When a gap in leadership for an iconic French luxury goods brand threatened the welfare of the family owned company, immediate best interests of the company required outside assistance — and an outsider stepped in as CEO.
Family businesses can successfully incorporate non-family members in key roles in the company, without sacrificing control. When is it good and when is it necessary?
Family businesses in the United States have long been known for keeping their internal mechanisms, including family interaction, away from the public. Bringing in a non-family CEO, the ultimate decision, has to be made within the unique environment of the family business, away from the usual shareholder scrutiny a non-family business endures. Consultants and academics have looked to examples of what works and what doesn’t work, to lend some guidance to this issue.
When do you need an outsider CEO?
When there is a gap in experience or skills between the outgoing CEO and the next generation, an outsider can fill in with their own skills, and act as mentor to a developing successor. See Brown, Bonnie, ”Risks and Rewards of Non-family CEO’s”, 2014 Fairleigh Dickinson University [view.fdu.edu]
A leadership vacuum at the top brought the family luxury goods business Hermes to a decision to hire Patrick Thomas as CEO, when the elder Jean Louis Dumas-Hermes retired in 2006, after 28 years. Thomas, the first outsider CEO in the company’s long history, brought his own set of skills to the table, and solved some supply chain logistics problems, allowing for Hermes expansion into multiple divisions, with luxury product lines ranging from jewelry to tableware. In another planned succession a few years later, Thomas announced he would be stepping down, and sixth-generation family member, Axel Dumas, would be taking the helm. The supply chain for the company was in better shape, having been enriched by the interim leadership, and Axel Dumas was ready for the role. Renkert-Thomas, Amy, “Three Steps for Bringing in an Outsider to Lead the Family Business”, WealthManagement.com, Dec. 17, 2013 [wealthmanagement.com]
When do you want an outsider in the family business, CEO or otherwise?
Know what you need. The family business that could use modernization of a core system of product or service delivery can bring in an outsider CEO or expert to upgrade systems. For example, an outsider CEO may install fleet route planning software or upgrade delivery vehicles, when the family business has been operating for too long with obsolete transportation. The outsider can also handle personnel issues. damaging to the company, but also too confronting to risk family conflict. During his tenure, Patrick Thomas fired two Hermes family members who were under-performing.
Family businesses have brought in experts for specialized tasks, as have non-family businesses. An outsider CEO is an opportunity to reap real benefits, for a specific period of time and still make an eventual smooth transition back to a family member.