by John A. Davis
Editor's note: This is part of a series of occasional columns on managing the family business written by Senior Lecturer John A. Davis. In this article, Davis discusses when to make changes at the top.
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.
