By Rick Segal
Professional athletes often extend their careers beyond their prime. Sometimes they even get to a point known as “punch drunk.” Maybe it’s because of money, celebrity, career goals, or nothing in the “what’s next” column. Regardless, supporters look at those athletes as playing too long to the detriment of their careers and even their legacy.
The comparison of the aging athlete to the family business CEO has parallels. There is one huge difference though – the aging athlete is normally retired by a third party like the president or GM of the franchise. Of course, that’s if the athlete lacks the wherewithal or wisdom to see the writing on the wall and move on voluntarily. If that athlete fails to take voluntary action, it will be done on their behalf and most likely the outcome will be less than desirable for anyone. If they still have some passion for the game, maybe they will wind up coaching or in the front office.
In a family business that aging CEO generally holds all the cards. They are the decision-maker about their own future. Like the athlete, they generally do not see their skills fading, rather they see themselves getting better with experience, expertise, and wisdom. Therefore, they do not see the twilight of their career as being detrimental to the business, or their followers – their family.
At what point are they no longer helpful to the team in their current position, and whose decision is it? If it is time to move on, where do they go and how do they get there?
Athletes have very clear metrics. Speed, percentages, yards and points are the measurements of performance. Even as the metrics dwindle for the aging athlete, other more subjective measurements can replace them, like mentoring, locker room leadership and team culture development. When the athlete’s value to the organization fades to a point where the Return on Investment no longer makes good business sense, either the career ends, or a “trade” becomes the new reality. But there are no trades in a family business.
What metrics would you impose on a family business CEO? Profitability, growth, family prosperity, market prominence, family harmony, community admiration and sustainability come to mind. Some are easy to measure, like profitability, but even then, the water can get murky. Suppose that potential profits are distributed as bonuses prior to yearend in lieu of retained earnings to fund growth. How would you spin that decision to address the metrics? And, five years from now, when you compare and review financial statements, who will recall that decision and why it was made? That’s why picking the proper metrics is so vital, maybe Gross Profit Percentage is a more accurate metric than Net Profit.
If a family business CEO had something akin to a baseball card, what would the stats on the back be?
Each business needs to develop their own set of performance metrics for their executive team including the CEO. The harder part is applying those metrics to senior family member’s (parents) performance in a positive way. Like the aging athlete, senior family execs still feel that they add value to the team. And they probably do, but not the same value they added in the prime of their career.
Here is a great case for a board of directors. It is far better for a board to develop and apply those metrics. A takeover coup by a sibling team to oust an aging CEO won’t fare well for anyone – no matter how kindly it’s done – and certainly it won’t add to family harmony. On the other hand, a well thought out set of metrics applied by an appropriate group would offer a smoother transition.
Like the pro athlete, sometimes the senior CEO needs to be told when their career needs to shift. That’s why some families set up mandatory retirement rules to avoid potential conflicts.
The retiring CEO will need to develop a new game plan. Hopefully, they have cultivated interests and hobbies to fill time meaningfully. Certainly, if they saw this coming, they would have begun designing that “third stage of life.” Whether it be travel, tennis, bridge, gardening or grandchildren, having importance to daily activity is imperative for the sole.
While that individual doesn’t necessarily have to be exiled from the business, they do have to step down in a significant way that empowers the next leader(s). I recall a client who gave up title, compensation and ownership, yet still reported to the same corner office daily. They had nothing better to do. If the former CEO is physically in the same place, then it makes sense that people see them in the same position.
Ideally the breakaway will come with a time separation like a big trip, extended winter stay somewhere, or more time at the summer spot. After that, a position that honors their expertise, experience and wisdom should be cultivated by the business. Good Will ambassador, Chair of the Board (without being controlling), maintaining key contacts, becoming a sale “closer,” are all good roles to explore. Formalizing the new position really helps everyone involved see the change.
The Next CEO
No matter what style of leadership you favor, in a family business it is usually considered part of the DNA. While some family firms do look outside for CEO talent, most look to family first. That’s fine if the identified party has the right stuff. That individual has probably been a CEO in training their whole life, but that doesn’t mean they are the right choice now. It should always be about the right person for the situation at hand. We’ve all seen businesses go down by picking the wrong CEO.
Once again, this is a difficult decision, especially if there are multiple siblings involved. Some family firms have a hard time setting aside the “rights of the firstborn son” (“primogenitor” – yep, actually a word for that). This selection should be a process that’s designed and enacted by a committee to make a good choice that creates buy-in. Again, your board of directors, or a subset, would be a perfect fit for this committee.
An outgoing CEO anointing the next CEO is just a bad idea unless this is truly a monarchy. Process is the key to a good outcome.
1. Establish formal metrics for CEO performance.
2. Apply those metrics using an appropriate committee like a Board of Directors.
3. Determine whose decision it is to fill the vacating position.
4. Use a qualified committee to make key decisions.
5. Develop a process for the selection of a new CEO that will ensure the best choice is installed.
6. Empower the new CEO and their team with the tools and talent need to do the job.
Being proactive about an obvious transition just makes sense. Design a process that will yield the best result with strong buy-in and a minimum of disruption. If you aren’t sure how to do that, reach out to a professional.