO with clear expectations, useful feedback, good guidance, and the understanding that he or she must be accountable to them first and foremost.
Read full article, here.