Monday, October 19, 2015

HBR Study Identifies Key Factors for Successful CEO Transition

The article “Leadership Lessons from Great Family Businesses” published in the Harvard Business Review provides several practical suggestions for increasing the chances of a successful CEO transition process for family enterprises. 

By analyzing 50 globally leading family firms with annual revenue above 500 million pounds and investigating the reasons behind their success, authors Fernández-Aráoz, Iqbal and Ritter explain that strong governance; a family focus; an openness to family and non-family members; and a structured, methodical approach to the succession process significantly affects the overall chance of success in the process of generational transition. 

The authors describe these factors as follows: 
·      a governance baseline
·      “family gravity” (a family member as the center of influence)
·      future leaders with aligned values
·      a disciplined CEO succession plan 

Firstly, the authors identify governance as the baseline from which to attract and manage both internal and external talent. They found that nonfamily executives had concerns related to governance before joining a family firm because of the likelihood that the family would influence the business as oppose d to being professionally-run. Pointing out that very few companies in their study operated without eith er a supervisory or advisory board, and in many cases where there was a board, a “clear separation” between family and business representation existed. 

Secondly, the authors use the term “family gravity” to describe a family-centeredness or unique family focus which includes at least one family member, an d as many as three, as a center of influence which personifies the corporate identity, aligns various interests and maintains a common vision. (This term is sometimes also called “familiness” in other context s.)

Thirdly, the authors identify the skill and rigorousness with which the family seeks and finds future leaders as another key factor in the success of generational transition, and argue that both family an d nonfamily talent must be assessed on competencies, potential and values, with a particular emphasis on values. In the study, company ethos was often described by both family members and nonfamily executives as respect, integrity, quality, humility , passion, modesty and ambition. Along with 
cultural fit and investment in talent development, these values provide a solid foundation from which to start. 

Lastly, the authors outline a disciplined succession process with which to approach multiple candidates for a CEO appointment proactively and strategically, and display it in a clear and easily understandable three-phase table. Based on the experiences of the best family businesses from their sample, they found that many of the companies followed a hierarchical process when considering candidates, and gave first preference to family, then internal talent, and then finally external executives. While the authors have identified three “nonfamily CEO archetypes,” many experts could argue that it isn’t necessarily accurate to classify “types” in this way, particularly in family enterprise, where firm-specific qualities vary from company to company. However the recommendation is sound, with the contextual knowledge that the archetypes describe leadership qualities which would be most effective in family enterprise environments overall. 

Ultimately, the authors have identified governance; a family focus; leadership values and discipline throughout the CEO succession process as crucially important factors which will positively affect the success of intergenerational transition in otherwise successful family firms. Given that succession is a profoundly complex and challenging process for most , if not all, family firms, these recommendations derived from research on some of the most highly successful enterprising family businesses globally should be taken into consideration. 


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