Why family businesses are in a strong position to ride out the storm

Keeping it in the clan brings an inner strength… but it's just as important to know when to let go

The Scottish Business Insider | June 14, 2020

The Scottish Business Insider  

The Scottish Business Insider article, "Why family businesses are in a strong position to ride out the storm,” quoted Russell Reynolds Associates Consultant Jim Hinds on the advantages of appointing an external leader in family businesses and on how best to support the incoming CEO. The article features data from our 2019 Pan-European RRA Study on Family-Owned Business. The article is excerpted below.

A recent study by Russell Reynolds Associates on family-owned businesses in key European markets revealed that an external chair will typically stay in role for more than 14 years – significantly more than in public companies.

“CEOs comment on the fact that they like the long-term nature of a family-owned business that is focused on building a legacy,” explains Jim Hinds, managing director for Europe, the Middle East and Africa at the management consulting firm.

“Being the CEO of a family-owned business is an immense privilege and people know, when coming in, that they are there to take the business to the next stage and pass the mantle on.”

Although CEO successions with an external leader can be more complicated, Hinds insists it is more often than not the right thing to do: “Businesses reach a point where the business needs a new set of experiences and capabilities to take it to the next stage,” he explains.

“They might need someone who brings deep experience in driving international growth or a difficult turnaround. Often, the business has outgrown the incumbent CEO and the company needs someone to take it to the next level of size and complexity.”

And the key to keeping that legacy going while maximising the incoming CEO’s success? Risk management, says Hinds.

He explains: “This requires clear alignment from the family on what the most important priorities are for the incoming CEO. Agree what is the involvement of the family in the strategy and running of the business.” Hinds also advises ensuring appropriate structures are in place to support the business and an incoming CEO – a family council that represents the views of family assembly, for example.

In addition, a full assessment of the new leader is recommended, digging into personality, behaviours and attributes to give the company an idea of how they will perform under pressure, lead a team and drive performance.

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Why family businesses are in a strong position to ride out the storm