There is a wide array of skills and traits that are vital for today’s private and family company CEOs. Kristin Daley, director of McCain Foods, Blue Diamond Growers and Tanimura & Antle, points to capital allocation and emotional intelligence. Subash Anbu, director and member of the nom/gov and audit and finance committees of Field Fastener, points to critical thinking, trustworthiness and continuous learning as chief executive must-haves. As for Marc Sullivan, director and chair of the audit and finance committee of Carbice, he believes that today’s CEOs need to be able to lead by example, attract and retain the best talent, and adapt effectively to a rapidly changing environment without losing sight of long-term strategy.
Volatility Is the New Normal
Boards are being asked to find CEOs who can operate in conditions that no longer stabilize — and may never do so. There are those who hope that one day a pendulum will swing and “things will go back to normal.” According to Daley, that’s not going to happen and “the V word” is something that CEOs might as well get used to. “Volatility is the new norm. CEOs need to keep an eye on geopolitics, regulation, technology and other emerging issues that continue to drive volatility, either directly or indirectly.”
As Sullivan summarizes, “The CEO has to have a general understanding of risk and return to be successful, as she or he will have to make the final decision after information has been presented by the senior management team.”
Daley also points to technological knowledge as a skill that will have to improve for CEOs. “Technology fluency is important, but for most companies this does not mean technical depth,” says Daley, who is founder and managing director of KD Consulting and VP of corporate development for Musco Family Olive Co. “You don’t need to be able to write code, but you must understand where automation, AI and data can create advantage.”
Sullivan agrees that technology fluency and, especially, AI literacy are becoming increasingly important to strategy execution.
“The CEO does not have to be an expert, but she or he does have to understand that companies that effectively utilize digitalization, automation and AI will be more successful than those that do not.”
According to Daley, “Great CEOs find and leverage expertise in these areas through key hires as well as outside consultants and advisors. CEOs nowadays need to ask the right questions of their technology team and advisors and then be savvy about the right level of investment.”
Sullivan, who is CFO of Avenger Flight Group Inc., says “The CEO should ensure that key members of the senior management team are experts in technology and that she or he is getting the kinds of detailed briefings required to make effective strategic decisions, which in this day must incorporate technology strategy.”
Getting the CEO Search Right
So, the CEO of today and the immediate future must possess an understanding of a wide (and growing) spectrum of risks, a strong sense of technological know-how and a willingness to lean on others when they don’t have all the answers. How can private and family company boards find such a person? Anbu says that, in the course of a CEO search, boards must be true to the company’s mission and values and stress integrity, commitment to stakeholders and a passion for excellence built into the culture and operating system. And he stresses that in the case of a family company CEO search, there should be no secrets.
“Keep the process transparent to the candidates,” says Anbu. “Before family dynamics get amplified in the boardroom, the shareholders should collaborate, debate and hash out differences, and support their family member (or members if more than one is interested) to be part of the candidate pool. If they can’t support them, the family member or members should withdraw their candidacy for the greater good of all stakeholders until the next opportunity, during which consensus should be reached.”
Both Daley and Sullivan believe that it is best to look for an internal candidate before looking outside the company. According to Sullivan, “Any search for a new CEO should start with a review of internal candidates. Good CEO’s engage in succession planning and if that process has gone well then there should be at least one qualified candidate available to take the CEO position should the incumbent retire.”
To Daley, building a pool of qualified internal candidates means starting early, with the old adage of succession starting the day after a new CEO is appointed ringing true in her experience.
“Addressing succession questions very early is critical,” says Daley. “It gives HR or external consultants time to assess internal candidates and build development plans that best prepare them for the CEO role and gives the candidates time to execute those plans and fully prepare themselves for the job.”
Daley believes the aforementioned external consultants can be particularly helpful should there not be an internal candidate who is ready for the job or if there are members of the board who are simply not convinced of an internal candidate’s qualifications.
“The third party can assess the internal candidate objectively and against a slate of potential external candidates,” says Daley. “They are also great at eliciting input for a robust job spec, which is a critical tool in the assessment process. Even if the final decision is to promote from within, the process of assessing options gives the board better alignment and confidence in the new CEO. This is true whether the internal candidate is a family member or not.”
Sullivan believes the best succession framework is a hybrid approach that combines internal search and talent development with benchmarking against external candidates. “The primary risk in conducting a solely internal search is that the board chooses the best candidate from a limited pool instead of objectively picking the best candidate,” says Sullivan. “The primary risk of focusing solely on external candidates is that the person chosen is not a good fit for the culture of the company.”
Where Family Companies Change the Rules
When it comes to family companies, each one has its own specific history, culture and value set. For a CEO, whether they are a family member or an outsider, the question becomes how closely one should adhere to the family system versus how much that system should be challenged. According to Anbu, this vital understanding of what the family expects from the CEO should start during the interview process.
“During the interview process, all parties should be clear on what is expected of the next CEO,” says Anbu. “The successful CEO will have to quickly learn about the culture and history of the company, including family dynamics, and partner with those who are aligned with the company’s go-forward strategies. While the CEO cannot ignore the past, the successful ones are those who lead for the future.”
In her experience, Daley says that the most effective family company CEOs, whether they are family members or outside hires, understand the family’s vision and values deeply and build a strong foundation of trust such that the family has faith the CEO is operating with the family’s priorities in mind. They also pursue their own agendas at their own peril.
