Managing the Family Business: Firing the CEO
Firing a CEO is never easy—but the
task gets even more difficult in a family business.
No one needs convincing that
the right CEO matters, and that sometimes CEOs need to be changed. Even the
stock market moves with changes in the leadership of a company. When the
Japanese camera maker Olympus fired its CEO in 2011, its stock fell; when Air
France-KLM indicated it would let its CEO go that same year, its stock rose.
But firing the CEO is a tough
decision. It often suggests that something has gone very wrong and the
organization could be in trouble. It implies that the person was a bad choice
to begin with, which impugns the judgment of those who hired the CEO. And
there's also the personal confrontation that nobody relishes. It's no wonder
that owners and boards are hesitant. Yet sometimes, this is necessary. But
when?
You should fire your CEO under two
of these three conditions: (1) there is a weak and unfixable fit between the
CEO's skills and the needs of the company, (2) the CEO disrespects the core
values of the company, and (3) you have good options to replace the CEO, with
manageable consequences that are generally positive.
Factor
1: Fit
High performing companies require
CEOs with the right skill set, decision style, and values. They have strong
credibility with key stakeholders. They build strong executive teams that can
execute the strategy of the company. Good CEOs come in all shapes and sizes.
Even deified leaders have weaknesses. No one is good at everything. For this
reason, good CEOs surround themselves with strong executives who complement
their skills, help analyze complicated situations, and chart the right course
for a company.
Successful family CEOs often have
the values, vision, passion for the business and abilities to build loyalty
with key owners, customers, suppliers, and the employees that make them the
right leaders of their companies, even if they lack certain skills. You need to
look for a leader with the right package of skills, values, and abilities 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
nonfamily executive who is a good match.
The CEO is always accountable for
whatever affects overall performance. Some would include company performance
among the factors to consider in firing a CEO. Japanese leaders are known for
stepping down when their organization performs poorly, taking full
responsibility. To restore credibility to a company, a leader may need to step
aside or be removed. But in a family business, interested in long-term success,
poor performance may not be reason enough to fire the leader. The business
leader may not be responsible for the poor results and may even be the right
person to help restore good health. I recommend that you look beyond current
performance to the kind of leadership the company needs to be a strong
performer long-term.
If the CEO is blocked from doing his
job, then let the CEO (with the oversight of the board) change what needs to be
changed so he can deliver good performance. But judge a CEO on his or her fit
with the needs of the company.
Given the right feedback, guidance,
and support, if the CEO-company fit is good, consider Factor 2. If the CEO
cannot fit with the needs of the company, then you may need to make a change.
Factor
2: Does the CEO support the core values of the company?
Companies generally claim to honor
their core values. Long-term high performance family companies live by their
core values: quality, customer service, environmental concern, respect for
employees. Nothing is more detrimental to the core values and culture of a
company than to see the CEO violating them. Telltale signs include cutting corners
to boost profits when the company says it stands for excellent quality. Or
disrespecting the legitimate needs of employees. A very experienced senior
executive once told me: "If you want to show that you're committed to your
values, fire a high performing executive who's violating them." The same
goes for a CEO.
I once advised the chairman of a
third-generation family business who was having difficulty with his son, whom
he had recently named CEO. The new CEO was a decisive leader, smart and capable,
with an MBA and a strong academic record. His analytical skills were first
rate, better than his father's.
But there was a problem. The son was
arrogant and made it clear to everyone that he didn't think much of his
father's management style, his executive team, or the company's culture, which
emphasized quality, respect for others, and patient investing. The son had a
burning desire to show that he knew more than others, even though the top
management team had been in place for 20 years and had helped secure the
father-son transition. The son felt the business could be run in a more
profitable way. He was probably right, but the company was performing well.
The chairman's wife had wanted her
son to succeed her husband. But she grew increasingly convinced that her son
would not support the values of the company and would harm the culture that had
made the company strong and the family proud. The new CEO's arrogance and
disrespectful manner eventually eroded his family's trust. The concerned
patriarch finally admitted this to his board. After consulting with them and
with me, the father walked into his son's office on a Friday afternoon and
said, "Son, nobody can contemplate life with you as CEO. I'm very sorry to
inform you that you are fired as of right now."
Torn between being a good leader and
a kind father, he protected the core values of his company and endured serious
conflict in his family. The son went on to start another company and did well
as an entrepreneur. The father stepped back into the role of CEO. After a
couple of years, he recruited a cousin from the junior generation and passed
the business to him. The company stayed in the family and continued to be well
run. Eventually the strained family relationships healed.
Factor
3: Do you have good options?
Of course, you should have options
ready if you fire your CEO. Family companies should always develop CEO
alternatives-at least for emergency situations. But they rarely do.
In a fast-growth economy like
Brazil's, with a scarcity of available top management talent, companies
are reluctant to fire any senior executive, let alone their chief executive. In
these circumstances it is even more important to make sure you provide the CEO
clear expectations, useful feedback, good guidance, and the understanding that
he or she must be accountable to the owners. I'm sure if economic conditions
were different, if you had comfortable options, and if the CEO's fit and values
were worrisome enough, you would be more willing to consider firing your CEO.
It would still be a tough choice but you need to be ready for this move. I hope
you never have to make it.
by John A. Davis http://hbswk.hbs.edu/item/7394.html
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