“I have not seen a case where challenging a family’s vision and values was good for the company or the CEO. Fundamentally, the owners’ wishes need to be top priority. Other stakeholders are important, but owners’ wants and needs cannot be sacrificed for any other stakeholder group.”
For Sullivan’s part, his time working with family companies suggests to him that the occasional challenging of the family system could be key to the business’s long-term success. He cites the example of a family company he worked with where the patriarch and former CEO committed the company to very high interest loans when the company lost a significant percentage of revenue from its biggest customer. The new CEO, who was the patriarch’s son, failed to challenge the financing arrangements, which led to a spiral of rising interest payments, unsustainable principal requirements and an inability to finance growth since resources were diverted to debt service.
“Corporate structures exist to ensure both authority and accountability,” says Sullivan. “If the family dynamics get in the way of effective corporate management, then it is very important that the CEO challenge the family system to ensure the success or possibly even the survival of the company.”
Should Boards Go It Alone?
For any private company board conducting a search for a new CEO, the goal is to be exhaustive. The question, though, is can that amount of work be accomplished by the board itself or should a third party be brought in to aid in the process? Daley believes a board that has prepared diligently may be able to handle the task without external help.
“If a board has done a great job well in advance of a CEO departing, there should be a strong internal candidate or pool pf candidates,” says Daley. “In this case, a smooth selection process and transition might be feasible without outside assistance.”
But in most cases, she says that seeking outside professional assistance is recommended for CEO succession and the questions that come along with it. “An outside firm will give the board comfort with objective assessments of internal candidates as well as well-developed perspectives on the talent pool outside the company.”
Anbu is even more firm, calling the idea of embarking on the CEO search alone an “unrealistic, penny-wise approach for a private company.” He continues, saying “While the search for the next CEO begins through succession planning, boards need to partner with external search firms on an ongoing basis to address unexpected life events. Internal candidates may not be ready and, even if they are, they are targets for other companies as well. An independent CEO-level search company is necessary to assist the board, thereby ensuring a fair, thorough process that the shareholders and family will trust and accept.”
Sullivan presents a series of circumstances where an outside search firm would be of clear benefit, including hires in need of confidentiality or instances where existing candidates lack skills, such as AI or technology innovation, deemed important for a new chief executive. “Search firms can also materially improve the outcome when the board suspects or admits that its hiring decisions are biased, but it is looking for unbiased recommendations for the CEO position.”
Defining and Testing for Fit
Whether they are working in tandem with an outside search firm or not, the board must ensure that a potential CEO is a fit with the company in addition to having the relevant experience and qualifications. While Daley says that one of the benefits third-party search firms offer is the structure they bring to the assessment process, including a clear job description, a well-defined character trait wish list and a crafted set of interview questions, ultimately, she says there is no substitute for spending time with the candidate.
“Board members should have the opportunity for group interactions and one-on-one meetings with the candidate,” says Daley. “Meals are also very important. Scheduling multiple lunches and dinners in conjunction with interviews is an often overlooked opportunity to see how the candidate behaves in a more informal setting. It’s far easier to get to know a person over a meal than in the more formal interview exchange.”
Anbu believes that ensuring an appropriate fit for an incoming CEO is something that starts well before the interview process begins, with the board — led by the chair (or shareholder representative, in the case of a family company) — agreeing on and documenting a framework for fit assessment based on the qualifications and expectations of the future CEO that align with the strategic direction of the company.
“They need to be honest about the company’s culture, family dynamics and strengths. They need to ensure strategy alignment, trust and collaboration, integrity and accountability, and transparent communication,” says Anbu.
One more tip from Daley on determining fit prior to a CEO hire? In a time when social media is rampant and one CEO misstep can destroy company value and shareholder return, “Boards should never skip the background check.”
Setting the CEO Up to Succeed
Once a company has made their selection, Daley says that a successful transition is dependent upon a robust onboarding process, including a structured listening tour with key stakeholders. While the company’s chief human resources officer can assist with this, she believes the board “needs to ensure early and frequent interactions, both formal and informal, with shareholders to build comfort and trust.” She also recommends the board prioritize defining both decision responsibilities and what success looks like for the CEO, supporting the CEO, creating and adhering to a plan for CEO interface, and establishing a standard of clear communication and transparency. And, Daley adds, compensation should not be ignored.
“Revisit incentive compensation to ensure the metrics and rewards are aligned to the current family vision, values and business goals.”
After the CEO is in the position, Sullivan says it is vital for the board to monitor continuing fit and performance. One trend worth monitoring, in his view, is senior management’s willingness to stay put.
“People vote with their feet. If senior management starts to leave, especially people who the board previously thought were strong performers, that is likely an indication that there is a culture fit problem with the new CEO.”
He recommends 360-degree reviews as a tool for assessing the CEO. “Directors are on the outside looking in and, as a result, the board doesn’t know what it doesn’t know,” says Sullivan. “[Such] reviews give the board insight into how the senior management team thinks the CEO is performing, and that view, which is independent from the board’s view, can be critical in determining if the CEO is a good fit for the company.”
As Daley stated, CEO support, both as they transition into the role and as they continue on in the company, is vital. While it is often said that it’s “lonely at the top,” for CEOs, Anbu says, it doesn’t have to be.
“It takes a village of personal family board directors, outside mentors and shareholders to provide support, including ensuring that CEOs are themselves learning. It needs to be intentional, gap-filling, progressive and transformative.” In today’s environment, CEO succession is no longer a single decision, but an ongoing governance responsibility — one that does not end when the contract is signed.